Power of Agent to Bind the Principal

Question 1

Authority of Agent to Bind the Principal

Answer 1

An agent may bind a principal to a K if the agent is acting within his (1) actual authority (express or implied) or (2) apparent authority, or (3) inherent agency power.

Once a principal is validly bound to a K by his agent, the principal is liable under the terms of the K.

(*Highly Tested*)

Question 2

Actual Authority

Answer 2

a) 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.

b) Actual authority can be express or implied:

1. Actual express authority exists when the principal directs the agent to engage in the precise task in question.
2. 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.

• (a) 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.
• (b) 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 3

Apparent Authority

Answer 3

a) 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.

b) Apparent authority does NOT exist if the third party has knowledge that the agent does not have actual authority

Question 4

Inherent Agency Power

Answer 4

a) 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. 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.

b) 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.

c) NOTE. An agent for an undisclosed principal CANNOT have apparent authority because the principal cannot hold the agent out as having authority to a third party if the third party is unaware of the principal