Liabilities of Principals for Acts of Agents (Contract)

Question 1

Restatement (Third) Of Agency § 2.01 (2006) - ACTUAL AUTHORITY

Answer 1

An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principal’s manifestations to the agent, that the principal wishes the agent so to act.

Question 2

Restatement (Third) Of Agency § 2.02 (2006) Scope of Actual Authority

Answer 2

(1) An agent has actual authority to take action designated or implied in the principal’s manifestations to the agent and acts necessary or incidental to achieving the principal’s objectives, as the agent reasonably understands the principal’s manifestations and objectives when the agent determines how to act.
(2) An agent’s interpretation of the principal’s manifestations is reasonable if it reflects any meaning known by the agent to be ascribed by the principal and, in the absence of any meaning known to the agent, as a reasonable person in the agent’s position would interpret the manifestations in light of the context, including circumstances of which the agent has notice and the agent’s fiduciary duty to the principal.
(3) An agent’s understanding of the principal’s objectives is reasonable if it accords with the principal’s manifestations and the inferences that a reasonable person in the agent’s position would draw from the circumstances creating the agency.

Question 3

Restatement (Third) Of Agency § 2.03 (2006) Apparent Authority

Answer 3

Apparent authority is the power held by an agent or other actor to affect a principal’s legal relations with third parties when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal’s manifestations.

Question 4

Restatement (Third) Of Agency § 2.05 (2006)Estoppel to Deny Existence of Agency Relationship

Answer 4

A person who has not made a manifestation that an actor has authority as an agent and who is not otherwise liable as a party to a transaction purportedly done by the actor on that person’s account is subject to liability to a third party who justifiably is induced to make a detrimental change in position because the transaction is believed to be on the person’s account, if

(1) the person intentionally or carelessly caused such belief, or
(2) having notice of such belief and that it might induce others to change their positions, the person did not take reasonable steps to notify them of the facts.

Question 5

Restatement (Third) Of Agency § 2.06 (2006) Liability of Undisclosed Principal

Answer 5

(1) An undisclosed principal is subject to liability to a third party who is justifiably induced to make a detrimental change in position by an agent acting on the principal’s behalf and without actual authority if the principal, having notice of the agent’s conduct and that it might induce others to change their positions, did not take reasonable steps to notify them of the facts.
(2) An undisclosed principal may not rely on instructions given an agent that qualify or reduce the agent’s authority to less than the authority a third party would reasonably believe the agent to have under the same circumstances if the principal had been disclosed.

Question 6

Restatement (Third) Of Agency § 3.01 (2006) Creation of Actual Authority

Answer 6

Actual authority, as defined in § 2.01, is created by a principal’s manifestation to an agent that, as reasonably understood by the agent, expresses the principal’s assent that the agent take action on the principal’s behalf.

Question 7

Restatement (Third) Of Agency § 3.03 (2006) Creation of Apparent Authority

Answer 7

Apparent authority, as defined in § 2.03, is created by a person’s manifestation that another has authority to act with legal consequences for the person who makes the manifestation, when a third party reasonably believes the actor to be authorized and the belief is traceable to the manifestation.

Question 8

Restatement (Third) Of Agency § 3.06 (2006) Termination of Actual Authority There are multiple provisions

Answer 8

An agent’s actual authority may be terminated by:

(1) the agent’s death, cessation of existence, or suspension of powers as stated in § 3.07(1) and (3); or
(2) the principal’s death, cessation of existence, or suspension of powers as stated in § 3.07(2) and (4); or
(3) the principal’s loss of capacity, as stated in § 3.08(1) and (3); or
(4) an agreement between the agent and the principal or the occurrence of circumstances on the basis of which the agent should reasonably conclude that the principal no longer would assent to the agent’s taking action on the principal’s behalf, as stated in § 3.09; or
(5) a manifestation of revocation by the principal to the agent, or of renunciation by the agent to the principal, as stated in § 3.10(1); or
(6) the occurrence of circumstances specified by statute.

Question 9

Restatement (Third) Of Agency § 3.11 (2006) Termination of Actual Authority

Answer 9

(1) The termination of actual authority does not by itself end any apparent authority held by an agent.
(2) Apparent authority ends when it is no longer reasonable for the third party with whom an agent deals to believe that the agent continues to act with actual authority.

