Flashcards in Agency- LIABILITY OF PRINCIPAL FOR CONTRACTS ENTERED INTO BY AGENTS Deck (43)
What are the two main types of authority?
1. Actual authority
2. Apparent authority
What are the two types of actual authority?
1. Express Actual Authority
2. Implied Actual authority
What is actual authority?
Actual authority is authority that the agent
reasonably thinks she possesses based on the principal’s dealings with her.
When does the agent have actual authority to bind the principal?
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.
What is express actual authority?
Authority conveyed by the principal in words (oral or written).
P goes to an office where, as he knows, several brokers have desks, and leaves upon the desk of A, thinking it to be the desk of X, a note signed by P, which states: “I authorize you to contract in my name for the purchase of 100 shares of Western Union stock at today’s market.” Unaware of the mistake, A comes to work, finds the note, and makes a contract with T in P’s name for the purchase of the shares. Was A authorized to enter into this contract? Why or why not?
Yes, A has express actual authority. P’s signed note without a specific name on it would lead a reasonable person in A’s position to believe that she was authorized. It does not matter P's intent.
What is implied actual authority?
Authority the agent reasonably believes she has as a result of the principal’s actions
In what ways can the agent infer their authority for implied actual authority?
Anything reasonably inferred form principal’s words or conduct, from custom, or from acquiescence by the principal
Paulina authorizes Albert to manage his apartment building. Paulina only states that Albert is “to manage”—nothing more. To manage the building, Albert must employ a janitor, purchase fuel for heating, and occasionally redecorate an apartment. Is Albert authorized to do these things? Why or why not?
Yes, The authority of Albert to do these things, while not expressly granted, is implied because these acts are necessarily incidental to (“part and parcel of”) the proper management of the building.
Albert, the office manager for Paulina’s company, has regularly bought office supplies for the
company without previous authorization. Paulina has never objected. Does Albert have authority
to continue these purchases?
Yes. Albert has implied authority from acquiencense to continue these purchases.
The approval by Paulina of Albert’s prior transactions would lead a reasonable person in Albert’s position to believe that he had authority to buy supplies for Paulina in the future.
Actual authority must exist when the agent ______ _______ _________.
Enters into a contract.
In what 5 ways can actual authority be terminated?
It will be terminated/revoked
(1) after a specified time or event, or after a reasonable time (if there is no specified time or event);
(2) by a change of circumstances (e.g., the subject matter of the agency is destroyed);
(3) by a breach of the agent’s fiduciary duty;
(4) by a unilateral act of either the principal or the agent; or
(5) by death or incapacity of the principal or the agent.
Paula collects rare books. She hires Alice to find a rare book to complete her collection. Alice searches everywhere for the rare book. As Alice is about to pay for the book, Paula dies. Is Paula’s estate bound by the contract and liable to pay for the book?
No, via actual authority. Actual authority terminated upon Paula's death. (there may be some other way they can recover, but not through actual authority)
What is apparent authority?
Apparent authority exists when the principal “holds out” another as possessing authority and a third party is reasonably led to believe that authority exists.
When would there be apparent authority?
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 on the principal’s behalf, the agent has apparent authority to bind the principal.
Who does apparent authority protect?
The policy of apparent authority is that it protects innocent third parties who rely on the principal’s holding out of a person as his agent.
What is actual authority based on?
Actual authority is based on the principal’s manifestations (words or conduct) and how they affect the reasonable agent.
What is apparent authority based on?
Apparent authority is based on the principal’s manifestations (words or conduct) and how they affect the reasonable third party.
Can apparent authority exist even when actual authority does not exist?
Yes, Apparent authority can exist even when actual authority does not.
Frodo tells Paris Hilton, “If you want to buy the ring, see Gandalf.” Frodo has never given Gandalf authority to sell the ring. Who is the principal, who is the agent, who is the third party?
Frodo is the principal
Gadalf is the agent
Paris Hilton is the third party
Frodo tells Paris Hilton, “If you want to buy the ring, see Gandalf.” Frodo has never given Gandalf authority to sell the ring. If Paris contracts with Gandalf, is Frodo bound? Why or why not?
Yes, because of apparent authority. Fordo's words led Paris to reasonably believe that Gandalf had authority
Can apparent authority be established though title or position?
Yes, Apparent authority may be established
through an agent’s title or position
How would a third party argue that apparent authority existed by position?
the third party would argue that an agent’s title or position, which was given to him by the principal, created a reasonable belief in the third party that the agent was authorized to act for the principal in ways that are typical of someone who holds that title or position.
Can actual authority be created through power of position?
Yes, title or positiony can also
be used to establish actual authority to the extent that the the agent reasonably believes that he has authority to act based on the title or position given to him by the principal.
P appoints A as “Treasurer,” and nothing more is stated. Will A have actual authority? Why or why not?
Yes, A will reasonably believe that he has the authority that treasurers typically have, and third parties who deal with A (and are aware of his position) will reasonably believe the same.
P appoints A as “Treasurer.” If P tells A that he will not have authority to write checks on the company’s account will A have actual authority to write checks? Will A have apparent authority ot write checks?
No, If P tells A that he will not have actual authority to write checks on the company’s account.
Yes, A will have apparent authority to write checks with respect to third parties who are aware of his
position but are unaware of the limitation on his authority.
What is apparent authority based on? Can apparent authority be created only the representations of the agent? Why or why not?
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.
Albert tells Thomas that he is Paulina’s agent when in fact he is not. If Albert contracts with Thomas on Paulina’s behalf, will Paulina be bound?
No, there is no manifestation by paulina
Now assume that Albert, in Paulina’s presence, tells Thomas that he is Paulina’s agent when in fact he is not. Paulina is silent. If Albert contracts with Thomas on Paulina’s behalf, will Paulina be bound Why or why not?
Yes, apparent authority exists. Paulina’s silence in the face of Albert's statement will be viewed as conduct by Paulina to Thomas that misled Thomas.