Liability of the Principal for Contracts Entered Into by the Agent

Question 1

Issue: Whether the principal is liable for contracts entered into by its agent.

Answer 1

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

Question 2

What are the 4 types of authority that a principal may give to his agent to enter into contracts?

Answer 2

1. Actual Express: Principal used words to express authority to agent
2. Actual Implied: Authority which the principal gives the agent through conduct or circumstance
3. Apparent
4. Ratification.

Question 3

What is the general rule for there to be actual express authority from the Principal?

Answer 3

Actual express authority can be words - Used words to express autorization, can be oral and even private
EXCEPTION: If the K itself must be in writing, than the express authority must be in writing also
Watch out for this
-Those governed by the SOF, on the bar will always be a conveyance of land, so watch out for K’s of land
*Also - Express authority will be revoked by 1) Unilateral act of either the principal or the agent, or 2) Death or incapacity of the Principal
EXCEPTION - If the agent is given a durable power of attorney (Generally has conspicuous language that would survive death)

Question 4

Hypo: Paula collects rare books. She hires Alice to find a rare book to complete her collection. Alice searches everywhere for the rare book. As Alice is about to pay for the book, Paula dies. Is Paula’s estate bound by the contract and liable to pay for the book?

Answer 4

The principal is liable only on its authorized K’s (the rule, start this for points)
IN THIS CASE, actual express authority did terminate upon the death of Paul the Principal, and therefore the estate will not be liable on this unauthorized K, therefore Alice becomes liable perosnally on this K (unauthorized K, and therefore Alice personally liable)

Question 5

What is the general for there to be actual implied authority from the Principal?

Answer 5

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

1. Necessity: There is implied authority to do all tasks to accomplish an expressly authorized task
2. Custom: There is implied authority to do all tasks which by custom are performed by persons with the agents title or position
3. Prior acquiescence by the principal. There is implied authority to do all tasks which the agent believes to be authorized to do from prior acquiescance by the principal
   (i. e. I have been doing deals for you for 25 years, so I will do it this way again)

Question 6

What is the general rule for there to be apparent authority from the Principal?

Answer 6

2 part test:

1. Principal “cloaked” agent with the appearance of authority, and;
2. Third party reasonably relies on appearance of authority

Question 7

Hypo: Charles owns an antique store. A shipment of antique clocks arrives from London. Charles tells his employee Dufus not to sell a special grandfather clock. Charles goes to lunch. Dufus sells the clock. Is Charles bound on the sales contract?

Answer 7

Yes - The principal is liable on its authorized K’s
IN THIS CASE, There was no actual express or implied authority to sell the clock, because Charles said do not sell the clock, Nonetheless, there was apparent authority because Charles did cloak Dufus with the appearance of authority and the 3rd party buyer may rely on the appearance of authority Therefore, Charles is liable based on apparent authority

Question 8

What is the general rule for there to be a ratification from the Principal?

Answer 8

Authority can be granted after the contract has been entered, if:

1. Principal has knowledge of all material facts regarding the contract, and
2. Principal accepts its benefits.
3. Exception: Ratification cannot alter the terms of the contract.

Question 9

Hypo: Priscilla gives Agnes a power of attorney only to purchase steel drums. Agnes enters a contract to purchase 11,000 wooden barrels. Priscilla tells Agnes, “Great job! I love wooden barrels, but I only need 10,000.” Is Priscilla bound?

Answer 9

Very best answer will be no -
1. The Rule: the principal is liable only on its authorized K’s
IN THIS CASE, There was no express, or implied or even apparent authority to buy wooden barrels, only steel drums (written power narrow) and there was no cloaking here
Ratification: Nonetheless, arguably Priscilla ratified the K through knowledge (“great job” she has knowledge) + acceptance of benefits (“I love them barrels” she accepts) - This means she has ratified the deal
*Astro Points
-But ratification here was not valid because Priscilla altered the K’s terms (I love them barrels, BUT - that is an effort to alter the K; There was no valid ratification here, no express, impled or apparent; 0-4 so it is unauthorized

Question 10

What are the Rules of Liability on the Contract?

Answer 10

General Rule: The principal is liable on its authorized contracts, and therefore as a rule, Authorized agents are generally not liable on their authorized K’s
This means that the liability will fall on the principal and not the agent, even though the agent “does the work”
EXCEPTION: The undisclosed principal—If principal is partially disclosed (only the identity of the principal concealed) or undisclosed (fact of principal concealed), authorized agent may nonetheless be liable at the election of the third party.