Determining Agency Liability in CONTRACT Determining Agency Liability

Determining “Agency” Liability in CONTRACT

Determining “Agency” Liability in CONTRACT The analysis begins with the question,

Determining “Agency” Liability in CONTRACT The analysis begins with the question, “Is the party seeking to enforce the contract one of the two parties who had direct dealings with one another? ”

Determining “Agency” Liability in CONTRACT The analysis begins with the question, “Is the party seeking to enforce the contract one of the two parties who had direct dealings with one another leading to the contract? ” If so, (s)he is the “third party” seeking to enforce the contract against the would-be “principal, ” who was not directly involved.

Determining “Agency” Liability in CONTRACT The analysis begins with the question, “Is the party seeking to enforce the contract one of the two parties who had direct dealings with one another leading to the contract? ” If not, the would-be “principal” is the one seeking to enforce the contract against the “third party, ” with whom there was no direct dealing.

Determining “Agency” Liability in CONTRACT Direct dealing? Begin by asking whethere was “direct dealing” by the prospective enforcer: “Was the enforcer directly engaged in the contract’s formation? ”

Determining “Agency” Liability in CONTRACT Direct dealing? No Actual authority? If not, the enforcer is the would-be principal (a remote party seeking to enforce an agreement made by someone else on its behalf) and the first question should be, “Was there actual authority (to act as an agent and bind the principal) on the part of the person who did have direct dealings with the “third party? ”

Determining “Agency” Liability in CONTRACT Direct dealing? No Yes Actual authority? If the 3 requirements of “actual authority” (the 3 elements of agency) have been met, then the third party may be liable to the principal, subject to certain conditions -and provided that the normal elements of contract are also satisfied. Agency authority exists only where (1) one party is acting on behalf of another (2) by mutual consent and (3) subject to the control of that other.

Determining “Agency” Liability in CONTRACT Direct dealing? No Yes Actual authority? No 3 d party Beneficiary? If there is no actual authority, look to see if the would-havebeen “principal” qualifies under contract law as a “third-party beneficiary. ”

Determining “Agency” Liability in CONTRACT Direct dealing? No Actual authority? Yes No 3 d party Beneficiary? Yes If so, there may still be liability under straight contract law (though not agency law).

Determining “Agency” Liability in CONTRACT Direct dealing? No Actual authority? Yes No 3 d party Beneficiary? No Yes If not, there is no contractual liability, and the attempt by the party who was not a direct participant in the making of the contract (the “principal”) is at an end. In the terms of contract law, there is no privity of contract.

Determining “Agency” Liability in CONTRACT Yes Direct dealing? Actual authority? No Actual authority? Yes No 3 d party Beneficiary? No Yes Next, the analysis turns to enforcement against the would -be principal by the “third party, ” who had direct dealings with the would-be “agent. ” Once again, the first question is, “Was there ‘actual authority’ given by the wouldbe ‘principal’ to the ‘agent? ’ ”

Determining “Agency” Liability in CONTRACT Yes Direct dealing? Actual authority? No Actual authority? Yes No 3 d party Beneficiary? No Yes If, again, the 3 requirements of “actual authority” have been met, then the principal is liable to the third party, provided that the normal elements of contract have been satisfied.

Determining “Agency” Liability in CONTRACT Yes Direct dealing? Actual authority? No Actual authority? Yes No 3 d party Beneficiary? No No Yes Disclosed Principal? If not, the question of liability is still not resolved, and the next line of inquiry depends on whether or not the third party relied on a “principal” who had been disclosed to the third party.

Determining “Agency” Liability in CONTRACT Yes Direct dealing? Actual authority? No Actual authority? Yes No 3 d party Beneficiary? No No Yes Disclosed Principal? No General agent? If there was no reliance on a disclosed principal, the next question is whether the party with whom the third party actually contracted was a general agent -- or merely a special agent -or no agent at all. A general agent is one who has more than a onetime or short-term relationship with a principal and the authority to do a variety of things for the principal.

Determining “Agency” Liability in CONTRACT Yes Direct dealing? Actual authority? No Actual authority? Yes No Disclosed Principal? No General agent? Yes No 3 d party Beneficiary? No Yes Inherent power? If that person was a general agent, the inquiry has one more step: “Was the general agent acting within the scope of his/her/its inherent power? ” Was the general agent’s act -- though not in fact authorized -- the sort of thing that normally a person in that position would be authorized to do?

Determining “Agency” Liability in CONTRACT Yes Direct dealing? Actual authority? No Yes General agent? Yes No 3 d party Beneficiary? No Disclosed Principal? Yes Inherent power? If the general agent was acting within the scope of inherent power and the 3 d party was unaware of the lack of authority, there may be liability.

Determining “Agency” Liability in CONTRACT Yes Direct dealing? principals, because this analysis assumes the absence of “actual authority”). No Actual authority? The analysis now turns to disclosed “principals” (not actual Yes No Yes General agent? Yes No 3 d party Beneficiary? No Disclosed Principal? Yes Inherent power? Yes Apparent agency? And the first question is whether the 2 requirements of “apparent authority” can be met: (1) a reasonable belief that the “agent” was actually authorized to make the agreement on the “principal’s” behalf and (2) that belief was based in some measure on some manifestation (appearance) attributable to the “principal. ”

Determining “Agency” Liability in CONTRACT Yes Direct dealing? Actual authority? No Yes General agent? Yes No Yes Apparent agency? Yes No No 3 d party Beneficiary? Disclosed Principal? Yes Inherent power? If both requirements of “apparent authority” are met (and the transaction meets the other requirements of contract law), the “principal” may be held liable as though he/she/it were a real principal.

