Agency Relationships

Agency Relationships

• One of the most common, important, and pervasive legal relationships is that of agency.
• Agency is a form of delegation.
• An agent is authorized (and agrees) to represent or act on behalf of a principal.
• The principal has the right to control the agent’s conduct in matters entrusted to the agent.

Benefits of Agency Relationships

• Allows the owner to “scale up” business.
• By using agents, a principal can conduct multiple business operations at the same time in different locations.
• The only way certain business entities can function is through agents.

Source of Agency Law

• No Agency Statutes:
  • States have not codified general principles of agency.
• Restatements of Agency:
  • The American Law Institute (ALI) has published 3 Restatements of Agency (akin to Restatement of Contracts).

Economic Definition of Agency

• The agent is given powers to make decisions on behalf of the principal.
• Parties have different incentives.
• Information Economics:
  • The principal cannot directly ensure that the agent is acting in the principal’s best interests (because monitoring/bonding is costly).
  • Example: Moral Hazard, Proverbial Corporate Jet

Agency Relationships in Corporate Law

• Management vs. Shareholders
• Shareholders vs. Bondholders
• Majority Shareholders vs. Minority Shareholders

Separation of Ownership & Control

• Shareholders want to maximize shareholder value, while management may sometimes make decisions that are not in the best interests of shareholders (i.e., those that benefit themselves).

Jensen & Meckling (1996)

• Thesis:
  • Agency costs arise from the separation of ownership (shareholder-principals) and control (management-agents).
• Solution:
  • High-powered incentive contracts (e.g., stock option plans).
• Evidence:
  • The performance of companies taken private (in LBO) improved significantly.

Hourly Fee Attorney

• Attorney Objective Function:
  • $w \times H$
    • where:
      • $w$ = hourly wage
      • $H$ = hours
• Client Objective Function:
  • $p \times R – w \times H$
    • where:
      • $p$ = probability of success
      • $R$ = remedy
• Upshot:
  • The attorney cares only about billable hours and not whether the case is won or lost.

Contingency Fees

• Contingency Fee Solution:
  • Fees charged for the attorney’s services only if the lawsuit is successful (or is favorably settled out of court).
  • Calculated as a percentage of the client’s net recovery (fees as high as 33% to 45% of the final recovery are considered reasonable).

Contingency Fees

• Attorney Objective Function:
  • $\gamma \times (p \times R)$
    • where:
      • $\gamma$ = contingency fee percentage
      • $p$ = probability of success
      • $R$ = remedy
• Client Objective Function:
  • $(1 – \gamma) \times (p \times R)$
• Upshot:
  • Attorney and client incentives are better aligned: both now have a stake in the outcome of litigation.

Agency Legally Defined (R-3 §1.01)

• Agency is a fiduciary relationship that arises when one person (principal) manifests assent to another person (agent) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents to so act.

Agency by Agreement

• Creation of agency relationship by agreement necessarily involves 2 steps:
  • The principal must “manifest assent” to the agent that the agent will act on the principal’s behalf and subject to the principal’s control, and
  • The agent must “manifest assent or otherwise consent” to act as the agent for the principal.
• In Plain English:
  • Both parties must agree or consent to be in an agency relationship.

Objective Standard

• To determine consent, the law looks to outward manifestations, not subjective intent.
• Conduct:
  • Given the objective standard, a party’s conduct can constitute evidence of consent.
• Implication:
  • Two parties can create an agency relationship even if neither has a subjective desire to do so.

Consent Through Conduct Example

• Larry, the owner of Mocha Joe, writes to Jerry: “Please act as my broker to sell Mocha Joe.”
• Jerry puts a “For Sale” sign outside of Mocha Joe.
• Jerry has manifested the necessary consent through conduct.
• Practice Tip:
  • Clients have a hard time understanding that subjective intent does not trump objective conduct.

Control

• To create an agency relationship, reciprocal consent must include the understanding that the principal is in control of the relationship.
• Control need not be total or continuous and need not extend to the means or manner in which the agent performs.
• At a minimum, the principal must have the right to control the objective of the relationship.

Fiduciary Relationships

• Fiduciary Relationship:
  • A special relationship based on trust and confidence that gives rise to certain fiduciary duties depending on the type of fiduciary relationship that exists.
• Agency Relationship:
  • A type of fiduciary relationship characterized by specific fiduciary duties owed by the agent and principal (i.e., control).

