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. 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. 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.

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

Actual authority? Direct dealing? No Determining “Agency” Liability in CONTRACT 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?”

Actual authority? Direct dealing? Yes No Determining “Agency” Liability in CONTRACT 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.

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

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

Actual authority? 3d party Beneficiary? Direct dealing? Yes No Determining “Agency” Liability in CONTRACT 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.

Actual authority? 3d party Beneficiary? Actual authority? Direct dealing? Yes No Determining “Agency” Liability in CONTRACT 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 would- be ‘principal’ to the ‘agent?’ ”

Actual authority? 3d party Beneficiary? Actual authority? Direct dealing? Yes No Determining “Agency” Liability in CONTRACT 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.

Actual authority? 3d party Beneficiary? Disclosed Principal? Actual authority? Direct dealing? Yes No Determining “Agency” Liability in CONTRACT 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.

Actual authority? 3d party Beneficiary? Disclosed Principal? General agent? Actual authority? Direct dealing? Yes No Determining “Agency” Liability in CONTRACT 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 one- time or short-term relationship with a principal and the authority to do a variety of things for the principal.

Actual authority? 3d party Beneficiary? Disclosed Principal? General agent? Inherent power? Actual authority? Direct dealing? Yes No Determining “Agency” Liability in CONTRACT 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?

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

Actual authority? 3d party Beneficiary? Disclosed Principal? General agent? Inherent power? Apparent agency? Actual authority? Direct dealing? Yes No Determining “Agency” Liability in CONTRACT The analysis now turns to disclosed “principals” (not actual principals, because this analysis assumes the absence of “actual authority”). 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.”

Actual authority? 3d party Beneficiary? Disclosed Principal? General agent? Inherent power? Apparent agency? Actual authority? Direct dealing? Yes No Determining “Agency” Liability in CONTRACT 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.

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

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

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

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

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

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

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

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

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

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

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

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

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