Question 10

Restatement (Third) Of Agency § 4.01 (2006) 4.03-05, 07. Ratification Defined

Answer 10

(1) Ratification is the affirmance of a prior act done by another, whereby the act is given effect as if done by an agent acting with actual authority.
(2) A person ratifies an act by
(a) manifesting assent that the act shall affect the person’s legal relations, or
(b) conduct that justifies a reasonable assumption that the person so consents.
(3) Ratification does not occur unless
(a) the act is ratifiable as stated in § 4.03,
(b) the person ratifying has capacity as stated in § 4.04,
(c) the ratification is timely as stated in § 4.05, and
(d) the ratification encompasses the act in its entirety as stated in § 4.07.

Question 11

Restatement (Third) Of Agency § 4.02 (2006) Effects of Ratification

Answer 11

(1) Subject to the exceptions stated in subsection (2), ratification retroactively creates the effects of actual authority.
(2) Ratification is not effective:
(a) in favor of a person who causes it by misrepresentation or other conduct that would make a contract voidable;
(b) in favor of an agent against a principal when the principal ratifies to avoid a loss; or
(c) to diminish the rights or other interests of persons, not parties to the transaction, that were acquired in the subject matter prior to the ratification.

Question 12

Restatement (Third) Of Agency § 6.01 (2006) Agent for disclosed principal

Answer 12

When an agent acting with actual or apparent authority makes a contract on behalf of a disclosed principal,

(1) the principal and the third party are parties to the contract; and
(2) the agent is not a party to the contract unless the agent and third party agree otherwise.

Question 13

Restatement (Third) Of Agency § 6.02 (2006) Agent for Unidentified Principal

Answer 13

When an agent acting with actual or apparent authority makes a contract on behalf of an unidentified principal,

(1) the principal and the third party are parties to the contract; and
(2) the agent is a party to the contract unless the agent and the third party agree otherwise.

Question 14

Restatement (Third) Of Agency § 6.03 (2006) Agent for Undisclosed Principal

Answer 14

When an agent acting with actual authority makes a contract on behalf of an undisclosed principal,

(1) unless excluded by the contract, the principal is a party to the contract;
(2) the agent and the third party are parties to the contract; and
(3) the principal, if a party to the contract, and the third party have the same rights, liabilities, and defenses against each other as if the principal made the contract personally, subject to §§ 6.05- 6.09.

Question 15

Restatement (Second) of Agency § 8A (1958) Inherent Agency

Answer 15

Inherent agency power is a term used in the restatement of this subject to indicate the power of an agent which is derived not from authority, apparent authority or estoppel, but solely from the agency relation and exists for the protection of persons harmed by or dealing with a servant or other agent.

Question 16

Gallant Ins. Co. v. Isaac (Ind. App. 2000) [K case]

Answer 16

Facts: Isaac bought new car, called to get insurance (expired next day) & A told her to come back Monday to pay. Gets into crash, they say she wasn’t covered (it was in the K that no coverage until Gallant is paid). Gallant sought delc. J.
Issue: Is Gallant liable for costs of accident because of conduct? i.e., inherent authority?
Hold: A acted under inherent authority, Gallant (P) liable. Manifestation is direct & indirect bc this is how Isaac always delt w A.Rule: Find authority bc of unfairness, protect innocent 3Ps, is it reasonable to allow 3P to recover under circumstances Reasoning: A allowed to make modifications w.o approval of P. Can’t have one policy in writing and another in practice. A conducted act that usually accompanies insurance transxs & 3P lacked notice that A didn’t have authority. If P or A informed Isaac no binding verbal coverage, or A required to give notice, P would have satisfied notice requirement (under R.3.A §2.06) & A wouldn’t have had inherent authority.
Efficient? Sort of…turns on what is fair. Use other tools because this is messy. Where 3P can easily ascertain scope, we want them toOn appeal: Court finds Gallant apparent authority bc of manifestations of P.

Question 17

White v. Thomas (Ark. App. 1991) [K case]

Answer 17

Facts: Auction case. A (Batshit bidder/employee of P) has blank check from P, spends too much on land, then sells some land to 3PIssue: Did Batshit bidder have apparent authority?
Hold: No. No manifestation from P to 3P that A could sell land. A (not P) told 3P she had power of attorney.
Rule: Need communication from P to 3P, or else no apparent authority. Look to reasonableness of 3P.
Reasoning: Blank check is murky, court thinks it gives authority to buy NOT to sell. 3P shouldn’t rely on A’s statements.Efficient? Yes. Forces Ps to be clear about what A has authority to do. P couldn’t have forseen A’s actions, so not unreasonable to put some responsibility on 3P.