Agent’s authority to bind principal - Next Generation Bar Exam

1. What is ratification?

   A principal's affirmance of a prior act done by another on its behalf, made with knowledge of the material facts. Ratification may be express or implied, such as by knowingly accepting the benefits of the transaction.

2. An agent signs an unauthorized contract. The principal, knowing all the facts, accepts and uses the goods delivered under it. Under what theory is the principal bound?

   Ratification by conduct. Knowingly accepting the benefits of the transaction affirms it.

3. What is implied actual authority?

   Authority to do what is incidental or reasonably necessary to accomplish the expressly authorized task. It arises from the agent's reasonable understanding of what the principal would want done to achieve the objective.

4. When does an agent have apparent authority?

   When a third party reasonably believes the agent has authority, and the belief is traceable to the principal's manifestations. Apparent authority protects third parties who reasonably rely on what the principal has said or done.

5. What is the effect of ratification on an unauthorized act?

   It binds the principal as if the act had been authorized when done. Ratification relates back to the time of the act.

6. How long does apparent authority continue after a principal terminates an agent's actual authority?

   Until the third party has notice that the authority has ended. A principal should notify third parties who dealt with the agent to cut off lingering apparent authority.

7. A company names Ava 'purchasing manager' but privately caps her orders at $10,000. She places a customary $15,000 order with an unaware supplier. Under what theory is the company bound?

   Apparent authority. The title is the company's manifestation, and the supplier reasonably relied on the customary authority of the position.

8. What must a principal do with respect to the transaction in order to ratify it?

   Affirm the transaction in its entirety. A principal cannot ratify the favorable parts of a transaction and reject the rest.

9. When is a principal liable by estoppel for an unauthorized act?

   When it intentionally or carelessly caused, or failed to correct, a belief in authority on which a third party detrimentally relied. Estoppel protects reliance where apparent authority may not apply, such as when the principal was silent.

10. When does an agent have actual authority to act?

    When the agent reasonably believes, from the principal's manifestations to the agent, that the principal wants the agent to act. Actual authority depends on communications between principal and agent, not on what the third party knows.

11. What authority does appointing a person to a position, such as store manager, typically confer?

    Apparent authority to do what persons in that position customarily do. Third parties may rely on the customary scope of the position unless they know of a limitation.

12. Why can an agent's own statements not create apparent authority?

    Apparent authority must be traceable to manifestations by the principal. An agent cannot bootstrap authority by claiming to have it.

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