Agent’s Fiduciary Duties

• An agent owes the following 5 fiduciary duties to the principal:
  • Performance
  • Notification
  • Loyalty
  • Obedience
  • Accounting

Fiduciary Duties of Agent

• Performance
  • An agent must use reasonable diligence and skill when performing duties.
• Notification
  • An agent is required to notify the principal of all matters that concern the subject of the agency.
• Loyalty
  • An agent has a duty to act solely for the principal's benefit.
• Obedience
  • An agent must follow all lawful and stated instructions from the principal.
• Accounting
  • An agent must provide records of all property and funds received or paid out on the principal's behalf.

Performance: Duty of Care

• An implied condition in every agency relationship is the agent’s agreement to use reasonable diligence and skill in performing work.
• Due Care:
  • The degree of skill or care required of an agent usually is that expected of a reasonable person under similar circumstances.
  • If an agent has represented herself as possessing special skills, however, then the agent is expected to exercise the degree of skill claimed.

Notification

• An agent is required to notify the principal of all matters that come to her attention concerning the subject matter of the agency.
• In general, the law assumes that the principal is aware of any information acquired by the agent that is relevant to the agency—regardless of whether the agent, in fact, passes on the information to the principal.

Loyalty

• Key Feature:
  • The agent has a duty to act solely for the benefit of the principal and not in the interest of the agent or a third party.
• Any information or knowledge acquired through the agency relationship is confidential (e.g., trade secrets and customer lists compiled by the principal).
• Breach of loyalty to disclose such information either during the agency relationship or after its termination.

Obedience

• Control:
  • When acting on behalf of the principal, the agent has a duty to follow all lawful and clearly stated instructions of the principal.
• Any deviation from such instructions is a violation of this duty (except during emergency situations when the principal cannot be consulted).

Accounting

• Unless agreed upon otherwise, the agent must keep and make available to the principal an account of all property and funds received and paid out on the principal’s behalf.
• The agent has a duty to maintain a separate account for the principal’s funds and must not intermingle funds with the agent’s personal funds.

Principal’s Fiduciary Duties

• The principal has fiduciary duties to the agent relating to:
  • Compensation
  • Reimbursement
  • Cooperation
  • Safe working conditions

Compensation

• The principal has a duty to pay the agent for services rendered and to pay that compensation in a timely manner.
• The principal must pay the agreed-on value for the agent’s services.
• If no amount has been expressly agreed on, then the principal owes the agent customary compensation for such services.

Reimbursement

• The principal has a duty to reimburse the agent for reasonable expenses incurred in the performance of the agent’s duties to the principal.
• The principal has a duty to indemnify the agent against all losses and liabilities incurred by the agent in the performance of the agent’s duties to the principal.

Cooperation

• The principal has a duty to cooperate with the agent and to assist the agent in performing her duties.
• The principal must do nothing to prevent that performance.

Safe Working Conditions

• Common law requires the principal to provide safe working premises, equipment, and conditions for all agents and employees.
• The principal has a duty to inspect working areas and to warn agents and employees about any unsafe conditions.

Examples of Fiduciary Relationship

• Lawyer and client
• Employee and employer
• Trustee and beneficiary
• Board of directors and shareholders
• Insurance broker and client
• Real estate broker and buyer
• Guardian and ward
• Fiduciary financial advisor and investor-client

Not Contractual Relationship

• Key Point:
  • Agency law is not a subcategory of contract law: not all bilateral relationships belong to the law of contract.
• Although agents and principals often superimpose contracts on top of the agency relationship, the agency relationship is not a contract relationship.

Nature of Cause of Action

• Question:
  • Can an agency relationship exist WITHOUT a contract?
• Answer:
  • YES.
• Question:
  • If so, does breach of fiduciary duty claim sound in tort or in contract?
• Answer:
  • Breach of fiduciary duty sounds in tort: agency is not dependent upon the existence of a contractual relationship.

Nature of Cause of Action

• Question:
  • Can an agency relationship exist WITH a contract?
• Answer:
  • YES.
• Question:
  • If so, does the claim sound in tort or in contract?
• Answer:
  • BOTH. Breach of fiduciary duty sounds in tort and breach of contract sounds in contract.

Agency vs. Contract

• Counterparties in Contract:
  • Both parties operate in their own self-interests.
  • Parties are subject only to the duty of good faith and fair dealing.
  • Zero-sum (with respect to cooperative surplus)
• Counterparties in Agency:
  • One counterparty (agent) operates in the best interest of the other counterparty (principal).
  • Parties are subject to fiduciary duties.
• Student Tip:
  • Recall that these are not mutually exclusive relationships.

