Agency - CA Bar July 2022

Ratification

An act of a partner, done without authority, may bind the partnership if subsequently ratified. Ratification is the partnership's assent to the contract. It may be expressed or implied. Express ratification occurs when the other partners learn of the transaction and decide to approve it. Implied ratification occurs when the partnership "accepts the benefits" of the contract.

Agency Principles

An agent is one who acts on behalf of the principal and is subject to its control when dealing with thrid parties. Businesses are bound by the acts of its agents who have the "authority" to bind the company.

The Power of the Agent to Bind the Principal (Authority)

An agent may have the power or the authority to bind her principal in dealing with a third party. There are several different types of authority. They are: Actual - Express or Implied, and Apparent Authority

Creation

An agency relationship is created when one person shows an intent that another act on his behalf. The relationship may be created orally or in writing or by conduct of the principal. Essentially, the "agent" is the representative of the principal.

Actual Authority

An agent's actual authority comes from the relationship between the agent and the principal. Actual authority may be express (written or communicated) or implied (through prior dealings and course of conduct). In short, actual authority is based on what the agent has been instructed to do.

Implied Authority

Authority that which is reasonably necessary to accomplish the objectives of the relationship. It includes the authority to do everything necessary to conduct business in the usual and customary manner. Such authority may be inferred or implied from either the title or position the principal has given the agent. Agent has the implied authority if: (i) it is customary for someone in the agent's position to bind the corporation; (ii) the agent reasonably believed, based on past behavior and actions, that she had the power to bind the corporation; or (iii) it was necessary for the performance of her duties that she be able to bind the corporation.

Express Authority

Express authority refers to any express agreement between the principal and the agent. Thus, it arises from the communications of the principal to the agent. It may be created orally or by formal written instrument. Mainly, an agent's authority to act will be expressly granted in the corporation's bylaws or by resolution of the board of directors.

Apparent Authority

In the absence of express authority, a corporation may be es topped to deny the authority of one of its agents where the corporation has created the appearance that the agent has the authority to act. Apparent authority arises when the principal "holds out" another as having certain authority, causing the third party to believe that such authority exists. It is based on the principal's actions toward a third party. Would the words or conduct of the principal lead a reasonable person in the third party's position to conclude that the agent had the authority to act.