Business Law Chapter 33

The undisclosed principal can require the third party to fulfill the contract, unless one of the following is true:

1. The undisclosed principal was expressly excluded as a party in the written contract. 2. The contract is a negotiable instrument signed by the agent with no indication of signing in a representative capacity. 3. The performance of the agent is personal to the contract, thus allowing the third party to refuse the principal's performance.

Exceptions to the equal dignity rule

1.An executive officer of a corporation normally can conduct ordinary business transactions without obtaining written authority from the corporation. 2. When the agent acts in the presence of the principal, the rule does not apply. 3. When the agent's act of signing is merely a formality, then the agent does not need written authority to sign.

The requirements for ratification can be summarized as follows:

1.The agent must have acted on behalf of an identified principal who subsequently ratifies the action. 2. The principal must know all of the material facts involved in the transaction. If a principal ratifies a contract without knowing all of the facts, the principal can rescind (cancel) the contract. 3. The principal must affirm the agent's act in its entirety.4. The principal must have the legal capacity to authorize the transaction at the time the agent engages in the act and at the time the principal ratifies. The third party must also have the legal capacity to engage in the transaction. 5. The principal's affirmation (ratification) must occur before the third party withdraws from the transaction. 6. The principal must observe the same formalities when ratifying the act as would have been required to authorize it initially.

Courts may consider the following factors in determining whether a particular act occurred within the course and scope of employment:

1.Whether the employee's act was authorized by the employer. 2.The time, place, and purpose of the act. 3.Whether the act was one commonly performed by employees on behalf of their employers. 4. The extent to which the employer's interest was advanced by the act. 5.The extent to which the private interests of the employee were involved. 6. Whether the employer furnished the means or instrumentality (such as a truck or a machine) by which an injury was inflicted. 7.Whether the employer had reason to know that the employee would perform the act in question and whether the employee had done it before. 8. Whether the act involved the commission of a serious crime

Acting outside the scope of her authority, Eve indicates that she is acting as an agent on behalf of her client Lou Cifer when she enters into a contract with Adam, who relies on her representations. Generally speaking, liability to Adam arising from nonperformance of the contract may be imposed on____ a. Eve only. ____ b. Lou only. ____ c. Eve and Lou.

A

Mishawaka Brewing Company (MBC) requires its wholesale customers to pay by check. Seamus, an MBC driver, tells customers on his route that they can pay him with cash. When MBC learns of Seamus' collections, it takes no action to stop it, confirming Seamus' customer's belief. Seamus steals some of the cash. MBC may suffer the loss under the doctrine of: _____ a. apparent authority. _____ b. equal authority. ____ c. express authority. _____ d. implied authority.

A

T/F: Adam hires Lou Cifer, a real estate broker, to act as his agent to sell his house, which includes a garden complete with an apple tree. After Lou sells the house, the agency agreement terminates ____ a. automatically. ____ b. as soon as Adam is 'Abel' to send notice. ____ c. as soon as Adam and Lou 'Cain' mutually agree. ____ d. on the 'Eve' of the closing.

A

equal dignity rule

A rule requiring that an agent's authority be in writing if the contract to be made on behalf of the principal must be in writing.

agency coupled with an interest

An agency, created for the benefit of the agent, in which the agent has some legal right (interest) in the property that is the subject of the agency.

implied authority

Authority that is created not by an explicit oral or written agreement but by implication.

Power of attorney

Authorization for another to act as one's agent or attorney either in specified circumstances (special) or in all situations (general).

Acting within the scope of her authority, Eve indicates that she is acting as an agent on behalf of her client Lou Cifer when she enters into a contract with Adam. Liability to Adam for nonperformance of the contract may be imposed on____ a. Eve only. ____ b. Lou only. ____ c. Eve and Lou.

B

Adam hires Lou Cifer, a real estate broker, to act as his agent to sell his house. To terminate Lou's authority, Adam should notify ____ a. Lou only. ____ b. Lou and any third parties who know of the agency relationship. ____ c. only third parties who know of the agency relationship. ____ d. the public generally.

B

MCI employs Slick Phibbs as an agent. Without MCI's knowledge but otherwise acting within the scope of employment, Slick commits a crime. Generally speaking, it is probably more likely that the state can successfully prosecute_____ a. MCI. _____ b. Slick. _____ c. neither.

B?

