Liability of Principal and Agent to Third Parties

Question 1

When does an A have the power to bind the principal to a K?

Answer 1

When A has
-> actual authority (express or implied)
-> apparent authority
OR
-> the principal is estopped from denying the agent’s authority

Question 1

How is A’s express actual authority established?

Answer 1

-> Through oral or written words;
-> clear, direct and definite language
OR
-> specific, detailed terms and instructions

Question 2

What is the intent component of express actual authority?

Answer 2

P’s manifestation must cause A to believe that A is doing what P wants (subjective standard) and A’s belief must be reasonable (objective standard).

Question 3

What must P do to show dissent to A’s express actual authority?

Answer 3

P must give clear notice if P disagrees with A’s actions.

Question 4

What is A’s implied actual authority?

Answer 4

A’s implied actual authority allows A to take whatever actions are properly necessary to achieve P’s objectives, based on A’s reasonable understanding of the manifestations and objectives of P.

Question 5

What is A’s customary implied authority?

Answer 5

Absent contrary instructions, A has implied authority to a ct within accepted business customs or general trade usage within an industry.

Question 6

What is A’s implied authority by acquiescence?

Answer 6

Implied by P’s acceptance of A’s acts OR P’s failure to object to unauthorized actions of A
-> THAT affirm A’s belief regarding P’s objectives AND support A’s perceived authority to act in future.

Question 7

Does A have an implied authority to delegate?

Answer 7

Generally A is prohibited from delegating either express or implied authority to a third party without P’s express authorization.

Question 8

How is apparent authority established via P’s behavior?

Answer 8

Derives from the reasonable reliance of a third party on that party’s perception of the level of authority granted to A by P’s behavior (over a period of time).

Question 9

What can the third party’s reasonable belief be based upon to see if A has apparent authority through P’s behavior?

Answer 9

Third party’s reasonable belief based upon
-> past dealings between P and A
-> trade customs
-> relevant industry standards
-> P’s written statements of authority
-> transactions that do not benefit P
-> extraordinary transactions for P

Question 10

How is apparent authority established via A’s position?

Answer 10

By appointing A to a specific position (e.g., VP or GM), P makes a manifestation to the public that A has the customary level of authority of that position.

Question 11

What are the different ways for there to be termination of A’s authority?

Answer 11

Different ways are
-> renovation or renunciation
-> agency agreement
-> change of circumstances
-> passage of time
-> P’s death or suspension of power
-> P’s loss of capacity
-> A’s death or suspension of powers
-> statutorily mandated termination or A’s breach of fiduciary duties

Question 12

When is revocation/renunciation effective?

Is there a situation in which A’s power cannot be revoked or renounced?

Answer 12

Effective as soon as either party gives notice to the other party.

If A’s power is coupled with an interest in the subject matter of the power, then A’s power cannot be revoked or renounced
-> e.g. Borrower conveys an interest in real property to a lender under a deed of trust, and also confers on the lender the power to sell the property in the event of default, then the lender’s interest is coupled with an interest in the property. Therefore, the borrower cannot revoke the lender’s authority to sell.

Question 13

How does an agency agreement terminate A’s authority?

Answer 13

P and A mutually agree to terminate A’s authority OR the occurrence of specified circumstances in agreement terminate A’s authority.

Question 14

How does a change in circumstances terminate A’s authority?

What are examples of changes in circumstances?

Answer 14

A change in circumstances should cause A to reasonably believe that P no longer consents to A acting on P’s behalf.

Examples:
-> change in law
-> insolvency of P
-> dramatic change in business conditions
-> destruction of subject matter
-> disaster

Question 15

How much time needs to pass for A’s authority to be terminated?

Answer 15

A reasonable period of time.

Question 16

When does P’s death or suspension of powers terminate A’s authority?

Answer 16

Not automatic.
Modern trend is A’s actual authority terminates upon A’s receipt of notice of P’s actual death.

Question 17

When does P’s loss of capacity terminate A’s authority?

Answer 17

Modern trees is A’s actual authority terminates upon A’s receipt of notice of P’s loss of capacity.

Question 18

When does A’s death or suspension of powers terminate A’s authority?

Answer 18

Automatically terminates A’s actual authority.

Question 19

How is P liable for A’s actions under estoppel?

Answer 19

Estoppel applies when a third party is justifiable induced to make a detrimental change in position BECAUSE that third party believed the transaction was entered into for P,
-> AND P failed to take reasonable steps and use ordinary care to show otherwise.

Question 20

When can P ratify the acts of another party (such as the acts of an A or the acts of a non-A)?

