Exam 29: Relationship With Third Parties

A person may ratify a prior unauthorized act and may later revoke the ratification.

Pat bought a cotton sweater at Ivey's Fashion Store. Sue, the salesperson, told her the sweater was guaranteed not to shrink if washed in cold water by hand. Pat washes the sweater as directed, and it shrinks. Which of the following is correct?

A person who undertakes to make a contract on behalf of another person gives an implied warranty that he is in fact authorized to make the contract on behalf of the person he purports to represent.

Frank, acting as a promoter for Garleen Co., a corporation not yet in existence, makes a contract with Towne Supplies. When Garleen Co. is formed, it may:

Arthur is authorized to collect accounts for Peter. Peter dies, and there is no notice given to Theresa, who pays Arthur, as she has done in the past. Under the rules of the Third Restatement and the Uniform Durable Power of Attorney Act, if Arthur absconds with the money, Theresa will not have to pay again.

Actual notice requires a written, not oral, communication to the third party.

Under the Second Restatement, all third parties that were aware of the apparent authority of the agent must have actual and not constructive notice to terminate the agent's apparent authority.

Apparent authority may arise by an agent's showing a third party a document from the principal authorizing the agent to enter into such a transaction.

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

Paul is a truck driver who owns his own truck and delivers loads to various companies for nine months out of the year. For the hard winter months, Paul goes to Key West to "put his feet in the sand." One evening while delivering a load for Emblem Helicopter Parts Co., Paul got into a "little scuffle" with a rowdy trucker who was giving Nell, a waitress at the DewDrop Inn Cafe, a hard time. Paul knocked out five of "Rowdy's" teeth. Rowdy is suing Paul and Emblem for his injuries. Discuss whether Rowdy will win against Emblem on the issue of: (a) respondeat superior and (b) unauthorized acts of agents.

Ratification may relate to acts that have exceeded the authority granted to an agent.

Vista Properties, Inc. hires Lance to manage its 144-unit apartment complex. No provision for expenses is made in the contracts. If  Lance arranges for a repairperson to do ordinary maintenance,  he will be personally liable for these expenses, because he has no authority to incur them.

In general, an undisclosed principal and the third party to a contract are contractually bound if the agent acts within the scope of his actual authority in making the contract.

An agent may agree to become liable on a contract between a principal and a third party in all but which of the following ways?

In the presence of Betty, Ann tells Thomas that Ann is Betty's agent. In reality, Ann has no authority. Betty hears the statement, but she says nothing. In reliance, Thomas ships goods to Betty on Ann's order. Betty is liable even though no actual authority existed.

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

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

Identify three ways an agent may agree to become liable on a contract between the principal and the third party.

Selene is planning to incorporate a new landscaping company, "Evergreen and Growin'." She has held herself out as an agent for Evergreen and has contracted to buy a truck, tools, fertilizer, and seed and also has entered into a lease on behalf of Evergreen for an office. When she fails to get the loan from the bank, she cannot start the business, so she cancels all the contracts. What are the consequences?

Respondeat superior :