Acting within the scope of her authority, Eve enters into a contract with Adam, but never indicates she is acting on behalf of an undisclosed client (Lou Cifer). Liability to Adam for nonperformance of the contract may be imposed on ____ a. Eve only. ____ b. Lou only. ____ c. Eve and Lou (i.e., Eve initially, but once Lou's identity is revealed, Eve or Lou, but if it's Eve, Eve is entitled to indemnification).

C

Acting within the scope of her authority, Eve indicates that she is acting as an agent on behalf of an unidentified client (Lou Cifer) when she enters into a contract with Adam. In most states, liability to Adam for nonperformance of the contract may be imposed ____ a. on Eve only. ____ b. on Lou only. ____ c. on Eve and Lou (i.e., Eve initially, but once Lou's identity is revealed, Eve or Lou, but if it's Eve, Eve is entitled to indemnification).

C

Adam hires Lou Cifer, a real estate broker, to act as his agent to sell his house. The house burns down before being sold. The agency agreement is likely ____ a. still in force if Adam gives Lou additional consideration. ____ b. terminated by occurrence of a specific event. ____ c. terminated by operation of law.

C

Adam hires Lou Cifer, a real estate broker, to act as his agent to sell his land for $10,000. Oil is discovered beneath the land, causing its market value to increase one hundred fold. The agency agreement is likely ____ a. still in force if Adam gives Lou additional consideration. ____ b. terminated by occurrence of a specific event. ____ c. terminated by operation of law.

C

Slick Phibbs, a sales rep for MCI, enters into an unauthorized contract with the U.S. Postal Service (USPS), purportedly on MCI's behalf. This contract will be enforceable if it is ratified by_____ a. any third party. _____ c. MCI. _____ b. Slick. _____ d. USPS.

C

Lynn manages the Dotre Name Bookstore. She may hire employees to work in the store despite the fact that her employment agreement with Dotre Name says nothing about her being able to hire employees. This is_____ a. apparent authority. _____ b. equal authority._____ c. express authority._____ d. implied authority.

D

Frolic

Employer not typically liable

Detour

Employer typically liable

T/F: The failure of a principal to affirm promptly an unauthorized transaction by an agent is a ratification of the transaction.

F

Lundberg v. Church Farm, Inc.

Facts- Church owned a horse breeding farm managed by Bagley. Ads for breeding rights of one of the horses, Imperial Guard, directed all inquiries to Bagley. The Lundbergs contacted Bagley and executed a preprinted contract giving them breeding rights subject to the approval of Church. Bagley HAndwrote a statement on the contract guaranteeing six fouls in the first 2 years and signed it Church by Bangley. After 1 live foul, church moved to oklahoma, Lundenburgs sues church for breach of contract by moving the horse. Church claimed that Bagley was not authorized to sign contracts for Church or to change or add terms, but only to present pre printed contracts to potential buyers. Church testified that although Bagley was his farm manager and the contact person for breeding rights, Bagley had never before modified the preprinted forms or signed Church's name on them. The jury found in favor of the Lundbergs and awarded $147,000 in damages. Church appealed. Issue-Did the manager of a horse-breeding farm have apparent authority to modify and sign contracts on behalf of the owner? Rule- A principal may be bound by the unauthorized act of an agent if the principal leads a third party to believe that the agent has authority to perform the act. Apparent authority arises from ...-what the principal causes a third party to believe. An agent has apparent authority when .....-The principal, by either word or action, causes a third party reasonably to believe that the agent has authority to act, even though the agent has no express or implied authority. Analysis- Gil Church approved the Imperial Guard advertisement listing Herb Bagley as Church Farm's manager, and directing all inquiries to him. Church also permitted Bagley to live on the farm and to handle its daily operations. Bagley was the only person available to visitors to the farm. Bagley answered Church Farm's phone calls, and there was a preprinted signature line for him on the breeding rights package. The agent has apparent authority Conclusion- In favor of the Lundenburgs

