Liability of Principal for Agent's Contracts Flashcards
Kinds of Authority
- actual
- apparent
- ratified
- majority of q’s in this area will test actual vs. apparent authority
- evaluate in that order (actual, then apparent, then ratified)
Basic Significance of Authority in Agency
- agent has power to bind principal to a contract agent enters on principal’s behalf only if agent acted w/ authority
Actual Authority - Basic Concept
- authority that the agent reasonably believes they possess based on principal’s dealings with them
-> if principal’s words or conduct would lead reasonable person in agent’s position to believe agent has authority to act on principal’s behalf, agent has authority to bind principal
Types of Actual Authority
- express
- implied
Express Authority
- that which is actually contained w/in four corners of the agency agreement
-> authority conveyed by the principal in words
-> effective even if was granted mistakenly or b/c of misrepresentation
Authority - All or Nothing
- for contract liability, there’s no such thing as “partially authorized” -> agent either had authority or didn’t
-> ex: agent has authority to buy 100 widgets but buys 110 b/c there’s a sale -> NOT authorized b/c authority exceeded
Implied Authority - Basic Concept
- authority the agent reasonably believes they have as a result of the principal’s words or actions
Implied Authority - List
Includes authority:
- incidental to express authority
- arising out of custom known to agent
- resulting from prior acquiescence by principal
- to take emergency measures
- to pay for and accept delivery of goods where there’s authority to purchase
- to manage investments in accordance w/ “prudent investor” standard
- to delegate authority in cases of ministerial acts, where circumstances require, where performance is impossible w/o delegation, or where delegation is customary
Authority - Titles
- notion that title or position conveys authority can also be used to establish actual authority to the extent the agent reasonably believes they have authority to act based on the title or position given to them by the principal
Termination of Actual Authority - Significance
- basically, if you’ve determined principal granted express or implied authority to enter a contract, make sure you check whether principal terminated authority before concluding that they’re bound
How Termination May Occur
- happening of an event specified in agent’s + principal’s agreement as something that will terminate agent’s authority
- lapse of a reasonable time if a time for termination isn’t specified in the agreement
- change in circumstances (includes destruction of subject matter of authority, insolvency of agent or principal + change in law or business conditions
- agent’s breach of fiduciary duty
- either party’s unilateral termination (both have the power to terminate agency unilaterally, ALTHOUGH termination may constitute breach of contract
- operation of law (ex: death or loss of capacity of either party except where durable power of attorney is present
Death of Principal
- death terminates the agency unless it’s irrevocable
- effective only when the agent has notice of it
Irrevocable Agencies
- neither an agency coupled w/ 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
Apparent Authority - Basic Theory
- 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 between agent + principal, no such authority was really granted - if principal’s words/conduct would lead a reasonable person in third party’s position to believe that the agent has authority to act on principal’s behalf, the agent has apparent authority to bind the principal
Actual vs. Apparent Authority
- actual authority = based on principal’s manifestations + how they affect reasonable agent
- vs apparent authority still based on principal’s manifestations, but focused on how they affect reasonable third party
- apparent authority can exist even when actual authority doesn’t
Types of Apparent Authority
- when agent exceeds actual authority
- when agent has no actual authority
- inherent authority