Exam 29: Relationship With Third Parties

An agent who has either actual or apparent authority has the power to bind his principal.

Upon the termination of an agency, the agent's actual authority ceases. However, apparent authority may continue until actual notice of the termination is given to third parties.

Gary hires Doug to burn off his fields to kill the weeds. If the fire gets out of control because of Doug's negligence and the fire damages Philip's wood fence:

No apparent authority exists where the third party knows that the agent has no actual authority.

The contractual liability of the principal may depend upon whether the principal is disclosed, partially disclosed, or undisclosed.

Constructive notice may occur by publication in a newspaper of general circulation.

A principal who authorizes his agent to commit a tortious act with respect to the property or person of another is not liable for the injury or loss sustained by that person.

A principal is contractually bound to a third party if the agent acts without any authority but the principal ratifies the contract.

Discuss whether the principal is liable in each of the following situations. a. Patricia hires Andrew, an attorney, to negotiate a contract to purchase some property. She agrees to pay him $75 an hour for his services, and he agrees to use his own office and secretarial staff to negotiate and draft the agreement. One day, Andrew is driving his own automobile to a meeting with Edward to discuss the purchase of the land that he owns. Andrew drives too fast for conditions and has a minor traffic accident that results in $600 damage to the other vehicle. b. Mel owns a retail store. He hires Sarah to work for him as a clerk in the home furnishings department. Mel instructs Sarah to make certain representations to customers regarding a microwave oven. Mel knows these misrepresentations are false, but Sarah does not. Henrietta buys a microwave from Sarah in reliance on the misrepresentations. c. ABC Inc. hires Keith as an outside salesman and instructs him to call on customers in a specified territory and to solicit orders for its products. One day Keith is driving the company car a little too fast for conditions on his way to call on a client. He accidentally drives the wrong way on a one-way street and has an accident with another vehicle that results in $6,000 in property damage and $30,000 in medical expenses. d. The A & B Machine Company (ABMC) hires John as an outside salesman for its computers. It sets high sales quotas for him and instructs him to beat up salesmen from competing firms in order to keep them away from ABMC customers. In order to meet his monthly sales quota, John roughs up Ralph, who is a salesman for a competing firm and then tells Ralph to find his own customers and to stay away from John's territory.

Under the rule of the Third Restatement, if a principal becomes incapacitated, the agency relationship terminates and all authority ceases.

Nell exceeds her authority when making a contract for Denver. If he ratifies the contract, both Nell and Denver are in the same position as the one they would have been in had Denver actually authorized the act originally except that Nell is not entitled to compensation.

Discuss the fundamental rules of contractual liability between a principal and the third party.

Apparent authority can arise where there is an undisclosed principal as well as where the principal is disclosed.

Apparent authority arises out of words or conduct of a disclosed or partially disclosed principal manifested to third persons.

Usually in cases where there is a known principal, the agent has liability for, and rights under, contracts made on behalf of a principal.

An agent for an unidentified principal is liable on the contract to the third party no matter whether the particular transaction is authorized or not.

Which of the following is not correct regarding the relationship between an independent contractor and a principal?

Bob is the promoter of a new corporation that has not yet been incorporated. On behalf of the as yet unincorporated business, he enters into a three-year lease agreement for office space and personally signs the lease in his own name. The corporation is liable on the contract, because Bob is its agent.

A principal may be liable where his agent sells liquor to an underage person even though the principal did not authorize the act.

Jack was fired by Bob but decided to try to win back his job as agent by getting a big new contract. He approached Sharon, a new client, and made a pitch to sell Bob's product. Sharon agreed to buy 100. Jack tells Bob. What are the legal consequences?