Liability for Agent's Contracts Flashcards
Authority in Agency
An agent has the power to bind the principal to a K only if acting with authority.
Three types of authority: (1) actual; (2) apparent; and (3) ratified.
In an essay - first determine whether actual authority exists. If not, then delve into apparent authority. Also, remember that ratified authority only comes into play after the contract is made.
Actual Authority
Authority that agent reasonably believes they possess based on the principal’s dealings with them.
Standard: if the principal’s words and conduct would lead a reasonable person in the agent’s position to believe that they have the authority to act on the principal’s behalf, the agent has actual authority to bind the principal.
Can be express or implied.
E
Actual Authority: Express
Authority that is actually contained within the agreement. Can be conveyed by words or writing.
Will be effective even if granted by mistake or via misrepresentation
Actual Authority: Implied
Authority the agent reasonably believes they have as a result of the principal’s words or actions.
Includes authority:
* incidental to express authority
* arising out of custom known to A
* resulting from prior acquiescence by P
* to take emergency measures
* to delegate authority in cases of ministerial acts, where circumstances require, where performance is impossible without delegation, or where delegation is customary
* to pay for and accept delivery of goods where there is authority to purchase
* to give general warranties as to fitness and quality and grant customary covenants in land sales, collect payment, and dleiver where there is authority to sell; and
* to manage investments in accordance with the “prudent investor” standard
Note: the notion that title/position conveys authority can also be used to establish actual authority to the extent that the agent reasonably believes that they have authority to act based on the title/position given to them.
Termination of Actual Authority
Termination may occur in the following ways:
* the happening of an event specified in the agreement that will terminate the relationship
* lapse of a reasonable time if a time for termination not specified in agreement
* a change in circumstances (includes: destruction of subject matter of authority; insolvency of agent or principal; and change in the law or business conditions)
* agent’s breach of fiduciary duty
* either party’s unilateral termination (both have power to terminate unilaterally, although such termination may cause a breach of K)
* operation of law (ex. death or incapacity of either A or P; termination in cases of P’s death will occur only when A has notice of it)
Irrevocable Agency
An agency that is coupled with: (1) an interest; or (2) power given as security will be irrevocable and cannot be unilaterally terminated by P if agency was given to protect A’s (or third party’s) rights & consideration was given.
Can’t be terminated by operation of law either.
Apparent Authority
Basic Theory: apparent authority exists when the principal holds out another as possessing authority and based on this holding out, a third party is reasonanly led to believe that authority exists.
Standard: if a reasonable person in the third party’s position believes that the agent has authority to act on principal’s behalf due to the principal’s words or conduct, then apparent authority is present
Compare: Actual vs. Apparent Authority
Actual authority: based on P’s manifestations and how they affect a reasonable agent
Apparent: based on P’s manifestations and how they affect a reasonable third party.
types of apparent authority
**1. Agent exceeds actual authority
**- prior act - P previously let A exceed authority and knows 3p is aware of this
- power of position - established by A’s position or title that carries with it customary responsibilities
**2. Agent has no actual authority **
-typically, P won’t be bound if A has no actual authority. example:
-unilateral agent representations - if P does nothing to hold agent out as having authority + only statement of authority comes from A = P not bound
exceptions:
-imposters - if P negligently permits imposter to appear to have authority - P liable (agency by estoppel)
- lingering apparent authority - apparent authority can linger after actual authority ends (even in cases of death or imcompetency); to terminate, P must deliver actual or constructive notice of termination to third parties.
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Inherent authority - derived solely from the agency relationship + P will be bound even if A doesn’t have actual or apparent authority. Occurs b/c courts wish to protect innocent third parties.
examples
-respondeat superior
- conduct similar to that authorized
Ratification
An agency relationship is created by ratification when an “agent” purports to act on behalf of a principal without any authority at all, but the “principal” subsequently validates the act and becomes bound.
Effect of Ratification
Gives the transaction retroactive effect unless principal lacked contractual capacity at the time the “agent” entered into the unauthorized transaction OR retroactivity would adversely effect the rights of third parties
When ratification occurs - agent relieved from liability for breach of duty + implied warranty of authority
Methods of Ratifying
Express or implied through the principal’s conduct.
Express = oral or written affirmation
Implied = P accepts benefit of K; or P’s silence constitutes acceptance if he had a duty to disaffirm
Requirements for Ratification
P must:
1. have knowledge (or reason to know) all material facts regarding the K;
2. Accept the entire transaction; and
3. have capacity (be competent and of legal age)
Ratification is a unilateral act of the principal and requires zero consideration.
It also cannot be used to alter the rights of intervening parties.
What May be Ratified and by Whom
Principal may ratify anything unless: (1) it was illegal at time of ratification; (2) *third party *has withdrawn; or (3) *material change *in circumstances.
2nd RS (followed by most states): undisclosed principals may NOT ratify. Only disclosed or unidentified principals can. (rationale: 2nd RS requires agent purport to be acting on behalf of a principal)
3rd RS: ANY principal may ratify b/c it doesn’t require agent to purport to be acting on behalf of the principal
A purported agent, however, may not treat the contract as their own.
