Business Associations - Principal's Liability to Third Parties in Contract

A collection of vocabulary flashcards based on key concepts regarding principal liability in business associations.

Actual Authority

Authority that arises when the principal manifests to the agent that the agent has power to act on behalf of the principal.

Apparent Authority

Authority based on a third party's reasonable belief that an agent has authority to act on behalf of the principal, traceable to the principal's conduct.

Ratification

The acceptance of an agent's unauthorized act by the principal, which renders the act binding on the principal.

Estoppel

A legal principle preventing a party from asserting something contrary to what is implied by a previous action or statement when others have relied on the original representation.

Disclosed Principal

A principal whose identity is known to the third party at the time of the agent's acting.

Partially Disclosed Principal

A principal whose existence is known to the third party, but whose identity is not known.

Undisclosed Principal

A principal whose existence and identity are not known to the third party.

Express Authority

Authority explicitly granted to an agent through clear and direct instructions from the principal.

Implied Authority

Authority that is not explicitly stated but is inferred from the actions of the principal or the nature of the transaction.

Acquiescence

The acceptance or allowance of an agent's actions by the principal, which can create authority for future similar actions.

Scenario: Paul, a principal, tells his agent, Alice, to purchase a specific car from a dealership. In this situation, what type of authority does Alice have?

Express Authority, as Paul explicitly granted Alice authority to purchase the car.

Scenario: A store manager, usually responsible for ordering supplies, places an unusually large order without explicit permission. However, the store owner has always approved similar large orders in the past without question. What type of authority might the manager be operating under?

Implied Authority, inferred from the principal's (store owner's) past actions or the nature of the manager's role.

Scenario: A principal knows their agent often exceeds their instructed spending limit but consistently approves the purchases after they happen. This ongoing acceptance could lead to what form of authority for future similar actions?

Acquiescence, where the principal's acceptance of previous actions can establish authority for future similar acts.

Scenario: An agent, without any actual authority, signs a contract on behalf of a principal. The principal later reviews the contract and decides to honor it. What legal principle makes the act binding on the principal?

Ratification, as the principal accepted the agent's unauthorized act.

Scenario: A principal always allows a certain agent to wear a uniform and use a company vehicle. A third party, seeing this, reasonably believes the agent has the authority to make deals on behalf of the company, even if the principal never explicitly granted that specific power. What kind of authority is suggested here?

Apparent Authority, based on the third party's reasonable belief tracing back to the principal's conduct (providing the uniform and vehicle).

Scenario: An agent introduces themselves as representing 'XYZ Corp.' and makes a deal with a third party. The third party knows they are dealing with an agent for 'XYZ Corp.' and knows the specific identity of 'XYZ Corp.' What kind of principal is 'XYZ Corp.' in this transaction?

Disclosed Principal, since the principal's identity is known to the third party.

Scenario: An agent makes a deal with a third party, stating they are acting for 'a client,' but does not reveal the client's name. The third party knows there is a principal, but not who it is. What kind of principal is the client?

Partially Disclosed Principal, as the principal's existence is known but their identity is not.

Scenario: An agent makes a deal with a third party, giving no indication that they are acting on behalf of anyone else. The third party believes they are dealing solely with the agent. What kind of principal is the agent actually representing?

Undisclosed Principal, where both the existence and identity of the principal are unknown to the third party.

Actual Authority

Authority that arises when the principal manifests to the agent that the agent has power to act on behalf of the principal.

Apparent Authority

Authority based on a third party's reasonable belief that an agent has authority to act on behalf of the principal, traceable to the principal's conduct.

Ratification

The acceptance of an agent's unauthorized act by the principal, which renders the act binding on the principal.

Estoppel

A legal principle preventing a party from asserting something contrary to what is implied by a previous action or statement when others have relied on the original representation.

Disclosed Principal

A principal whose identity is known to the third party at the time of the agent's acting.

Partially Disclosed Principal

A principal whose existence is known to the third party, but whose identity is not known.

Undisclosed Principal

A principal whose existence and identity are not known to the third party.

Express Authority

Authority explicitly granted to an agent through clear and direct instructions from the principal.

Implied Authority

Authority that is not explicitly stated but is inferred from the actions of the principal or the nature of the transaction.

Acquiescence

The acceptance or allowance of an agent's actions by the principal, which can create authority for future similar actions.

Scenario: Paul, a principal, tells his agent, Alice, to purchase a specific car from a dealership. In this situation, what type of authority does Alice have?

Express Authority, as Paul explicitly granted Alice authority to purchase the car.

Scenario: A store manager, usually responsible for ordering supplies, places an unusually large order without explicit permission. However, the store owner has always approved similar large orders in the past without question. What type of authority might the manager be operating under?

Implied Authority, inferred from the principal's (store owner's) past actions or the nature of the manager's role.

Scenario: A principal knows their agent often exceeds their instructed spending limit but consistently approves the purchases after they happen. This ongoing acceptance could lead to what form of authority for future similar actions?

Acquiescence, where the principal's acceptance of previous actions can establish authority for future similar acts.

Scenario: An agent, without any actual authority, signs a contract on behalf of a principal. The principal later reviews the contract and decides to honor it. What legal principle makes the act binding on the principal?

Ratification, as the principal accepted the agent's unauthorized act.

Scenario: A principal always allows a certain agent to wear a uniform and use a company vehicle. A third party, seeing this, reasonably believes the agent has the authority to make deals on behalf of the company, even if the principal never explicitly granted that specific power. What kind of authority is suggested here?

Apparent Authority, based on the third party's reasonable belief tracing back to the principal's conduct (providing the uniform and vehicle).

Scenario: An agent introduces themselves as representing 'XYZ Corp.' and makes a deal with a third party. The third party knows they are dealing with an agent for 'XYZ Corp.' and knows the specific identity of 'XYZ Corp.' What kind of principal is 'XYZ Corp.' in this transaction?

Disclosed Principal, since the principal's identity is known to the third party.

Scenario: An agent makes a deal with a third party, stating they are acting for 'a client,' but does not reveal the client's name. The third party knows there is a principal, but not who it is. What kind of principal is the client?

Partially Disclosed Principal, as the principal's existence is known but their identity is not.

Scenario: An agent makes a deal with a third party, giving no indication that they are acting on behalf of anyone else. The third party believes they are dealing solely with the agent. What kind of principal is the agent actually representing?

Undisclosed Principal, where both the existence and identity of the principal are unknown to the third party.