Contract Liability Flashcards
When will the principal be liable for contracts entered into by its agent?
When the principal AUTHORISED the agent to enter into a contract.
What are the 4 types of authority?
(1) Actual Express Authority
(2) Actual Implied Authority
(3) Apparent Authority
(4) Ratification
If the agent has Actual Express Authority from the principal to enter into a contract, what will that typically entail?
Words to advise the principal he/she may enter into a contract. They can be oral and the instruction can be private.
But remember that if the contract must be in writing to satisfy the SoF, then so must the actual express authority from the principal
If the principal gives the agent Actual Express Authority to enter into a contract to buy 20 acres of land, the Authority must be what?
In writing, to satisfy the Statute of Fraud. That’s because, if the contract has to be in writing, the authority to enter into it must also be.
Can the principal revoke Actual Express Authority before the contract is entered into?
Aside from words, how might the express authority be revoked?
And when can the authority not be revoked?
Yes
Principal dies or is incapacitated
If the principal gives the agent a durable power of attorney
The agent enters into a contract after the principal have him verbal consent to buy a new boat for her. the principal dies when the agent is on the way back from agreeing the contract. Will the principal’s estate be bound by the contract?
No, because death also revokes Actual Express Authority. The agent will then be personally liable for the contract.
What’s the exception to the rule that Actual Express Authority is revoked upon the principal’s death?
When the agent’s been given a durable power of attorney.
If the principal gives the agent express permission to go out and buy them a boat, but the agent goes out and buys their principal a car, generally, will the principal have given the agent authority and therefore be bound by this contract?
Usually not. Actual Express Authority is limited to the actual words within it.
What is Inherent Authority?
Is this applied in a majority or minority of States?
Agent will have deemed authority because the act performed was similar to the act Expressly authorised by the principal and so, even though the agent exceeded their authority, the principal is bound.
Only in a few States.
In which 3 circumstances will the agent have implied authority to act?
(1) Necessity — Implied Authority for the agent to all all tasks to accomplish and expressly authorised task
(2) Custom — Implied Authority for the agent to all all tasks, which by custom, are performed by someone with the agent’s title or position
(3) Prior Dealings — Implied Authority for the agent to all all tasks he/she believes have been authorised by the principal because of their prior dealings.
What is Apparent Authority?
It is the appearance of authority. It requires:
(1) Principal to do something to give agent APPEARANCE OF AUTHORITY; and
(2) A Third Party REASONABLY RELIES on this authority.
If an agent has possession of the principal’s goods, will this be sufficient to create apparent authority to sell the goods?
No, not unless the agent has either:
— Some indicia of ownership; or
— Is a dealer in the goods
When can the principal ratify a contact they didn’t authorise the agent to enter into?
Principal had knowledge of the contract; and
Principal accepts its benefit
With regard to ratification, can the principal accept the benefit but ask to change the terms?
The principal cannot alter the terms of the contract if they want to accept it.
Generally, the principal, rather than the agent, is liable on all authorised contracts. What’s the exception to this rule?
Where the third party (who entered into the contract with the agent) knows of the principal’s existence, but not his/her identity. In this case, both agent and principal are liable on the contract.
