#8797 - Principal's Liability For Agent's Contracts - Agency and Other Unincorporated Businesses

PRINCIPAL’S LIABILITY FOR AGENT’S CONTRACTS

Issues here arise when A makes K w/a 3^rd Party

Rules governing P liability here is different than P liability for A torts.

CONTRACTUAL POWERS OF AGENTS

AUTHORITY:

1. EXPRESS AUTHORITY

King v. Bankerd

POA that Bankerd (P) gave to attny-friend King (A) authorizing “convey, grant, bargain, and/or sell” his (P’s) property

Attny in Fact=POA=Agent

Issue: did poa give authority to King (A) to give the property to Bankerd’s wife?

Under agency still required be acting on best interests of and OBO of P and giving away his prop is not in those interests.

Bankerd obviously didn’t intend for the POA to be used to benefit his wife.

1. Actual Express Authority:

The Agents “power” to enter into contracts for and bind Principal

Actual authority is created by manifestations of P to the A that he/she has authority to do some act

Power-ability of a person to create legal rights & obligations (the power to alter the Principals legal status)

Doesn’t have to be written, or if is written a formal POA, but has to be express (words spoken)

2. Actual Implied Authority

(authority really exists)

-Still based on manifestations by the P to the A that he has this authority.

-The agent must have an objectively reasonable belief that this authority exists

-The authority believes has would be necessary or usual to accomplish what express authority is for or reasonable belief of agent to act based on the express authority given

2. APPARENT AUTHORITY

Smith v. Hansen, Hansen & Johnson

Emply. Foster (A) worked for Fentron(P) but Fentron says he was not authorized to make the sale to HH&J and so K not binding and so warranties not binding as to Fentron

HH&J argues that Foster created appearance that he did have the authority, ie (apparent authority)

Manifestations: (business cards, office/phone, Title-Manager of Manufacturing Services)

Just cause had authority to do some things, doesn’t mean authority to do this act.

Manifestation to the 3^rd party must be manifestations of authority to do the particular act in question.

ELEMENTS:

1. Manifestations have to be made by the P to the 3^rd Party (abt this kind of particular K)

Any manifestations by the A are irrelevant, unless authorized to make that particular manifestation which would be actual authority

2. The 3^rd Party MUST have an objectively reasonable belief in the authority

Sauber v. Northland Insurance Co

An employer can create apparent authority in an agent to a 3^rd party simply by allowing an employee to answer the phone

Rule: if

1. The business has invited the public to use the phone to transact business with it,

2. The business has permitted an employee to answer the phone;

3. Such person has purported to act for the business w/ authority; and

4. The person calling the place of business had a right to assume that the person permitted to answer the phone had authority to act (reasonably thought had authority)

Foley v. Allard

Foley invested with a Allard (argued A) and then he bounced with the money, she tried use phone rule cause was during a time when didn’t have stock exchange floor and this is how investors did business but didn’t actually work for the company

-but no one ever represented to Foley that Allard workd for co.

-He was not an employee so had zero authority so no manifestation conduct

-He did actually answer but got tranfered calls

-Her belief was also otherwise unreasonable (personal check, no risk, etc)

Also, the manifestations, if any by P, must have occurred BEFORE the K is made.

“indicia” of authority: if give POA, bus cards, letter w/ sig. to agent/employee then not reasonable for P to assume wouldn’t show a 3^rd pty.

Gizzi v. Texaco

Breaks fail on purchased van/& fixed on van

A=Hinman P=Texaco T=Gizzi

Transaction in question is the sale of the van

T must show that P made manifestions that A was authorized to SELL the van to T OBO P

Ct. says yes manifestations of authority (but really seem more like manifestations to repair not sell)

Apparent authority is a question of fact for jury

-Acquiescence doesn’t creat apparent authority to contract cause its not a manifestation (not conduct or words) so can’t create a binding contract

Apparent authority can be established by prior dealings btwn the parties, but the dealings must be similar to the one at issue & there must be a “degree of repetitiveness” not just 1 time.

