Liability of Principal for Agents CONTRACTS

Question 1

ROL for principal liability

Answer 1

Principal is liable for contracts entered into by its agent if the principal authorized the agent to enter the contract.

Principal is liable only for its authorized contracts.

Question 2

5 Types of Authority

Answer 2

1- Actual Express
2- Actual Implied
3- Apparent
4- Inherent
5- Ratification

Question 3

Actual Express Authority

Answer 3

• Principal used WORDS to express authority to agent
• Actual express authority can be oral and private, but it is narrowly construed
• If the contract itself must be in writing, then the express authority must be in writing as well [ex- conveyance of an interest in land]

Question 4

Express authority will be revoked by . . .

Answer 4

1- Unilateral act of either the principal or the agent; or
2- Death of the principal (UNLESS the principal gave the agent a written power of attorney that expressly survives death)

Question 5

Incapacity of the principal & powers of attorney

Answer 5

In NY, a power of attorney will survive incapacity UNLESS it expressly terminates upon incapacity

Question 6

Actual Implied Authority

Answer 6

Authority which the principal gives the agent through conduct or circumstance.

1- Necessity- there is implied authority to do all tasks which are necessary to accomplish expressly authorized tasks

2- Custom- There is implied authority to do all tasks which by custom are performed by persons w/ the agent’s title or position

3- Prior dealings- there is implied authority to do all tasks which the agent believes to be authorized from prior acquiescence by the principal

Question 7

Apparent Authority

Answer 7

There is apparent authority if (1) principal “cloaked” agent w/ the appearance of authority, and (2) third party reasonably relies on appearance of authority.

Question 8

Ratification

Answer 8

Authority can be granted AFTER the K has been entered if:
1- principal has knowledge of all material facts regarding the K; and
2- Principal accepts its benefits

EXCEPTION- ratification CANNOT alter the terms of the K

Question 9

Is the agent liable on authorized contracts?

Answer 9

General ROL- Principal is liable on its authorized contracts and therefore as a rule authorized agents are NOT liable on their authorized contracts

Exception- The Undisclosed Principal- If principal is partially disclosed or undisclosed the authorized agent may nonetheless be liable at the election of the third party

Question 10

Effect of ratification

Answer 10

• principal becomes bound on the K
• agent is relieved of liability for breach of warranty (unless it was an undisclosed/partially disclosed principal case)
• K given retroactive effect to formation date

Question 11

Principal may not ratify when-

Answer 11

• performance would be illegal at the time of ratification
• after the third party withdraws
• if there has been a material change in circumstances

Question 12

Inherent Authority

Answer 12

• created by the courts to protect innocent third parties
• results in the principal’s being bound even though the agent had no actual authority to perform the particular act.
• conduct similar to that authorized (agent exceeds his authority, but the conduct is so similar)

ex inherent authority- respondeat superior