Agency Law as Gap-Filler

• Agency law fills in gaps in contract.
• Question:
  • Why would a contract have gaps (or be incomplete)?

Key Tradeoff

• Question:
  • How long (in pages) is my tenure-track contract here at Stetson? 10 pages? 100 pages? 1000 pages?
• When to Use Contracts:
  • Control Benefits > Contracting Costs
• In Plain English:
  • A contract gives me greater control, but contracting is costly (e.g., $500 per hour attorney fees).

Contract Law as Gap-Filler

• Impossibility Doctrine:
  • A defense that can be used as an excuse for non-performance when an unforeseen event occurs (after the contract is made) that makes performance impossible.
• Example:
  • A promises to fully renovate B’s house in exchange for $100K. B’s house burns down.
• In Non-Plain English:
  • The impossibility doctrine shifts the risk of loss onto A.

Contract Law as Gap-Filler

• Hypo:
  • Suppose there was no impossibility doctrine or courts adopted a balancing test.
• Question:
  • How can contracting parties make sure that A bears this risk of loss?
• Answer:
  • State so in contract.
• Default Rule:
  • The impossibility Doctrine provides a default rule that governs (unless the contract says otherwise), saving contract parties the costs of having to draft the rule themselves.

Contract Law as Gap-Filler

• Contract law fills in gaps in contract.

• Question:

  • Why would a contract have gaps (or be incomplete)?

• “Parties can, however, contract around the impossibility doctrine because it is just a gap filler.”

  • Wis. Elec. Power Co. v. Union Pac. R.R. Co., 557 F.3d 504, 506 (7th Cir. 2009)

• “The doctrine of impossibility is an ‘off-the-rack’ provision that governs only if the parties have not drafted a specific assignment of the risk otherwise assigned by the provision.”

  • Commonwealth Edison v. Allied-General Nuclear Servs., 731 F. Supp. 850, 855 (N.D. Ill. 1990)

Mandatory vs. Default Rules

• Mandatory Rule:
  • Parties cannot alter (e.g., duty of loyalty).
• Default Rule:
  • Parties can contract around by agreement of the parties (e.g., duty of care).
• Tort Law Review:
  • Where in your tort class did you see parties attempting to contract around tort liability?

Hypothetical

• Hypo:
  • Suppose Bunting has foolishly signed an employment contract with no wage term.
• Question:
  • Is Bunting screwed?
• Answer:
  • Under agency law, the principal has a fiduciary duty to pay reasonable value for the agent’s services (duty of compensation).
• Comment:
  • The contract could specifically state that Bunting is to work on a voluntary basis (i.e., for no wage).

Liability in Agency Relationships

• Two Questions:
  • Which party—principal or agent—should be held liable for:
    • Contracts: Contracts formed by agent
    • Torts: Torts and crimes committed by agent.

2 Questions

• When an agent enters a contract on behalf of a principal:
  • Is the principal bound by that contract?
  • Is the agent bound as a party to that contract?

Is the Principal Bound by Contract?

• General Rule:
  • The principal is obligated to perform under the contract only if the agent acts with authority (i.e., has the authority to enter the contract).
  • If the agent acts without authority, then the principal is not obligated to perform under the contract.

Types of Authority

• An agent's authority can be:
  • Actual (Express or implied)
  • Apparent
  • Inherent

Actual Authority (R-3 §2.01)

• An agent acts with actual authority when (at the time of taking action that has legal consequence for the principal) the agent reasonably believes, in accordance with the principal’s manifestations to the agent, that the principal wishes the agent to so act.

Creation of Actual Authority (R-3 §3.01)

• Actual authority is created by the principal’s manifestation to the agent that (as reasonably understood by the agent) expresses the principal’s assent that the agent take action on the principal’s behalf.

Scope of Actual Authority (R-3 §2.01)

• An agent has actual authority to take:
  • Actions (1) expressed, or (2) implied in the principal’s manifestations to the agent, and
  • Incidental Authority: Acts necessary or incidental to achieving the principal’s objectives.
• Comment:
  • Implied actual authority is a consequence of the “manifestation of assent” language.

