Contract Liability - Actual and Apparent Authority

Question 1

What is the approach when confronted with a Q about agent’s authority to bind principal to K?

Answer 1

First, determine if there is “actual authority”

If not, determine if there is “apparent authority”

Question 2

What is “actual authority”?

Answer 2

“actual authority” = authority that agent reasonably believes she possesses based on principal’s dealings with her

May be:

• Express; or
• Implied

Question 3

With regards to “actual authority”, what is “express authority”?

Answer 3

• “Express authority” = actually contained within 4 corners of agency agreement

NOTE –> it is effective even if granted mistakenly or bc of misrepresentation

Question 4

With regards to “actual authority”, what is “implied authority”?

What may give rise to it?

Answer 4

-“implied authority” = that which the agent reasonably believes she has based on the result of the principal’s actions

1. authority incidental to express authority
2. arising out of custom known to agent
3. resulting from prior acquiescence by the principal
4. to take emergency measures
5. to delegate authority in cases of MINISTERIAL ACTS, where CIRCUMSTANCES REQUIRE, where PERFORMANCE is impossible without delegation, or where DELEGATION is customary
6. to pay for and accept delivery of goods where there is authority to purchase
7. to give general warranties as to fitness and quality and grant customary covenants in land sales, collect payment, and deliver where there is authority to selll
8. to manage investments in accordance with the “prudent investor” standard

Question 5

How may “actual authority” terminate?

Answer 5

1. lapse of a specified or reasonable time
2. happening of a specified event
3. A change in circumstances, including destruction of the subject matter of the matter of authority, insolvency of agent or principal, change in law/business conditions
4. agent’s breach of fiduciary duty
5. either party’s unilateral termination (although such termination may constitute a breach of K)
6. operation of law (death or loss of capacity of either party except where a durable POA says it will not terminate on principals disability)

Question 6

What is an irrevocable agency?

Answer 6

The following agencies will not be revocable (cannot be unilaterally terminated and will not terminate by operation of law), if:

1. agency was given to protect agent’s or 3rd parties rights; AND
2. is supported by consideration

• agency coupled with security interest
• power given as security

Question 7

What is the basic theory behind “apparent authority” ?

Answer 7

Apparent authority arises from reasonable beliefs of 3rd parties.

Question 8

In general, when does “apparent authority” arise?

Answer 8

If principal DIRECTLY or INDIRECTLY holds out another as possessing certain authority, thereby inducing reasonable reliance, the person so held out has apparent authority even though it has not actually been granted by principal.

Question 9

What are the different types of apparent authority?

Answer 9

1. when agent has no actual authority;
2. When agent exceeds actual authority;
3. Inherent Authority (inherent agency power)

Question 10

With regards “apparent authority” and agent having no actual authority, what is the rule re: imposters?

Answer 10

If principal NEGLIGENTLY permits an impostor to appear to have agency authority, principle will be bound

Question 11

With regards “apparent authority”, what is the rule re: notice and lingering apparent authority?

Answer 11

If agent’s actual authority has terminated, he will have apparent authority to act on principal’s behalf as to all 3rd parties with whom principal knows he dealt UNLESS and UNTIL the 3rd parties receive actual or constructive notice of termination

Question 12

With regards “apparent authority”, what is the rule re: a writing manifesting authority?

Answer 12

If agent’s actual authority has been terminated but 3rd parties rely on written authority of agent, agent’s apparent authority is NOT terminated

Question 13

What is the rule re: apparent authority and death/incompetency of PRINCIPAL?

Answer 13

Majority rule –> death/incompetence of principal DOES NOT automatically terminate apparent authority

Question 14

With regards to apparent authority, what are the situations in which agent exceeds actual authority?

Answer 14

1. prior acts

2. position

Question 15

With regards to apparent authority, what is the rule re: “prior acts”?

Answer 15

Where principal previously permitted agent to exceed his authority and KNOWS 3rd party is aware of this, principal is bound by agent’s unauthorized acts

Question 16

With regards to apparent authority, what is the rule re: “position”?

Answer 16

Where agent is in position that customarily carries certain responsibilities, principal is liable for the agent’s acts that come within those customary responsibilities

Question 17

What is “inherent authority”?

Answer 17

Inherent authority = derived SOLELY from the agency relationship, and results in principal being bound even though the agent had no actual or apparent authority to perform the particular act

GOAL –> to protect innocent 3rd parties

Question 18

What are the two examples of “inherent authority”?

Answer 18

1. Respondent Superior –> principal = liable for torts of her EE committed within scope of employment;
2. Conduct similar to that authorized –> where agent exceeds his actual authority (ie..violates orders), but conduct is similar to acts authorized, principal will be held liable

Question 19

What is principal’s liability for improper disposition of goods?

Answer 19

Principal = liable e for disposition of her goods by an agent possessing them if:

1. agent was given some indicia of ownership; OR
2. if goods were disposed of by agent who is a dealer in the particular goods