Liablity of Principal for Contract Entered by Agent

Question 1

When is a principal liable for contracts entered into by its agent?
(One Test)

Answer 1

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

Question 2

What are the four types of authority (that will render a principal liable for an agent’s contracts)?

Answer 2

ACTUAL EXPRESS AUTHORITY: principal used words to express authority to agent. Can be oral and private but is narrowly construed Exception: if the contract itself must be in writing (S/F), the express authority must also be in writing (e.g. land contact)
Revocation: (i) unilateral act by either the principal or agent; OR (ii) death of the principal (except if the principal gave the agent the power of atty that expressly survives death) but not incapacity (NOTE: in NY a power of atty will survive incapacity unless it expressly states otherwise)

ACTUAL IMPLIED AUTHORITY: authority which the principal gives the agent through conduct or circumstances

   1. Necessity: there is an implied authority to do all tasks that are necessary to carry out an expressly authrized task
    2. Custom: there is an implied authority to do all tasks that by custom are performed by agent's title or position (e.g. a lawyer)
    3. Prior Acquiescence: prior dealings between the principal and agent creates an implied authority to do all tasks that the agent believes to be authorized to do from "prior acquiescense" by the principal

APPARENT AUTHORITY: two-part test

   (i) Principal "cloaked" agent with the appearance of authority; AND
   (ii) Third party reasonably relies on appearance of authority

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

  (i) Principal has knowledge of all material facts regarding the contract;
  (ii) Principal has accepted its benefits; AND
  (iii) Ratification did not alter the terms of the contract

Question 3

When is an agent liable for principal-authorized contract?

general rule and exceptions

Answer 3

GENERAL RULE: the principal is liable on its authorized contract and therefore agents are not liable for their authorized Ks

EXCEPTION: based on ambiguity of principal disclosure
If the principal is partially disclosed (only the identity of the principal concealed) or undisclosed(fact of principal concealed) then the authorized agents may nonetheless be liable at the election of the third party