Agency - Liability for Contracts Flashcards
Liability of P for Agents contracts
when agent does things, do the Ks bind the P?
*most likely on exam
KEY:
- Is Pr liable to third party for a K entered into by A?
- Ask, Did the agent have actual authority, or apparent authority, or did the pr ratify the K later? If so, Pr is liable on K, and usually A is not.
RULE: An agent has the power to bind a principal to a contract the agent enters on the principal’s behalf ONLY if the agent acted with AUTHORITY.
Types of authority
An agent has the power to bind a principal to a contract the agent enters on the principal’s behalf only if the agent acted with AUTHORITY.
Three types of authority: actual, apparent, and ratified.
Actual authority: based on AGENT’S reasonable belief that they had authority based on principal’s dealings with them.
- Actual authority may be express or implied.
- Rule: if the principal’s words or conduct would lead a reasonable person in the agent’s position to believe that the agent has authority to act on the principal’s behalf, the agent has actual authority to bind the principal.
Apparent authority: based on third party’s reasonable belief
Ratification: After-the-fact authority.
- comes into play only if the principal grants authority after the contract is made.
Actual authority
Actual authority: authority the agent reasonably believes they possess based on the principal’s dealings with them.
- RULE: if the principal’s words or conduct would lead a reasonable person in the agent’s position to believe that the agent has authority to act on the principal’s behalf, the agent has actual authority to bind the principal.
- starts with manifestation by Principal. would reasoable agent blieve agent was authorized.
- may be EXPRESS or IMPLIED.
Note: All or Nothing: whether an agent acted with authority in entering a contract for a principal is an all or nothing issue–they had authority or not (no partial authority).
Actual authority - EXPRESS
• EXPRESS actual authority: conveyed by principal in words (ORAL or written)
- actually contained within the four corners of the agency agreement.
- effective even if it was granted mistakenly or because of misrepresentation.
Actual authority - IMPLIED
IMPLIED actual authority: authority the agent REASONABLY BELIEVES they have as a result of the PRINCIPAL’s words or actions. (conduct, custom, words?)
implied authority includes authority:
1) Incidental to express authority
- includes things that are incidental to the thing principal said to do (the things necessary to do the thing P asked A to do.)
2) Arising out of CUSTOM known to the agent
3) Resulting from prior acquiescence by the principal
- Implied authority from acquiescence based.
4) To take emergency measures
5) To delegate authority in cases of ministerial acts, where circumstances require, where performance is impossible without delegation, or where delegation is customary
6) To pay for and accept delivery of goods where there is authority to purchase
7) To give general warranties as to fitness and quality and grant customary covenants in land sales, collect payment, and deliver where there is authority to sell. AND
8) To manage investments in accordance with the “PRUDENT INVESTOR” standard
TITLE or POSITION: can also be used to establish actual authority to the extent that the agent reasonably believes that they have authority to act based on the title or position given to them by the principal.
EXAM - Discuss what transpired between the principal and the agent.
Termination of Actual authority
Irrevocable Agencies?
Authority MUST exist at time when Agent enters K for P.
**Principal willl only be bound if authority was not terminated before the contract was made.
Termination or Revocation of actual authority occurs by:
•Specified time in agency agmt
• Lapse of Reasonable time if time not specified in agmt
• Specified event in agency agmt
• Change of circumstances
- (including destruction of Subject Matter of authority, insolvency of either A or Pr, change in law or biz conditions)
• Agent’s Breach of fiduciary duty
• Unilateral act of termination: Either party has power to terminate unilaterally, but term’ may be breach of K.
• Operation of law
- (death or loss of capacity except where a durable power of attorney- written authority that says it will not terminate on the principal’s disability—is present.
- Death: when notice; actual authority terminates at death with notice
– EXAM: death terminates an agency (upon notice to Agent) unless the agency is irrevocable.
– Termination in the case of a principal’s death is effective only when the agent has NOTICE of it)
b. Irrevocable Agencies
An agency may NOT be unilaterally terminated by the principal if…
•It is an agency coupled with an INTEREST OR a POWER given as SECURITY,
• the agency was given to protect the AGENT’S (or a third party’s) RIGHTS, and
• it is supported by CONSIDERATION.
Neither will such agencies be terminated by operation of law.
- Interest or power:
– (interest = A’s ownership in corp’s shares sold to A by Pr)
– (Power = agency given as a security)
Apparent authority:
Based on THIRD PARTY’S reasonable belief that authority exists.
RULE: if the Principal’s words or conduct would lead a Reasonable Person in the third party’s position to blieve that Agent has authority to act on Ps behalf, then the Agent has authority to bind the Principal.
Theory: Apparent authority exists when the Pr “holds out” another as possessing authority and based on this holding out, a third party is reasonably led to believe that authority exists.
• apparent authority arises from reasonable beliefs of third parties
EXAM: discuss what transpired between the principal and the third party.
- what the principal did to indicate to the third party that the agent had authority?
Distinguish - Actual vs. Apparent Authority:
Actual authority is based on the principal’s manifestations (words or conduct) and how they affect the reasonable agent.
Apparent authority is based on the principal’s manifestations (words or conduct) and how they affect the reasonable third party.
Apparent authority can exist even when actual authority does not!
Types of APPARENT AUTHORITY:
Depends…
• When Agent EXCEEDS Actual Authority: There are situations where the agent exceeds their authority, yet the principal is still bound
- Prior act of permission by Pr’
- Power of Position
• When Agent Has No Actual Authority: Generally, if an agent did not have any actual authority when they entered a contract for a principal, the principal will not be bound by the agent’s acts. However, there are certain situations in which the principal may be bound.
