Principal's Contractual Liability

Question 1

What is actual authority?

Answer 1

Express: by principal’s explicit directions to agent

Implied:

• Action is necessary to cary out agent’s expressly authorized duties;
• Agent acted similarly in prior dealings between principal/agent; or
• Customary for agent in that position (silence/acquiescence)

Question 2

What is apparent authority?

Answer 2

When the principal “holds out” another as possessing authority and, based on this holding out, a third party is reasonably led to believe that authority exists.

Question 3

When does a principal hold out an agent as having authority?

Answer 3

1. Gives a position or title indicating authority;
2. Previously held out and did not publish a revocation;
3. Cloaked the agent with the appearance of authority.

**Not applicable if third party had knowledge that the agent did not have actual authority.

Question 4

Can apparent authority be created by the mere representations of an agent/other?

Answer 4

No! Only by the principal’s manifestations.

Question 5

What is inherent agency power?

Answer 5

Protects third parties when dealing with agents even if there is no actual or apparent authority.

1. Subjects an employer to liability when an agent acts in furtherance of employer’s business and his conduct harms a 3P
2. Agent exceeds their actual authority but the conduct is similar to authorized acts.

Question 6

What is ratification?

Answer 6

When an “agent” purports to act on behalf of a “principal” without any authority at all, but the “principal” subsequently validates the act and becomes bound.

Question 7

What are the requirements for ratification?

Answer 7

Principal must:

1. Have knowledge of or reason to know all material facts regarding the contract,
2. Accept the entire transaction, and
3. Have capacity.

Can be express or implied (e.g., accepting benefits of contract).

Question 8

3P vs. P

(liability on K)

Answer 8

Principal will be liable to 3P on a contract entered into by their agent if the agent had valid authority (actual, apparent, or ratified).

Question 9

3P vs. A

(liability on K)

Answer 9

Agent cannot be held personally liable if had valid authority to enter into contract.

But, if principal is unidentified or undisclosed to the 3P, either principal OR agent can be held liable.

Question 10

P + A vs. 3P

(liability on K)

Answer 10

3P bound to principal if agent had authority and the principal was disclosed.

If the principal was undisclosed or unidentified, either the principal or the agent can enforce the contract and hold the 3P liable.

• If the agent enforces, principal is entitled to all rights and benefits under the contract.