Business Law 443 - Chapter 36

An agent's knowledge of facts is imputed to the principal.

This means that the principal's rights and liabilities are what they would have been if the principal had known what the agent knew.

Express ratification

When the principal manifests assent that his legal relations be affected

Implied ratification

When the principal's conduct justifies a reasonable assumption that he consents to the agent's act.

An agent also may be liable to a third party if he contracts for

a legally existing and competent principal while lacking authority to do so.

Estoppel

a person may be liable for an actor's transaction with a third party who justifiably is induced to make a detrimental change in position because he believed the actor had authority to act for the person.

For some torts

a principal may be have both direct and vicarious liability

An undisclosed principal becomes party to a contract only when the agent

acts on the principal's behalf in making the contract.

A principal ordinarily is not liable for torts committed by

nonemployee agents (independent contractors)

Even when the agent lacks authority to contract, a principal may bind herself by later

ratifying a contract made by an unauthorized agent.

Liability to a third party exists

regardless of whether the agent is otherwise bound to the third party

Direct liability

requires that the principal be at fault

A principal is directly liable for misrepresentations made by her agent during authorized transactions if

she intended that the agent make the misrepresentations

A principal is directly liable for an agent's tortious conduct if

the agent acts within her actual authority or the principal ratifies the agent's conduct

Actual authority

the authority the principal wants the agent to possess.

An agent who wishes to avoid liability should

make no express promises in her own name and should try to ensure that the agreement obligates only the principal

Exceptions to tort liability of the agent

1. An agent can escape liability if she is exercising a privilege of the principal 2. A principal who is privileged to take certain actions in defense of his person or property may often authorize an agent to do the same 3. An agent who makes misrepresentations while conducting the principal's business is not liable in tort unless he either knew or had reason to know of their falsity 4. An agent is not liable for injuries to third persons caused by defective tools or instrumentalities furnished by the principal unless the agent had actual knowledge or reason to know of the defect.

Scope of employment test:

1. It was of the kind that the employee was employed to perform 2. It occurred substantially within the authorized time period 3. It occurred substantially within the location authorized by the employer 4. It was motivated at least in part by the purpose of serving the employer

Exceptions to principals not liable for torts committed by nonemployees are:

1. a principal can be directly liable for tortious behavior connected with the retention of a nonemployee agent. 2. a principal is liable for harm resulting from the nonemployee agent's failure to perform a duty of care, which duty the principal owes to other persons but has delegated to the agent.

Examples of direct liability for negligence include:

1. giving the agent improper or unclear instructions 2. failing to make and enforce appropriate regulations to govern the agent's conduct 3. hiring an unsuitable agent 4. failing to discharge an unsuitable agent 5. furnishing an agent with improper tools, instruments, or materials 6. carelessly supervising an agent

A principal is unidentified if the third party

1. knows or has reason to know that the agent is acting for a principal 2. lacks knowledge or reason to know the principal's identity

An agent may expressly bind herself by

1. making the contract in her own name rather than in the principal's name 2. Joining the principal as an obligor on the contract 3. acting as surety or guarantor for the principal

A principal is disclosed if a third party knows or has reason to know

1. that the agent is acting for a principal 2. the principal's identity

An agent is not liable for making an unauthorized contract if any of the following applies:

1. the third party actually knows that the agent lacks authority 2. the principal subsequently ratifies the contract. 3. the agent adequately notifies the third party that he does not warrant his authority to contract.

The two most important factors affecting the agent's liability are

1. the wording of the contract 2. the way the agent has signed it.

A typical requirement for ratifying a contract

The act ratified must be one that was valid at the time it was performed.

Duty of care

duty whose proper performance is so important that a principal cannot avoid liability by delegating it to an agent.

Implied authority usually derives from a grant of

express authority by the principal.

An agent may bind herself to contracts she makes for a principal by

expressly agreeing to be liable

No imputation occurs, however,

if the agent acts adversely to the principal with an intent to act solely for the agent's own purposes or those of another person.

An agent generally has

implied authority to do whatever it is reasonable to assume that his principal wanted him to do, in light of the principal's manifestations to the agent and the principal's objectives of the agency.

Among the factors affecting anyone's decision to contract are

integrity reliability creditworthiness

Ratification

is a process whereby a principal binds himself to an unauthorized act done by an agent, or by a person purporting to act as an agent.

An agent who represents a disclosed principal

is not liable on authorized contracts made for such a principal unless he agrees otherwise

If an agent has authorized his subagent to make a certain contract and this authorization is within the authority granted the agent by his principal,

the principal is bound to the subagent's contract

Respondeat superior makes

the principal liable both for an employee's negligence and for her intentional torts

Implied authority is

usually derived from a grant of express authority by the principal

Vicarious liability

where only that the agent be at fault

Exculpatory clause

A contract provision that attempts to release one party from liability in the event the other is injured. Such clauses typically state that the agent has authority only to make the representations contained in the contract and that only those representations bind the principal. Exculpatory clauses do not protect a principal who intends or expects that an agent will make false statements.

Certain events occurring after an agent's contract but before the principal's ratification may

cut off the principal's power to ratify. These include: 1. the third party's withdrawal from the contract 2. the third party's death or loss of capacity 3. the principal's failure to ratify within a reasonable time 4. where it would be inequitable to bind the third party

Under the doctrine of respondeat superior,

a principal who is an employer is liable for torts committed by agents; 1. who are employees 2. who commit the tort while acting within the scope of their employment

Respondeat superior is

a rule of imputed or vicarious liability because it bases an employer's liability on her relationship with the employee rather than her own fault

An agent's power to take an action designated or implied in a principal's manifestations to the agent is

actual authority

Express authority

actual authority that the principal has specified in very specific or detailed language.

A principal normally is liable on a contract made by his agent if the agent had

actual or apparent authority to make the contract.

A principal becomes unidentified when an

agent simply neglects to disclose his principal's identity

Unless there is an agreement to the contrary,

an agent who purports to act for a legally nonexistent principal, such as an unincorporated association, is personally liable when the agent knows or has reason to know the principal does not exist. The agent is also liable when she knows or has reason to know a principal has no capacity.

No matter what its source,

an agent's implied authority cannot contradict the principal's express statements.

Apparent authority

arises when the principal's manifestations cause a third party to form a reasonable belief that the agent is authorized to act in a certain way.

Estoppel is different from apparent authority

because it does not require that the purported principal have made any manifestation that the purported agent can act for her.

A principal is undisclosed when the third party lacks knowledge or reason to know

both the principals existence and the principal's identity.