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LAW 603 Study Guide - Midterm Guide: Employment Contract, Apparent Authority, Whud

Law and Business
Course Code
LAW 603
Nick Iannazzo
Study Guide

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1. Basic rules of agency
2. Risk management issues.
3. Business relationships in which agency issues arise
Basic rules of agency
- Agent (A) = person who represents someone else for a specific purpose
- Principal (P) = person who an agent rep for a specific purpose
- Third party(TP) = person other than A and P
- ex. Real estate agents, insurance agents, stockbrokers , partners of a partnership, etc.
Creation of an agent relationship
1. By express agreement (with actual authority)
- P actually authorizes the A to act on its behalf
- Written or oral
- An agency longer than 1 yr must be in writing (statue of frauds)
- For an A to have authority to sign cheques A must have written agreement
- Ex.real estate agent ;lawyer acting for u in a real estate transaction
- Corp can only act thru human beings (ex. Officers, directors, salesperson, other employees)
- Corps employee can receive actual authority by
1. Employment contract
2. Board of Directors' resolution or
3. Position held
2. By apparent authority
- P represents or holds out to a Tp that a person is it's A (but he/she doesn't have actual authority) - this
gives the Tp reasonable impression that A has authority
3. By law (partnership example)
- partnership law = generally, each partner is an A of the partnership
Ratification ("R")
- A contract is ratified when someone accepts a contract that was negotiated on their behalf but without
their authority
- ex. Bob Smith (SP company) did not give Sally actual authority. And no apparent authority by telling
the Tp that Sally is in authority. Sally goes to the supplier and negotiates a contract for Bob Smith. They
negotiates a contract without his actual authority or apparent authority. Is Bob Smith is bond to this
contract? No. Therefore this contract is not binding on Bob. But if he likes it, they can ratify the contract
and become bound to it.
- if u don't ratify it, u are not bound by the contract
Requirements for R
1. R must be clear (express or implied)
2. Within a reasonable time
3. Accept whole contract
4. P identified by A
5. P had legal capacity at time of the contract at time of R
- if a contract is not ratified, the person negotiating the contract is not liable on contract, unless that
person and Tp intended that he/she be personally liable
- supplier can't hold me liable for the contract. It won't bind Bob, does this contract that bind Sally? No.
B/c she made it clear that she's on behalf of Bob. And wasn't intended to be in the contract. But Tp can
sue Sally personally breach of warranty of authority (misrepresentation)
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When is P liable?
- P doesn't want to be bound by an A who doesn't have authority
- Tp doesn't want to spend much time and $ determining whether A has authority or not. Tp wants to be
able to rely on common indicators of authority (ex. Letter of introduction, cert. Copies of board of
director's resolution, lawyer's opinion)
P is liable for contract if A has:
1. Actual authority
2. Apparent authority
3. P is ratified
1. Actual authority
- P can grant actual authority to an A by:
1. Express delegation
2. Appointing A to a position with that authority or
3. Implications from circumstances
2. Apparent authority
- A can obtain apparent authority when P represents to a TP that A has authority by:
1. P's statement or conduct
2. P acquiescing to A acting with that authority or
3. P Appointing A to a position that usually has that authority (but not actual authority) - "usual
Case # 4 (pg. 532)
- Negotiating an agreement with Salim and the prez of Alpha said that he is the “manager of sales”
- Would u be able to hold alpha to a contract if u negotiated the contract with salim if:
A) salim is manager of sales
actual authority
B) salim is not the Manager of sales but u did not know that when u entered into a contract
apparent authority
C) salim is not the manager of sales but u found out before u entered into the contract
not bind alpha b/c u already know
- Test: is it reasonable for tp to believe that A had authority?
Nature and content of P's communication to tp
Circumstances of comm., including type of business
only P's conduct is relevant, not A's
- dsf
P liable if:
1. Contract is within A's apparent authority and
2. Tp actually relied upon apparent authority
- tp can't enforce a contract if he/she knew or ought to have known A didn't have authority
Case #1 Spiro v. Lintern (pg 520)
- John is the principal
- Wife iris is given express authority
- She created a contract with Lintern between John and Lintern to sell the house
- iris didn't have actual authority, did she have apparent authority? She let him into the house
- Contract is valid cause she let him have access into the house
Case #2 (pg. 532)
- only way to win, she needs to prove that he was an agent
- when is principal liable when a contract is created by the agent? When it's an actual authority.
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