BLS 112 Chapter 33: Chapter 33

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Business Law and Society
BLS 112
S U N Y Ulster

Chapter 33: Agency Liability to Third Parties & Termination I. Scope of Agent’s Authority  Agent’s authority to enter into legal contracts with 3 rdparties can be: o Actual (express or implied) o Apparent  Express Authority: authority declared in clear, direct, & definite terms; given orally or in writing o Equal Dignity Rule: if contract being executed is or must be in writing, agent’s authority must also be in writing ▪ Failure to comply  contract is voidable at option of principal ▪ Exceptions: • Executive officer of corporation can conduct ordinary business transactions without obtaining written authority from corp. • Agent acts in presence of principal • Agent’s act of signing is a formality o Power of Attorney: written document, usually notarized ▪ Notarized  notary public (public official authorized to attest to authenticity of signatures) signs & dates document & imprints ▪ Can be: • Special  permit agent to perform specialized acts only • General  permit agent to transact all business for principal ▪ Terminates on incapacity or death of person giving power o Implied Authority: agent can do what is reasonable necessary to carry out express authority & accomplish objectives of agency ▪ Implied by custom or inferred from position occupied ▪ Implied authority cannot contradict express authority rd o Apparent Authority: principal (by word or action) caused 3 party to believe that agent has authority to act, even though agent has no express or implied authority ▪ Comes through principal’s pattern of conduct over time ▪ Apply estoppel  when principal gives 3 rdparty reason to believe agent has authority to act o Emergency Power: unforeseen emergency demands action by agent to protect principal but they are unable to communicate o Ratification: principal accepts responsibility for agents unauthorized act ▪ Principal is bound to agent’s act  treated as if authorized by principal ▪ Can be express or implied ▪ No ratification  third parties’ agreement viewed as unaccepted offer • Agent may be liable to 3 rdparty for misrepresenting authority ▪ Requirements: • Agent must have acted on behalf of identified principal • Principal must know of all material facts involved in transaction • Principal must affirm agent’s act in entirety • Principal must have legal capacity to authorize transaction at time agent engages in act & time principal ratifies rd • Principal’s affirmation must occur before 3 party withdraws from transaction • Principal must observe same formalities when ratifying act as when authorizing it initially II. Liability for Contracts  Principal classifications: o Disclosed: principal’s identity is known by 3 rdparty at time contract is made by the agent rd o Partially Disclosed: principal’s identity is not known by 3 party; they know that agent is or may be acting for principal at time contract is made rd o Undisclosed: principal’s identity is totally unknown by 3 party; they have no knowledge that agent is acting in agency capacity  Authorized Acts o Disclosed or Partially Disclosed Principal ▪ Principal is liable to 3 party ▪ Agent has no contractual liability for nonperformance ▪ Partially disclosed  in most states, agent also treated as party to contract (3rd party can hold agent liable) o Undisclosed Principal ▪ Principal bound to perform as if they had been fully disclosed ▪ When agent is forced to pay 3 rdparty, agent is entitled to be indemnified (compensated) by principal ▪ Undisclosed Principal can require 3 rdparty to fulfill contract UNLESS • Principal expressly excluded party in written contract • Contract is negotiable instrument signed by agent with no indication of signing in representative capacity rd • Performance of agent is personal to contract  allow 3 party to refuse principal’s performance  Unauthorized Acts rd o Agent has no authority & contracts with 3 party  principal is NOT liable ▪ Doesn’t matter if they are disclosed, partially, disclosed, or undisclosed o Implied Warranty ▪ Agent liable on breach of implied warranty of authority, not on breach of contract itself o Third Party’s Knowledge of unauthorized act  agent is NOT liable ▪ Same if agent expressed uncertainty of authority  Actions by E-Agents (electronic agent): semiauthonomous computer program capable of executing specific tasks o Same agency principles apply
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