Determining “Agency” Liability in CONTRACT Yes Direct dealing? Actual authority? No Yes General agent? Yes No 3 d party Beneficiary? No Disclosed Principal? Yes Inherent power? Yes Apparent agency? Yes No Agency by Estoppel? If not, the inquiry continues with the question whether the 2 requirements of “agency by estoppel” can be satisfied: (1) a reasonable belief the agreement was authorized and (2) an unreasonable failure by the “principal” to prevent the harm to the 3 d party.

Determining “Agency” Liability in CONTRACT Yes Direct dealing? Actual authority? No Yes General agent? No Yes Apparent agency? Yes No Agency by Estoppel? Yes No 3 d party Beneficiary? Disclosed Principal? Yes Inherent power? If “agency by estoppel” can be established, there may again be liability despite the absence of any actual authority.

Whether or not the “principal” is disclosed, has he/she/it acted in Determining such a way as to ratify the actions of “Agency” Liability the “agent” in binding the “principal” in CONTRACT to the third party in contract? Yes Direct dealing? Actual authority? No Yes No Apparent agency? Agency by Estoppel? No No Yes Inherent power? Yes No General agent? Yes Yes No No 3 d party Beneficiary? Disclosed Principal? No Ratification? Yes

If ratification has occurred, the “principal” is deemed liable as of the date of the original agreement between the “agent” and the third party. Determining “Agency” Liability in CONTRACT Yes Direct dealing? Actual authority? No Yes No Apparent agency? Yes No Agency by Estoppel? General agent? Yes Yes No No 3 d party Beneficiary? Disclosed Principal? No Yes Yes Inherent power? No Ratification?

Even where there has been no ratification, there are still possibilities of adoption or novation. Determining “Agency” Liability in CONTRACT Yes Direct dealing? Actual authority? No Yes No Apparent agency? Yes No Agency by Estoppel? General agent? Yes Yes No No 3 d party Beneficiary? Disclosed Principal? No Yes Yes Inherent power? No Ratification? No Adoption or Novation?

Adoption of the agreement between the “agent” and the third party or novation (an Determining entirely new agreement directly between “Agency” Liability the “principal” and the third party) will bind those parties only as of the date of the in CONTRACT adoption or novation. Yes Direct dealing? No Actual authority? No Yes Disclosed Principal? Yes No Apparent agency? No Yes Actual authority? Yes General agent? Yes No 3 d party Beneficiary? No Yes Agency by Estoppel? No No Yes Inherent power? No Ratification? Yes No Yes Adoption or Novation?

If there is no adoption or novation, there is no liability, and the “third party” has run out of options for holding the “principal” liable Determining “Agency” Liability in CONTRACT Yes Direct dealing? No Actual authority? No Yes Disclosed Principal? Yes No Apparent agency? No Yes Actual authority? Yes General agent? Yes No 3 d party Beneficiary? Yes Agency by Estoppel? No No Yes Inherent power? No No Ratification? Yes No No Yes Adoption or Novation?

Determining “Agency” Liability in CONTRACT Yes Direct dealing? No Actual authority? No Yes Disclosed Principal? Yes No Apparent agency? No Yes Actual authority? Yes General agent? Yes No 3 d party Beneficiary? Yes Agency by Estoppel? No No Yes Inherent power? No No Ratification? Yes No No Yes Adoption or Novation?

Analysis for “principal” trying to enforce agreement made by “agent” with third party. Determining “Agency” Liability in CONTRACT Yes Direct dealing? No Actual authority? No Yes Disclosed Principal? Yes No Apparent agency? No Yes Actual authority? Yes General agent? Yes No 3 d party Beneficiary? Yes Agency by Estoppel? No No Yes Inherent power? No No Ratification? Yes No No Yes Adoption or Novation?

Analysis for “third party” trying to enforce against the “principal” an agreement made with an “agent”. Determining “Agency” Liability in CONTRACT Yes Direct dealing? No Actual authority? No Yes Disclosed Principal? Yes No Apparent agency? No Yes Actual authority? Yes General agent? Yes No 3 d party Beneficiary? Yes Agency by Estoppel? No No Yes Inherent power? No No Ratification? Yes No No Yes Adoption or Novation?

Determining “Agency” Liability in CONTRACT Yes Direct dealing? Quasi-agency liability concepts: General agent for undisclosed principal (or where no reliance on a disclosed principal), acting within the scope of Inherent Power. No Actual authority? No Yes Disclosed Principal? Yes No Apparent agency? No Yes Actual authority? Yes General agent? Yes No 3 d party Beneficiary? Yes Agency by Estoppel? No No Yes Inherent power? No No Ratification? Yes No No Yes Adoption or Novation?

Quasi-agency remedial concepts for disclosed “principals”: Apparent Authority and Agency by Estoppel. Determining “Agency” Liability in CONTRACT Yes Direct dealing? No Actual authority? No Yes Disclosed Principal? Yes No Apparent agency? No Yes Actual authority? Yes General agent? Yes No 3 d party Beneficiary? Yes Agency by Estoppel? No No Yes Inherent power? No No Ratification? Yes No No Yes Adoption or Novation?

“Agency” after the fact, for disclosed or undisclosed “principals”: Ratification and Adoption. Determining “Agency” Liability in CONTRACT Yes Direct dealing? No Actual authority? No Yes Disclosed Principal? Yes No Apparent agency? No Yes Actual authority? Yes General agent? Yes No 3 d party Beneficiary? Yes Agency by Estoppel? No No Yes Inherent power? No No Ratification? Yes No No Yes Adoption or Novation?