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