Power of Agent to Bind Principal

Question 1

How may an agent bind a principal?

Answer 1

An agent may bind a principal to a contract if the agent is acting within his actual or apparent authority, or inherent agency power.

Question 2

Once a principal is validly bound to a contract by his agent…

Answer 2

…, the principal is liable under the terms of the contract.

Question 3

What is actual authority?

Answer 3

An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principal’s manifestations to the agent, that the principal wishes him (the agent) to act.

So actual authority requires a reasonable belief between A and P

Question 4

What is express actual authority?

Answer 4

Actual express authority exists when the principal directs the agent to engage in the precise task in question.

Question 5

What is implied actual authority?

Answer 5

Actual implied authority exists when the agent believes, based on a reasonable interpretation of the principal’s words or conduct, that the principal wishes him (the agent) to act on the principal’s behalf.

Question 6

As to actual implied authority, what is incidental authority?

Answer 6

Incidental authority. The agent’s authority to conduct a transaction includes the authority to engage in actions that are incidental to it, usually accompany it, or are reasonably necessary to accomplish it.

For Example: Principal tells Agent, “Sell my car.” Agent has the authority to take actions that are reasonably necessary to sell the car (e.g., placing advertisements in the newspaper, listing the car for sale on auto trader websites, etc.).

Question 7

What is apparent authority?

Answer 7

An agent acts with apparent authority when:

1. The principal holds the agent out as having authority to act on the principal’s
   behalf;

AND

2. The principal’s conduct, when reasonably interpreted, causes a third party to
   rely on the agent’s appearance of authority when dealing with the agent.

Note: Apparent authority does NOT exist if the third party has knowledge that the agent does not have actual authority.

So apparent authority relies on a reasonable interpretation between P and 3P concerning A’s conduct

Question 8

What is an example of apparent authority?

Answer 8

For example, a customer may believe that someone held out by company as an employee who presents a contract on company stationery is authorized to sign that contract on behalf of the company.

Question 9

What is inherent agency power?

Answer 9

Courts apply the inherent agency power when:

1. An agency relationship exists;

AND

2. The totality of the circumstances weighs against forcing the third party to absorb all of the damages.

Question 10

What is the effect of inherent agency power?

Answer 10

Pursuant to equitable considerations, the inherent agency power allows courts to hold a principal liable for damages to third parties even when the principal’s agent acted WITHOUT actual or apparent authority.

Question 11

What is a common example of when courts will apply inherent agency power to hold principal liable for damages to 3P even though A’s actions were unauthorized by P?

Answer 11

Undisclosed Principals.

Courts commonly apply the inherent agency power to hold a principal liable for his agent’s unauthorized actions when the principal is undisclosed to the third party so long as the totality of the circumstances weighs against forcing the third party to absorb the damages.

Question 12

Can an agent for an undisclosed principal have apparent authority?

Answer 12

No, because apparent authority requires a reasonable belief by 3P that P holding out A to act. Can’t do this if 3P unaware of P’s identity.