Answer 20

P can ratify when
-> P ratifies the entire act/transaction
-> P has legal capacity to ratify the act or transaction
-> ratification is timely
AND
-> P has knowledge of the material facts involved in the original act

Question 21

What is the doctrine of respondent superior state?

Answer 21

P is vicariously liable to a third party harmed by A who is an employee and who committed an act within the scope of employment.

Question 22

When is an employee within their scope of employment?

Answer 22

An employee is within the S/E when either performing work assigned by the employer or engaging in a course of conduct subject to the employer’s control

Question 23

When can intentional torts fall under the scope of employment?

Answer 23

Intentional torts may fall within S/E when
-> conduct is within the space and time limits of employment,
-> the employee was motivated to act for the employer’s benefit
AND
-> the act was of the kind that the employee was hired to perform

Question 24

May criminal conduct and personal acts fall within scope of employment?

Answer 24

Criminal conduct
-> yes as long as it is conduct that occurs while performing work for the employer

Personal acts (e.g. eating, smoking, and personal hygiene)
-> yes as it is incidental to the employees performance of work

Question 25

May work related travel fall within scope of employment?

Answer 25

Commuting is not within S/E but travel to perform work and employer errands are within S/W

Question 26

When is a frolic or detour part of scope of employment?

Answer 26

Frolic
-> the employee’s personal errand involving a significant deviation from performing work is outside S/E

Detour
-> travel for a personal errand may be within S/E if it is merely a detour

Question 27

Are independent contractors vicariously liable?

Is there an exception?

Answer 27

Independent contractors (IC) are not employees and therefore no vicarious liability

Except:
-> P retains control
-> P hires IC for non-delegable duties
-> IC has apparent authority
OR
-> P is negligent in selecting, training, and supervising IC

Question 28

When is P liable under A’s apparent authority?

Answer 28

If a third party reasonably believes that A acted with actual authority and it is traceable to P’s manifestation
-> THEN P is vicariously liable for A’s tort (e.g. misrepresentation, defamation, conversion)
-> EVEN IF A’s conduct isn’t beneficial to P

Question 29

When is P liable with regards to a third party’s reliance upon apparent care and skill?

Answer 29

When P represents that another is an A for them, and causes a third party to justifiable rely on the care and skill of such apparent A,
-> P is subject to liability for harm caused by lack of care or skill from apparent A to the third party

Question 30

When is P directly liable to third parties?

Answer 30

P is directly liable to third parties when
-> A has actual authority or P’s ratifies A’s actions (P authorizes the conduct or intended its consequences, or P affirms a prior act that was done or purportedly done on P’s behalf)
-> negligence is selecting, training, supervising, or controlling A
-> non-delegable duties have been breached

Question 31

What are non-delegable duties?

Answer 31

When a responsibility is so important to the community that a person should not be permitted to transfer it to another person (e.g. inherently dangerous activities such as using explosives)

Question 32

When is A liable under a contract?

Answer 32

When A becomes a party to the K.

Question 33

Is A a party to the K when there is a
-> disclosed P
-> partially-disclosed P?

Answer 33

Disclosed P
-> A doesn’t become a party to the K if he enters into it on behalf of P, and the third party has notice of both the existence and identity of P

Partially-disclosed P
-> A becomes party to K when the third party only has notice of {/s existence )not P’s identity)

Question 34

What happens when P is undisclosed in a K that A entered into with a third party?

Answer 34

If A binds P to the K, and the third party has no notice of P’s existence, then both P and A are parties to the K.

Question 35

Is a third party liable to an undisclosed P in a K that A entered into with the third party?

Answer 35

Third party is liable to undisclosed P UNLESS
-> P is excluded by the K terms
OR
-> P’s existence was fraudulently concealed

Question 36

Is an undisclosed P liable to a third party in a K that A entered into with the third party?

Answer 36

Undisclosed P is liable to the third party IF
-> the third party is induced to make a detrimental changes in position because of A without actual authority
-> the principal knew of the A’s conduct and that it might induce others to change position
AND
-> the principal did not take reasonable steps to notify the third party of the facts

Question 37

When is A liable under A’s implied warranty of authority?

Answer 37

Under the implied warranty of authority to bind P to a K
-> if A lacks power to bind P, then A is breaching the warranty and A is liable
-> if A does have the power to bind P, then A is not liable under this implied warranty even if A exceeds authority

Question 38

When is the element of fraudulent concealment (for third party liability to undisclosed P) met?

Answer 38

P or A must have notice that the third party would not have dealt with P (a hunch or suspicion isn’t enough)

Question 39

When is A liable to a third party under tort law? Is A liable for P’s torts under tort law?

Answer 39

A is liable to the the third party for negligent and intentional conduct, BUT is not liable for P’s torts.