1. What is the key to determining whether a principal will be bound by countracts into which his agent enters?
    To bind the principal, an agent must have the authority to contract on his behalf.
  2. What is the key to determining whether a principal will be liable for tortious acts committed by his agents?
    Whether a principal is liable for the agent’s torts depends on whether the agent was a servant/employee, and whether the agent acted within the scope of his authority.
  3. What are the three types of authority? Which is the most favored/has the most binding effect?
    • Actual, either express or implied
    • Apparent
    • Inherent

    Each carries the SAME binding effect
  4. What is actual authority and how may it be manifested?
    It is authority actually bestowed on an agent by a principal.

    Express actual authority manifests via:

    • i) oral and written words;
    • ii) clear, direct, and definite language; or
    • iii) specific detailed terms and instructions.

    A principal must communicate his intent to the agent in order to create actual authority.
  5. Can silence constitute a manifestation of assent for an agent to act on a principal's behalf?
    Yes, silence or the failure to dissent, when a reasonable person would have, can constitute a manifestation of assent for an agent to act on the principal’s behalf. A principal must give the agent clear notice if the principal disagrees with the agent’s actions.
  6. A business owner, asks A (an employee) to sign an invoice that just came over the fax machine for $400. B (also an employee), who is standing next to A, picks up the invoice from the fax and signs it. Did B have authority to sign?
    A principal’s manifestation intended for one agent and given to another agent in error creates express authority to the agent who received the manifestation by mistake.
  7. How may a principal terminate an agent's actual authority?
    • i) revocation;
    • ii) agreement with the agent;
    • iii) change of circumstances;iv) passage of time;
    • v) principal’s death, cessation of existence, or suspension of powers;
    • vi) agent’s death, cessation of existence, or suspension of powers;
    • vii) principal’s loss of capacity; or by
    • viii) statutorily mandated termination.
  8. What is implied authority?
    Implied authority allows an agent to take whatever actions are necessary to achieve the principal’s objectives, based on the agent’s reasonable understanding of the manifestations and objectives of the principal.
  9. What two things are required for there to be good implied authority?
    Agent must reasonably believe (objective element) he has authority and act in good faith (subjective element) on that belief.

    The principal's beliefs are not relevant.
  10. What is authority implied by acquiescence?
    • Implied authority based upon acquiescence commonly results from one of the following:
    • i) The principal’s acceptance of the agent’s acts as they occur; or
    • ii) The principal’s failure to object to the unauthorized actions of the agent which:
    • a) affirm the agent’s belief that those actions further the principal’s objectives; and
    • b) support the agent’s perceived authority to act in the future.

    Example: Howard, the manager for La Vida Dolce, has been signing the invoices for wine (without authorization) delivered to the restaurant for the last four months, since the owner of the restaurant, Gino, has been working on opening the outside café. Gino has never expressly authorized Howard to sign for the wine orders, but when he saw Howard sign for an order on two occasions, Gino failed to object to Howard’s unauthorized action. Howard currently has implied authority by acquiescence to sign for future wine orders, and Gino will be liable for these acts.
  11. In what 4 situations does an agent have actual authority to delegate his duties to another?
    • 1) Where business customs dictate that an agent should have a certain authority
    • 2) Where the principal has acquiesced to an agent's actions (either in the present instance or in a prior similar instance)
    • 3) In an emergency - agent may take all reasonably necessary steps on behalf of the principal.
    • 4) Purely administerial tasks, where law requires delegation to specialists, where trade custom allows it, or where something is impossible for the agent to do.
  12. What is apparent authority?
    An agent derives apparent authority from a principal’s manifestations (spoken or written word, conduct), which cause a third party to “reasonably” believe that the agent has the actual authority to act, even though the agent might have neither express nor implied authority.
  13. What two things are required for there to be apparent authority?
    Good faith belief by a third party based on the words or conduct of the agent's principal.
  14. What are some factors in determining whether a third-party's beleifs are reasonable in establishing whether there is apparent authority?
    • i) Past dealings between the principal and the agent of which the third party is aware;
    • ii) Trade customs regarding how a similar transaction is normally accomplished;
    • iii) Relevant industry standards;
    • iv) Principal’s written statements of authority;
    • v) Transactions that do not benefit a principal; or
    • vi) Extraordinary or novel transactions for the principal or similar types of principals.
  15. What is ratification and its effect?
    Where agent enters into a contract on principal's behalf without authority, but the principal ratifies the decision. It is as if there was authority all along.
  16. What are the four elements necessary for ratification to be found?
    • i) The principal cannot choose to affirm a portion of the agent’s act. He or she must ratify the entire act, contract, or transaction;
    • ii) The principal must have the legal capacity to ratify the transaction at the time it occurs. (The third party must also have the legal capacity to engage in the transaction);
    • iii) The principal’s ratification must be timely (before the third party withdraws from the transaction); and
    • iv) The principal must have knowledge of the material facts involved in the original act.
  17. What is estoppel? When does it occur?
    Estoppel occurs when someone is able to carry on as the principal's authorized agent due to the principal's failure to act, speak or clear up the misunderstanding.

    • Example: Peggy has two co-agents, Alicia and Bill. Peggy learns that Bill, acting without actual or apparent authority, is informing Peggy’s neighbors that Alicia has the authority to sell Peggy’s ring, which Peggy has specifically forbidden Alicia from doing. Peggy’s next door neighbor purchases Peggy’s ring from Alicia, in justifiable reliance on Bill’s representation as to Alicia’s authority. Peggy, in her suit to rescind the sale, may be estopped (prevented) from denying Bill’s authority to make the representation as to Alicia’s authority.
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  18. What is inherent authority?
    If an agent performs an unauthorized action that is similar to an authorized action, inherent authority may be found.
Card Set
Contract Liability on the Part of the Principal