SMITH V. GARDNER

Facts: Smith involved in a 2 car accident, files action against Gardner and the college, seeking to recover damages for injuries sustained in the accident. The claim it was caused by negligence on the part of defendant, who was employed as the assistant baseball coach by the college, in town for a game. Sued college on the theory that it is vicariously liable for Gardeners alleged negligence. College seeks summary judgment as it can not be held liable for Gardeners acts since shown by undisputed facts, that Gardner was not acting within the course and scope of his employment with the College at the time of the accident. \Garder took van to store to purchase alcohol. He drank. Drove back to the store, wanted to sight see and got into the accident. His BAC was over the legal limit. Issue: Were Gardner's act, within the course and scope of his employment with the College at the time of the accident? Rule: An employer is liable for the tortious conduct of his employees if that employee was acting within the scope of his employment. The test for determining whether an employee's tortious act is within the scope of his employment is "whether [the act] was done in the course of and as a means to the accomplishment of the purposes of his employment and therefore in furtherance of the master's business Employer not liable if at the time of the act the servant had abandoned his employment and was about some purpose of his own not incidental to the employment. Analysis: WhileGardner was obviously an employee of the College, he was not acting within the scope of his employment at the time of the accident but rather was on a personal errand which constituted a distinct deviation from the responsibilities of his employment. The fact is, after returning with the team from eating and retiring to his own hotel room for the night, Gardner was "acting as much outside the scope of his employment as he would be were his working day ended, or his task completed." Consequently, the College is not liable for Gardner's alleged negligence relating to the accident with plaintiff. Conclusion:The College's motion for summary judgment is granted.

JONES v. ARCHIBALD

Facts: The Defendant All-Pro Reps is appealing from a deminal of a motion to dismiss the complaint for failure to state a cause of action. All-Pro engages in the business of reping professional athletes in their contractial dealings. The plaintiff, JOnes, contacted the defendant, archibald to make a single day appearance at the camp and was informed by Archibald to contact All-Pro. All-Pro informed the camp that Archibald would make an appearance and compensation was exchanges, however, 5 days prior to the apparence, Archibald indicates he's unable to make it. All-Pro sent this niof to the plaintiff by mail with a refund which did not arrive to the plaintiff until the day before. Plaintiff alleges that all-pro was an authorized agent in the transaction. Also allege that all-pro breached its duty to provide the plaintiff a replacement of a person of equal stature and representation Issue: To what extent was an agent of a professional athlete liable for damages resulting from the failure of the principal to make a promised appearance at plaintiff's basketball camp. Rule: Where there is a disclosed principal-agency relationship, as in the instant case, the agent is not personally bound "unless there is clear and explicit evidence of the agent's intention to substitute or superadd his personal liability for, or to, that of his principal. A disclosed agent who acts for another in negotiating a contract in the business interests of his principal will not be deemed to have intended to bind himself personally unless the intent to do so is manifested with reasonable clarity Analysis:All of the contracts between plaintiff and All-Pro were by correspondence. Nothing contained in the record indicates any intention on All-Pro's part to assume or undertake any individual, independent responsibility or obligation. Conclusion- complaint dismissed

T/F: If a contract is in writing, the agent's authority to perform the same duty always must be in writing.

False

Changed circumstances.

Sometimes, an event occurs that has such an unusual effect on the subject matter of the agency that the agent can reasonably infer that the principal will not want the agency to continue. In such situations, the agency terminates.

T/F: After Vince signs his big contract with Warner Brothers for Aquaman, he wants to sell his old house and surrounding land and buy a new estate consistent with his status as one of the highest paid stars in Hollywood. Vince orders Ari, who does it all for Vince and is serving as his real estate agent, to tell prospective buyers that there is a sparkling water spring beneath his land, even though Vince knows there is no spring. Ari tells prospective purchaser Jake Gyllenhaal about the spring. Jake buys the property. Vince is liable for any damages arising from this misrepresentation to Jake.

T

T/F: An agent acting at the principal's direction can be liable, along with the principal, for committing the tortious act even if the agent was unaware that the act was wrong.

T

T/F: Eve is an up and coming sales representative for Strategic Electronics, Resistors, Processors, Electrodes, Networks, and Technology, Inc. or "SERPENT." Adam is a contracting officer for the U.S. General Services Administration under the Eastern Data Enterprise Networks procurement, or "EDEN." After meeting repeatedly with Eve and her boss, SERPENT Vice President of Sales Lou Cifer, Adam reasonably believes that Eve has authority to sign contracts on behalf of SERPENT, when in fact she does not. When Adam relies on Eve's signature, EDEN most likely will be estopped from denying that Eve had such authority under the doctrine of apparent authority.

T

T/F: MCI hires Slick Phibbs to perform a variety of duties. Apparent authority exists if a principal, e.g., MCI, causes a third party, e.g., the U.S. Government , to believe reasonably that an agent, e.g., Slick, has authority to act, e.g., to sign contracts on MCI's behalf.

T

T/F: MCI hires Slick Phibbs to perform a variety of duties. In considering the scope of an agent's implied authority, the test is whether the agent, in this case Slick, reasonably believed that he had the authority, e.g., to sign contracts.

T

T/F: Same facts. Jerry Edgerton, an officer of MCI who has authority to bind the corporation, e.g., sign contracts, has authority to ratify the contract that Slick signed on MCI's behalf with the USPS.