— Unilateral Agent Representations: NO, not apparent authority for this.
— Impostors
— Lingering Apparent Authority
— Notice May Be Necessary
— Writing Manifesting Authority
— Death or Incompetency
• Inherent Authority (Inherent Agency Power):
— Respondeat Superior
— Conduct Similar to that Authorized
• Improper Disposition of Goods
TYPES of APPARENT AUTHORITY:
When Agent EXCEEDS Actual Authority… yet the principal is still bound.
When Agent Exceeds Actual Authority… yet the principal is still bound.
There are situations where the agent exceeds their actual authority, yet the principal is still bound.
• Prior Act:
Where the principal previously permitted the agent to exceed their express or implied authority and knows that the third party is aware of this, the principal is bound through apparent authority.
• Power of Position
Apparent authority may be established through an agent’s title or position given to A by P.
Agent’s title or posision created a Reasonable belief for third party to beleive A was authorized to act for Pr in ways that are typical of someone in that title or posision.
When the agent is in a position that customarily carries with it certain responsibilities, the principal is liable for the agent’s acts that come within these customary responsibilities.
- Ex: P appoints A as treasurer…. reasonable for A to beleive he has power of treesurer, reasonabel for others to.
NOTE: Even if Agent does not have RB, he will have apparent authority from title to third parties if they reasonably beleive based on his title.
TYPES of APPARENT AUTHORITY:
- When Agent Has No Actual Authority
Generally, if an agent did not have any actual authority when they entered a contract for a principal, the principal will NOT be bound by the agent’s acts.
However, there are certain situations in which the principal may be bound.
— Unilateral Agent Representations
A principal generally will not be bound when the principal does nothing to hold the agent out as having authority and the only statement of authority comes from the purported agent’s claim they have authority.
Apparent authority is based on the principal’s manifestations to a third party.
Thus, apparent authority cannot be created by the mere representations of an agent or other actor.
— Impostors
Where the principal negligently permits an impostor to be in a position to appear to have agency authority, the principal will be held liable for the impostor’s actions undertaken with such authority.
In other words, we’ll have an AGENCY BY ESTOPPEL–the principal will be estopped from denying the imposter was their agent.
— Lingering Apparent Authority
Remember, apparent authority can exist even when actual authority does not.
Similarly, apparent authority can linger after actual authority ends.
— Notice May Be Necessary
Where an agent’s actual authority has terminated, he will have apparent authority to act on the principal’s behalf as to all third parties with whom the principal knows he dealt UNLESS AND UNTIL the third parties receive either actual or constructive notice of the termination.
— Writing Manifesting Authority
Where an agent’s actual authority has been terminated but third parties rely on a written authority of the agent, the agent’s apparent authority is not considered to be terminated—unless the principal recovers the written authority.
— Death or Incompetency
The majority view is that death or incompetency of the principal does not automatically terminate the agent’s apparent authority.
Unilateral agent representations
Unilateral agent representations are INSUFFICIENT to create actual or apparent authority.
Apparent authority cannot be created by agents actinos alone, its based on what Pr did
Apparent authority can linger
Ag has lingering apparent authority.
…
To cut off apparent authority - notify third party. If agent fired, then To kill off apparent authorityt, should notify third parties of termination.
Remember, apparent authority can exist even when actual authority does not.
Similarly, apparent authority can linger after actual authority ends.
Type of Apparent Authority: Inherent Authority (Inherent Agency Power)
Inherent authority is derived solely from the agency relationship and results in the Pr being bound even though the Ag’ had no actual or apparent authority to perform the particular act.
This occurs because courts wish to protect innocent third parties rather than a principal who gave some actual authority to the agent.
Examples of inherent authority include:
— Respondeat Superior
Under the doctrine of RS, pr’ is liable… their employee committed within the scope of employment.
— Conduct Similar to that Authorized
Where an agent exceeds their actual authority (that is, violates orders), but the conduct is similar to acts authorized, the principal will be held liable.
Improper Disposition of Goods
The principal will be held liable for the disposition of their goods by an agent possessing them if…
the agent was given some indicia of ownership, or
if the goods disposed of were sold by an agent who is a dealer in the particular goods.
RATIFICATION.
Requirements:
After-the-fact authority.
RULES:
•An agency relationship is created by ratification 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.
•even if the “agent” had no authority at the time of entering into the contract, the “principal” will still be bound by the “agent’s” actions if the “principal” subsequently ratifies the contract.
• It gives the transaction retroactive effect UNLESS…
- the “principal” lacked contractual capacity at the time the “agent” entered into the unauthorized transaction (in which case the “principal” is deemed to have “adopted” the contract), or
- retroactivity would interfere with intervening third-party rights.
No authority befroe trhe trasnsaction, but P blessed the transaction AFTER.
- “agent” purports to act on behalf of a “principal” without any authority at all, but the “Pr” subsequently validates the act and becomes bound.
3 REQS for Ratification:
1. P has KNOWLEDGE (or HAS REASON TO KNOW) of all material facts regarding the K (Agent disclosed)
2. P ratifies ENTIRE TRANSACTION (not just portion)
3. Pr had capacity (competent and legal age) at the time the agent entered into the unauthorized K:
- But even If they didn’t have capacity, the pr’ is deemed to have adopted the K.
- Ratification Cannot be used to alter rights of intervening parties.
* Cannot be used to cut off rights of third parteis.
- (ex: ag makes K with 3rdparty without authority, then p makes worse deal with same 3rd party…. P cannot go back and ratify A’s first deal bc he likes it better bc 3rd party has rights on K).
Result: Upon ratification, the “agent” is relieved of liability for breach of duty and their implied warranty of authority.
