Liability of Principal

Question 1

ACTUAL AND APPARENT AUTHORITY

Answer 1

An agent has the power to bind a principal to a contract the agent enters on the principal’s behalf only if the agent acted with authority. There are three types of authority: actual, apparent, and ratified.

Question 2

Actual Authority

Answer 2

Actual authority is authority that the agent reasonably believes they possess based on the principal’s dealings with them. Put differently, if the principal’s words or conduct would lead a reasonable person
in the agent’s position to believe that the agent has authority to act on the principal’s behalf, the agent has actual authority to

Question 3

Implied Actual Authority

Answer 3

Implied authority is authority the agent reasonably believes they have as a result of the principal’s words or actions. It includes authority:
1) Incidental to express authority
2) Arising out of custom known to the 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 sell AND
8) To manage investments in accordance with the “prudent investor” standard

Question 4

Irrevocable Agencies

Answer 4

Neither an agency coupled with an interest nor a power given as security may be unilaterally terminated by the principal if the agency
was given to protect the agent’s (or a third party’s) rights and it is supported by consideration. Neither will such agencies be terminated by operation of law

Question 5

Apparent Authority

Answer 5

Apparent authority exists when the principal “holds out” another as possessing authority and based on this holding out, a third party is reasonably led to believe that authority exists (even though as
between the agent and the principal, no such authority has been granted). Put differently, if the principal’s words or conduct would lead a reasonable person in the third party’s position to believe that the agent has authority to act on the principal’s behalf, the agent has apparent authority to bind the principal.

Question 6

Prior Act

Answer 6

Where the principal previously permitted the agent to exceed their express or implied authority and knows that the third party is aware of this, the principal is bound through apparent authority.

Question 7

Power of Position

Answer 7

Apparent authority may be established through an agent’s title or position. Indeed, it is somewhat common for a third party to argue that an agent’s title or position, which was given to them by the principal, created a reasonable belief in the third party
that the agent was authorized to act for the principal in ways that are typical of someone who holds that title or position

Question 8

Notice May Be Necessary

Answer 8

Where an agent’s actual authority has terminated, he will have apparent authority to act on the principal’s behalf as to all third parties with whom the principal knows he dealt unless and until the third parties receive either actual or constructive notice of
the termination.