T

T/F: Slick Phibbs, a salesperson for MCI, decides to stop at the dry cleaners on his way to a customer meeting. "What a coincidence; it's just around the corner from the customer," he thinks to himself. While pulling into the cleaners, he causes an accident, injuring none other than his boss, Jerry Edgerton. When Jerry sues MCI for Slick's negligence, Jerry claims that Slick was merely on a detour and therefore MCI is liable. Most courts would agree.

T

T/F: The Dotre Name Federal Credit Union employs Greg as an information clerk. Greg has authority only to answer customers' questions. During a renovation, the credit union temporarily moves Greg from the information desk to a teller's window. Holly, a customer, believes that Greg is a teller and leaves a deposit with him. Greg keeps the money. Most courts would find the credit union liable in a suit by Holly.

T

T/F: Wrongful termination of an agency relationship can subject the canceling party to a suit for damages.

T

A principal may also be liable for harm an agent causes to a third party under ..

The doctrine of respondeat superior

when an agency terminates by operation of law.

There is no duty to notify third persons—unless the agent's authority is coupled with an interest.

T/F: Slick Phibbs, a salesperson for MCI, decides to skip a customer meeting and play golf, and then just stop off at the customer's on the way home to apologize. On his way to the course, he causes an accident, injuring none other than his boss, Jerry Edgerton. When Jerry sues MCI for Slick's negligence, MCI claims that Slick was on a frolic and therefore MCI is not liable. Most courts would agree.

True

T/F: The equal dignity rule does not apply to a corporate officer who, in an ordinary business situation, acts on behalf of his or her firm.

True

T/F:An employer is liable for permitting an employee to engage in reckless actions that can injure others.

True

Acting within the scope of her authority, Eve enters into a contract with Adam, but never indicates she is acting on behalf of an undisclosed client (Lou Cifer). Generally speaking, Lou may enforce the agreement against Adam.

True becasue she is Lou

Impossibility.

When the specific subject matter of an agency is destroyed or lost, the agency terminates.

Respondeat Superior

a Latin term meaning "let the master respond."

A document is notarized when....

a notary public—a person authorized to attest to the authenticity of signatures—signs, dates, and imprints the document with her or his seal of authority.

A disclosed principal is ...

a principal whose identity is known by the third party at the time the contract is made by the agent.

A partially disclosed principal is ...

a principal whose identity is not known by the third party. Nevertheless, the third party knows that the agent is or may be acting for a principal at the time the contract is made.

An undisclosed principal is...

a principal whose identity is totally unknown by the third party. In addition, the third party has no knowledge that the agent is acting in an agency capacity at the time the contract is made.

Apparent authority usually comes into existence through ....

a principal's pattern of conduct over time.

A principal is exposed to tort liability whenever ...

a third person sustains a loss due to the agent's misrepresentation.

The power of attorney is ..

a written document and is usually notarized.

If the principal is partially disclosed, in most states the agent is ...

also treated as a party to the contract. Thus, the third party can hold the agent liable for contractual nonperformance.

Generally, an employer is not liable for physical harm caused to a third person by the negligent act of...

an independent contractor in the performance of the contract.

According to Section 15 of the UETA, e agents can enter into binding agreements on behalf of their principals

at least, in those states that have adopted the act.

Express authority is...

authority declared in clear, direct, and definite terms.

When a principal's identity is undisclosed and the agent is forced to pay the third party, the agent is entitled to ...

be indemnified (compensated) by the principal.

When an agent commits a negligent act in such a situation....

both the agent and the principal are liable.

When neither the fact of an agency relationship nor the identity of the principal is disclosed, the undisclosed principal is ...

bound to perform just as if the principal had been fully disclosed at the time the contract was made.

Power of Attorney

confers express authority on agent

For third parties who have heard about the agency but have not yet dealt with the agent, ...

constructive notice is sufficient.

DurablePower of Attorney

continues to be effective despite principal's incapacity

an agent's implied authority cannot ...

contradict his or her express authority.

Authority can also be implied by...

custom or inferred from the position the agent occupies.

Principals are classified as ...

disclosed, partially disclosed, or undisclosed.

An agent has the implied authority to..

do what is reasonably necessary to carry out express authority and accomplish the objectives of the agency.

When an unforeseen emergency demands action by the agent to protect or preserve the property and rights of the principal, but the agent is unable to communicate with the principal, the agent has ...

emergency power.

