Liability of Principal in Contract

Question 1

When determining whether a principal is bound by an agent’s contract, what must be determined?

Answer 1

whether the agent had actual authority, and if not, whether the agent had apparent authority.

Question 2

Actual Authority

Answer 2

authority that the agent reasonably believes she possesses based on the principal’s dealings with her. This can be express or implied.

Question 3

Express Actual Authority

Answer 3

authority contained within the agency agreement.

Question 4

Implied Actual Authority

Answer 4

authority that the agent reasonably believes she has as a result of the principal’s actions.

Question 5

How can actual authority be terminated?

Answer 5

lapse of a specified or reasonable time; the happening of a specified event; a change in circumstances; the agent’s breach of a fiduciary duty; a unilateral termination by either party; or by operation of law.

Question 6

What kinds of agencies are irrevocable?

Answer 6

agencies coupled with an interest or powers given as security may not be unilaterally terminated by either party if the agency was given to protect the agent’s rights and it is supported by consideration.

Question 7

Apparent Authority

Answer 7

authority of an agent which arises out of the reasonable beliefs of third parties.

Question 8

If a principal directly or indirectly holds out another as possessing certain authority, thereby inducing reasonable reliance by others on that authority, the person so held out has __________________.

Answer 8

apparent authority.

Question 9

Where a principal negligently permits an imposter to be in a position to appear to have agency authority, can the principal be held liable for the imposter’s actions undertaken with such authority?

Answer 9

yes, under apparent authority.

Question 10

Where an agent’s actual authority has been terminated, his apparent authority to interact with all third parties the principal knew of will remain unless what?

Answer 10

unless the principal gives notice to those third parties that the agent no longer has authority.

Question 11

Where an agent’s actual authority has been terminated, but third parties rely on a written authority of the agent, is the agent’s authority considered to be terminated?

Answer 11

no, there must be some kind of notice to the third parties explaining that the agent’s authority has been terminated.

Question 12

Death or incompetency of the principal terminates ______________ authority.

Answer 12

actual

Question 13

Death or incompetency of the principal does not terminate ______________ authority.

Answer 13

apparent.

Question 14

Where the principal previously allowed an agency to exceed his authority, and knows that the third party is aware of this, is the principal bound by the agent’s unauthorized act?

Answer 14

yes

Question 15

Where the agent is in a position that customarily carries with it certain responsibilities, the principal is liable . . .

Answer 15

for the agent’s acts that come within these customary responsibilities.

Question 16

Inherent Authority

Answer 16

authority derived solely from the agency relationship and which results in the principal being bound even though the agent had no actual or apparent authority to perform the particular act.

Question 17

Where an agent exceeds his actual authority, but the conduct is similar to acts authorized, is the principal held liable?

Answer 17

yes

Question 18

The principal will be held liable for the disposition of her goods by an agent possessing them if . . .

Answer 18

the agent was given some indicia of ownership, or if the goods disposed of were sold by an agent who is a dealer in the particular goods.

Question 19

Ratification

Answer 19

when an agent purports to act on behalf of a principal without any authority at all, but the principal subsequently validates the act and becomes bound.

Question 20

When is the agent relieved of liability under a ratification fact pattern?

Answer 20

upon the ratification by the principal.

Question 21

What must be present in order for a principal to ratify the acts of an agent?

Answer 21

the principal must 1) know or have reason to know of all the material facts; 2) accept the entire transaction; and 3) have capacity to assent.

Question 22

Ratification of an act is _________________.

Answer 22

unilateral

Question 23

Does ratification require consideration?

Answer 23

no

Question 24

Must ratification be express?

Answer 24

no, it can be express or implied.

Question 25

What can’t a principal ratify?

Answer 25

a principal cannot ratify acts which were 1) illegal at the time of ratification; 2) the third party has withdrawn; or 3) there has been a material change in the circumstances.

Question 26

In most states, what kinds of principals can ratify acts of agents?

Answer 26

only disclosed or unidentified principals.

Question 27

Under the modern trend, what kind of principals can ratify acts of agents?

Answer 27

any principal

Question 28

Whether an agent is liable to a third party is dependent on what?

Answer 28

whether the principal was disclosed

Question 29

Disclosed Principal

Answer 29

a principal whose existence and identity is known to the third party.

Question 30

Unidentified Principal

Answer 30

a principal whose existence is known but whose identity is not.

Question 31

Undisclosed Principal

Answer 31

a principal whose existence and identity are unknown to the third party.

Question 32

A disclosed principal is __________ liable for a contract entered into by their agent with a third party.

Answer 32

always

Question 33

An undisclosed principal is __________ liable for contracts entered into by their agent with a third party.

Answer 33

always

Question 34

An unidentified principal is __________ liable for contracts entered into by their agent with a third party.

Answer 34

always

Question 35

Where a third party has entered into a contract with an agent of an unidentified or undisclosed principal, the third party can sue whom for the breach?

Answer 35

both the principal and the agent.

Question 36

When determining whether a principal is liable for acts, does the type of principal they are matter?

Answer 36

no

Question 37

When the principal is disclosed, who may enforce the contract and hold the third party liable?

Answer 37

only the principal, not the agent

Question 38

When the principal is unidentified or undisclosed, who may enforce the contract and hold the third party liable?

Answer 38

either the principal or the agent

Question 39

Where an agent of an undisclosed or unidentified principal enforces a contract against the third party, who is entitled to the entirety of the damages or proceeds of the contract?

Answer 39

the principal alone.