3. ESTOPPEL

If don’t have manifestations then must use Estoppel (ie see acquiescence above)

Hoddeson

The fake furniture sales guy

Can’t work for apparent authority cause wasn’t an employee so not an agent at all and no manifestations by the a P.

But can go back and proceed on Estoppel if can show the furniture co. knew guy was walking around the store and such and did nothing to stop it. Then can show acquiescence.

If and only if a person hasn’t made any manifestations can you get to Estoppel

4. INHERENT AGENCY POWER

Edison v. Kidd

Tone Test recital case

Kidd was employed by Fuller (A) who was acting for Edison (P) to sing

Fuller was known as the General Supervisor of the Musical Division and made a contract w/ Kidd

Edison claimed Fuller as agent didn’t have authority to make the K.

Didn’t have apparent authority whatever he did have, and what did have was limited in scope

When you choose to use/operate through an agent the you take the risks that go with it.

Take the risk that your agent is going to deviate from your instructions as long as they are still w/in the scope of your business.

Inherent Agency Power:

Gives agent power to bind P to a K

Arises from the Agency relationship itself

Only applies to “general agents (manager role) that have very broad power/authority- as applied to special agents whose power is specific to certain limited projects and such

Watteau v. Fenwick

Humble (A) used own business but sold it to Fenwick (P) but stayed on as manager. Was only supposed to buy liquor but ended up entering K with Watteau for cigars and such.

P tried argue no authority and so not bound but Third party Watteau never knew that Fenwick even existed and since Humble was gen manager had inherent agency power to bind them even to the cigars.

5. UNDISCLOSED PRINCIPALS

1. Rights of the Undisclosed Principal

Rest. 3d of Agency §6.03 Agent for Undisclosed Principal

When an agent acting with actual authority makes a contract OBO an undisclosed principal,

1. Unless excluded by the contract, the principal is a party to the contract;

2. The agent and the 3^rd party are parties to the contract; and

3. The principal, if a party to the contract, and the 3^rd party have the same rights, liabilities, and defenses against each other as if the principal made the contract personally

1. Assertion of Rights by the Undisclosed Principal

When a K is made by an agent for an undisclosed P, the P can enforce the K

Ex: if the P notifies the 3^rd Party who entered into the K w/ the A to make payment under the K directly to the P, the 3^rd party is bound to do so, and pymt to the A after such notice won’t relieve the 3^rd party of liability to the P.

Darling Singer Lumber v. Commonwealth

Defendant ordered wood from Agent Place. He didn’t know about Darling Singer (P) and even after notice of P he paid A who didn’t pay P. He ended up liable to P for amt already paid to A.

Under Many State Laws:

An undisclosed P may sue on his own behalf for the breach of a K entered into on his behalf by his A or for breach of a legal duty related to that K and may claim the benefits of such K.

Finley v. Dalton

Defendant Duke Power Co. (P) made plan to buy up large land amt so could build power project

Defendant Dalton (A) went to Finley and said wanted buy land, which Finley had equitable title to and wanted it quickly.

When Finely asked why so quickly A didn’t tell truth but made up story.

Rule on duty of Disclosure:

No duty rest on purchaser (A) to disclose facts which he may happen to knows are advantageous to the seller, facts concerning the thing to be sold which would enhance its value or tend to cause the seller to up the price, so that failure to disclose wldn’t be a fraudulent concealment

3^rd party must show there was some obligation to make such a disclosure:

The misrepresentation, or info not disclosed, must be material, the seller must have relied on it, and the seller must have been induced to enter the contract because of it

If it IS a MATERIAL FACT, A can remain silet about it & be okay but can’t then make any representation that tends to affirmatively suppress the truth, or to distract or withdraw the 3^rd parties attention to the real facts.

Notes:

1. 3^rd pty not bound if A falsely states he is not acting for a P & if the 3^rd pty wldnt have dealt w/ the P as a party to the contract (would make the misrep material)

Also applies if not express misrep but the P & A knew the...