Liability for contracts by agents

Question 1

Actual authority

Answer 1

1. authority the agent reasonably thinks she has based on principal’s dealings with her
   i. exists principal’s words or conduct would lead a reasonable person in agent’s position to believe they had authority
2. no actual authority if action expressly prohibited by someone w sufficient authority (because belief of authority could not be reasonable)
3. can be express or implied
   i. Express Actual Authority.
   a. actual authority conveyed in words, oral or written
   b. ex. P told A she could paint the church (regardless of what P was actually thinking)
   ii. Implied Actual Authority.
   a. agent reasonably believes the authority is incidental to, necessary, or customary to accomplish the authorized transaction
   b. authority inferred from the principal’s words or conduct, custom, or acquiescence
   c. no actual authority if action expressly prohibited by someone w sufficient authority
   d. ex. A covers up all the church relics after P orders A to paint church

Question 2

Actual authority is terminated

Answer 2

i. after a specified time or event
ii. after a reasonable time (if there is no specified time or event)
iii. change of circumstances (ex. subject matter of the agency is destroyed)
iv. breach of the agent’s fiduciary duty
v. unilateral act of either the principal or the agent
vi. death or incapacity of the principal or the agent

5. the authority must exist at the time of contracting
   i. i.e. ask if actual authority has already been terminated
   ii. ex. a contract entered into by A immediately after P’s death is invalid

Question 3

Apparent authority

Answer 3

1. authority a third party reasonably believes the agent has based on the principal’s representations to the third party
   i. i.e. principal’s words or conduct leading a reasonable person in 3P’s position to believe the agent has authority
2. the belief must be reasonable: 3P cannot know or suspect the agent lacked authority, and bigger deals requires 3P to inquire more
3. apparent authority must be based on principal’s words and conduct (including silence)
   i. cannot be based on the agent’s unilateral representations
   ii. impossible to have apparent actual authority for undisclosed principles
4. apparent authority can linger after actual authority ends
5. note: an agent’s title or position given by P can grant both actual and apparent authority

Question 4

Inherent authority

Answer 4

1. an undisclosed or partially disclosed (identity unknown) principal who entrusts an agent with the management of his business is liable to 3Ps with whom the agent contracts if such transactions are usual in P’s business
2. authority exists even if contrary to the directions of the principal
3. applies whenever there is an undisclosed or partially disclosed principal

Question 5

Summary of authority

Answer 5

1. actual authority: perspective of reasonable agent, principal’s acts and words
2. apparent authority: perspective of reasonable third party, principal’s acts and words
3. inherent authority: perspective of reasonable third party, agent’s appearance as principal

Question 6

Ratification

Answer 6

1. ratification: substitute for ex ante authority
2. if agent acts without authority, principal is still bound if principal ratifies the contract
3. express ratification: oral or written affirmation of a contract
4. implied ratification: principal accepts the benefits of the contract
5. requirements
   i. principal must have knowledge of all material facts regarding the K (i.e. all K terms)
   ii. principal must accept the entire transaction (P cannot a ratify a part of the transaction)
   iii. ratification cannot be used if it would alter the rights of intervening parties (ex. can’t ratify an unauthorized earlier sale to prevent later sale to a later bona fide purchaser)

Question 7

Liability on the contract

Answer 7

1. if actual or apparent authority exists, or there is ratification, only the principal is liable
2. if inherent authority, both the principal and agent are liable