Exam 29: Relationship With Third Parties

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

Name the two basic types of authority with regard to agents and explain the difference between them.

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.

The principal may ratify either the entire contract or the part that is advantageous to the principal.

Ordinarily, an agent may delegate his duties to an equally qualified subagent.

Sarah 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?

Actual authority consists of both express and implied authority.

Apparent authority is not actual authority.

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?

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

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 subagent owes a fiduciary duty to both the agent and to the principal.

An example of successful land purchases made by agents for an undisclosed principal took place in Florida for Walt Disney Productions.

An agent, at his principal's direction, fixes prices with the principal's competitors. The result is:

Which of the following is true with regard to contractual relations between the principal and a third party?

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.

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

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.

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.

Sunset Properties, Inc. hires William to manage its 42-unit apartment complex. Nothing is said as to expenses. William purchases fuel to heat the apartments and arranges for a repairperson to do ordinary maintenance. William will be personally liable for these expenses, because he has no authority to incur them.