Apparent Authority arise through

estoppel, emergency or ratification

Giving an agent a power of attorney confers ...

express authority

Ratification can be either ...

express or implied.

A principal who acts through an agent may be liable for harm resulting from the principal's own negligence or recklessness. Thus, a principal may be liable if ...

he or she gives improper instructions, authorizes the use of improper materials or tools, or establishes improper rules that result in the agent's committing a tort.

An agent impliedly warrants that ...

he or she has the authority to enter a contract on behalf of the principal.

An agent is liable for...

his or her own torts.

Once the undisclosed principal's identity is revealed, the third party generally can elect to...

hold either the principal or the agent liable on the contract.

an agency at will

in which either party may terminate at any time

Ordinarily, a power of attorney terminates on the....

incapacity or death of the person giving the power.

vicarious liability=

indirect liability

If the principal is disclosed or partially disclosed, and the agent contracts with a third party without authorization, the agent ...

is liable to the third party.

When ratification occurs, the principal is bound to. the agent's act, and the act is treated as if...

it had been authorized by the principal from the outset.

Bases for termination by act of the parties include ...

lapse of time, achievement of purpose, occurrence of a specific event, mutual agreement, and at the option of one party.

The doctrine of respondeat superior is similar to the theory of strict liability in that...

liability is imposed regardless of fault.

If the principal does not ratify the contract, the principal is not bound, and the third party's agreement with the agent is viewed as ...

merely an unaccepted offer.

The principal is always directly responsible for an agent's...

misrepresentation made within the scope of the agent's authority.

If the principal is disclosed, the agent has ...

no contractual liability for nonperformance of the principal or the third party.

If the principal knows that a third party has dealt with the agent, the principal is expected to...

notify that person directly.

An insolvent person is...

one who cannot pay debts as they come due or whose liabilities exceed his or her assets.

Express authority can be given ...

orally or in writing.

A power of attorney can be special, meaning...

permitting the agent to perform specified acts only

A power of attorney can be general, meaning ...

permitting the agent to transact all business for the principal).

Under the doctrine of respondeat superior, the principal employer is liable for...

r any harm caused to a third party by an agent-employee in the course or scope of employment.

Justice dictates that when a principal knows that an agent is not accurately advised of facts but does not correct either the agent's or the third party's impressions, the principal is ...

responsible.

An electronic agent, or e agent, is a ...

semi autonomous software program that is capable of executing specific tasks, such as searching through many databases and retrieving relevant information for the user.

Special Power of Attorney

specified acts only

War. When the principal's country and the agent's country are at war with each other, the agency is...

terminated.

Ordinary Power of Attorney

terminates on incapacity or death of principal

hen it is impossible for the agent to perform the agency lawfully because of a change in the law, the agency ,...

terminates.

When a principal has placed an agent in a position of apparent authority—making it possible for the agent to defraud a third party—the principal may also be liable for...

the agent's fraudulent acts.

Death or insanity. The general rule is that ...

the death or insanity of either the principal or the agent automatically and immediately terminates an ordinary agency relationship. Knowledge of the death or insanity is not required.

the English court held that if a servant merely took a detour from his master's business, ...

the master will be responsible.

Ratification occurs when ...

the principal affirms, or accepts responsibility for, an agent's unauthorized act.

The rationale for the doctrine of respondeat superior is based on ...

the social duty that requires every person to manage his or her affairs so as not to injure another.

an agent's apparent authority continues until ...

the third party receives notice (from any source) that such authority has been terminated.

In this situation of war, the agency is automatically suspended or terminated because ...

there is no way to enforce the legal rights and obligations of the parties.

General Power of Attorney

transact all business for principal

Bankruptcy. If either the principal or the agent petitions for bankruptcy, the agency is ...

usually terminated.

The respondeat superior doctrine imposes ...

vicarious liability, because the principal-employer is being held liable for torts committed by an agent-employee.

Failure to comply with the equal dignity rule can make a contract...

voidable at the option of the principal.

Apparent authority

what a 3rd party resonably believes they have

Implied authority

what the agent reaosnably believes they ahvr

Apparent authority arises from ...

what the principal causes a third party to believe. An agent has apparent authority when .....-The principal, by either word or action, causes a third party reasonably to believe that the agent has authority to act, even though the agent has no express or implied authority.

Actual authority (express or implied) arises from;...

what the principal makes clear to the agent.

If, however, the servant was on a "frolic of his own" and not in any way "on his master's business," the master ...

will not be liable.

If the agent's authority is written, however, normally it must be revoked in ...

writing (unless the written document contains an expiration date).