Pg 2

Question 1

What are the different ways you can establish mutual consent between a principal and an agent?

Answer 1

• express agreement
  – inference
  – apparent authority

*** essentially words, acts, or deeds

Question 2

What are the five ways that a principle can be held accountable in an agency relationship?

Answer 2

– actual or express authority
– apparent or ostensible authority
– respondeat superior
– estoppel
– ratification

Question 3

How is a principal held accountable for an agent’s actions through actual or express authority?

Answer 3

When the principal manifests to the agent that he has power to deal with others as a representative of the principal.

Question 4

What is the test to determine if actual or express authority was given by a principal to an agent?

Answer 4

Ask if the principal’s words or conduct would lead a reasonable person in the agent’s position to think he had authority to act on the principal’s behalf. If so, the agent had actual authority to bind the principal.

Question 5

What is the difference between express authority and implied or inferred authority when it comes to an agent?

Answer 5

• express: clearly spelled out in written or spoken words.
  – inferred: implied from the title, position, nature of the task assigned, principal’s prior acts, surrounding circumstances, etc.

Question 6

If a principal owns a store and hires an agent as his manager and says that the agent has the authority to decide which customers to give credit to, is that express or inferred authority?

Answer 6

Express

Question 7

If a principal is an elderly man, so his neighbour buys groceries for him on the principal’s credit at the store, and the principal previously approved that transaction, would it be reasonable for the neighbour to think he has authority to do it again in the future?

Answer 7

Yes, because that is inferred or implied authority.

Question 8

What is incidental authority?

Answer 8

A subcategory of implied authority. This is authority to do incidental acts that are related to a transaction you are authorized to do. If the principal asks you to do something, it is natural to assume you will take steps that are necessary in the ordinary manner to do it, unless the principal states otherwise

Question 9

What is an example of incidental authority?

Answer 9

Principal wants you to sell goods at auction and the law requires you to hire an auctioneer, so you have authority to hire one

Question 10

What is apparent or ostensible authority in an agency relationship?

Answer 10

This comes from the principal’s actions and words to third parties where he manifested the agent has authority to do an act. This creates apparent authority in the agent to do that act.

Question 11

Can an agent create his own apparent or ostensible authority?

Answer 11

No, it comes from a principal saying something to a third-party.

Question 12

What is the difference between actual or express authority and apparent or ostensible authority in an agency relationship?

Answer 12

– actual: between the principal and the agent

– apparent: between the principal and a third-party

Question 13

What is the test to determine if an agent has apparent authority?

Answer 13

Ask if the principal’s words or conduct would lead a reasonable person in the third party’s position to believe that the agent has authority to act for the principal. If so, then the principal is bound.

Question 14

Why is the principal responsible for a third-party’s belief in an apparent authority situation?

Answer 14

Because he manifested that the agent had authority to the third-party

Question 15

What are different ways that apparent or ostensible authority can be created?

Answer 15

• by the principal letting the agent do business in a way that creates the impression of actual authority.
  – by the principal telling a third-party that the agent has authority to act on his behalf.
  – because of the title or position that the agent holds.
  – if the principal creates the impression that authority exists in an agent.
  – if the principal directly communicates to a third-party or the public about the agent’s authority.

Question 16

How does an agent’s title or position create a reasonable belief in a third-party that the agent is authorized to act for the principal?

Answer 16

It is reasonable for the third-party to think that the agent is authorized to do acts that someone who holds that position would naturally do.

Question 17

If a principal appoints an agent as treasurer, but says that he cannot write checks, the agent does not have the actual authority to write checks, but does he have the apparent authority to do it?

Answer 17

Yes, with regard to third parties because they wouldn’t know about the limitation and treasurers naturally have the authority to write checks.

Question 18

What kind of apparent authority would a manager have?

Answer 18

The authority to do things that are ordinarily within a managerial duties, so anyone that deals with the manager is justified in thinking he has certain authority, unless they know he doesn’t

Question 19

If a principal creates the impression that authority exists in an agent, when is the principal liable for the actions of the agent?

Answer 19

If a third-party relies on it

Question 20

If a principal tells his agent to sell his property for $300,000 or more, and he tells buyers that the agent is his agent, what actual and what apparent authority does the agent have?

Answer 20

• actual: to enter a contract to sell for $300,000 or more
  – apparent: to sell for any price because the principal told the buyers that he is the agent. If he sells for less, the principal is bound because of apparent authority, but he violated his instructions and is liable for the loss.

Question 21

If a person falsely represents to a third-party that he is his agent, or the agent acted beyond the scope of his authority, is there a principal-agent relationship?

Answer 21

No

Question 22

If a principal acquiesces to an agent’s unauthorized act, can that create authority in the agent?

Answer 22

Yes

Question 23

How does respondeat superior hold a principal liable for the acts of his agent?

Answer 23

Principles are legally responsible in tort for the wrongful acts of their employees or agents if they happen within the course and scope of the employment relationship.

Question 24

If an employer hires a driver to take bank deposits every day, and the driver hits someone on the way to the bank, why is the employer responsible?

Answer 24

Because of respondeat superior since the driver was acting within the course and scope of the employment relationship.

Question 25

If an employer hires a driver to take bank deposits every day, but the driver hits someone on the way to a disco, does respondeat superior apply?

Answer 25

No, because the driver was not in the course and scope of the employment when this happened. This is called frolic and detour.

Question 26

How can a principal be held accountable for the acts of his agent through estoppel?

Answer 26

The principal is responsible for a third-party’s belief because of the principal’s manifestation of authority to a third-party, or if he just contributed to a third-party’s belief and didn’t dispel it, and then the third-party justifiably underwent a detrimental change in position.

Question 27

Why is the principal responsible for a third party’s belief under estoppel?

Answer 27

Because of his failure to use reasonable care to prevent that belief or to correct it once he became aware of it.

Question 28

How can a principal be liable for the acts of his agent based on ratification?

Answer 28

If an act happens without authority, but then afterwards the principal approves it, that ratified the unauthorized act. So long as the principal could have originally authorized a transaction on behalf of himself or a corporation, he can ratify it afterward

Question 29

Who all has the power to ratify an act by an agent?

Answer 29

• principal
  – board of directors
  – shareholders
  – one or more officers

Question 30

Does ratification have to be formal?

Answer 30

No, it can be implied from acts like accepting the benefits with knowledge of the facts, or from failure to repudiate or disaffirm.

Question 31

If a board of directors ratifies an act of an agent, what do some courts require?

Answer 31

Knowledgable acquiescence by the ENTIRE board. Other courts just require a MAJORITY of the board.

Question 32

What is the difference between express ratification and implied ratification?

Answer 32

• express: when the principal affirmatively treats an agent’s acts as authorized
  – implied: when the principal acts in a way that treats the agent’s act as authorized

Question 33

Before ratification can be effective, what is necessary for the principal to know?

Answer 33

He must be fully aware of all material facts involved in the original transaction.

Question 34

What is the timeline for ratification by a principal?

Answer 34

As soon as the principal objectively manifests his acceptance, even if it isn’t communicated to others, that relates back to the time of the unauthorized act and is the equivalent of original authority.

Question 35

What is the point of ratification?

Answer 35

To eliminate claims by principals against their agents and claims that third parties could assert against agents.

Question 36

What is a situation where you cannot ratify the act of an agent?

Answer 36

If it would be unfair to a third-party because of changed circumstances. It’s not OK to prejudice the rights of people that were not parties to the transaction.