Hypothetical

• P, a photographer, employs A as a business manager.
• P authorizes A to endorse and deposit checks P receives from publishers of photographs taken by P.
• Questions
  • Does A have actual authority to endorse and deposit a check from T, magazine publisher, made payable to P?
    • Yes
  • To enter into purchase agreements on behalf of P?
    • No
  • To release claims that P has against TP?
    • No

Example: Power of Attorney

• The agent who holds the power of attorney is called the attorney-in-fact for the principal (of course, the agent need not be an attorney-at-law).
• The power of attorney is a written document and usually notarized.
• Special v. General
  • The power of attorney can be (1) special (permitting the agent to perform specific acts only), or (2) general (permitting the agent to transact all business for the principal).

Express Actual Authority

• Express Actual Authority
  • Authority declared in clear, direct, and definite terms, orally or in writing.

Implied Actual Authority

• Implied Actual Authority
  • Authority that can be gleaned from reasonable inferences with respect to the principal’s conduct, position, or even inaction.
  • Implied authority refers to the agent’s power to act on behalf of the principal without express authorization from the principal.
  • Incidental authority is a type of implied actual authority.

Note on Terminology

• Some courts (erroneously) refer to apparent authority as implied authority.
• Implied authority is a type of actual authority.

Hypothetical

• Epstein (principal) tells his chauffeur, Freer (agent), to have the car serviced at Robert's Service Station (third-party).
• Freer takes the car to Roberts for servicing.
• Question:
  • Is Epstein obliged to pay for the service?
• Answer:
  • YES. Freer had actual authority to bind Epstein to the deal.

Hypothetical

• Shepherd asks his assistant to make travel arrangements for him to attend a law professor conference.
• Although Shepherd does not say anything specifically about airline reservations, the assistant makes such reservations for him.
• Question:
  • Does the assistant have actual authority to make the purchase for Shepherd?
• Answer:
  • Yes, making airline reservations is within the scope of the assistant’s actual authority as it is incidental to achieving Shepherd’s objective of attending the law conference.

Hypothetical

• Shepherd slams a pamphlet about an upcoming law professor conference on the desk of his assistant.
• Although Shepherd does not say anything specifically about wanting to attend this conference, Shepherd has attended every year for the last 15 years and each time his assistance has made travel arrangements for him to attend.
• Question:
  • Does the assistant have actual authority to make travel arrangements for Shepherd?
• Answer:
  • Yes, actual authority is implied.

Apparent Authority (R-3 §3.01)

• Apparent authority is the power held by an agent (or other actor) to affect the principal’s legal relations with a third party when:
  • The third party reasonably believes the actor has the authority to act on behalf of the principal, and
  • That belief is traceable to the principal’s manifestations.
• Authority that is only apparent, not real.

Key Distinction

• Actual authority (express or implied) arises from what the principal makes clear to the agent.
• Apparent authority arises from what the principal causes the third-party to believe regarding the agent’s authority.
• Apparent and actual authority are not mutually exclusive and coexist.

Creation of Apparent Authority

• Apparent authority exists when:
  • One party (“apparent principal”) makes a manifestation, which
  • Somehow reaches a third-party, and
  • Which alone or (more often) in the context of other circumstances causes a third-party to reasonably believe that another party (“apparent agent”) is authorized to act for the apparent principal.

Modes of Manifestation

• Notable Modes of Manifestation
  • Through Intermediaries
  • By Position
  • By Acquiescence
  • By Inaction

Hypothetical

• Epstein (principal) tells Roberts (third-party), who runs Robert's Service Station, that Freer (agent) is Epstein’s agent for having the car serviced.
• Questions
  • Does Freer have apparent authority?
  • What if Epstein had privately told Freer that Freer had no authority to get the car fixed?

Joey Hypothetical

• Joey brings his broken watch to Jill, a watch-repair merchant.
• Jill enters a sales contract with Bunting in which Jill agrees to sell the watch to Bunting.
• Question
  • Does Jill have apparent authority?
• Answer:
  • Trick question. No agency relationship here, only contractual relationships (Joey-Jill, Bunting-Jill).

Big Picture Question

• Question:
  • Why is a law firm unable to publicly incorporate?
  • What is the agency cost problem here?
    • The need to maintain legal ethics.

Important Exam/Bar Tip

• Looking Ahead:
  • As agents of a partnership, partners have apparent authority (by virtue of position) to bind the partnership to any contract within the scope of the partnership business.
  • If the contract is outside the scope of the partnership business, then the partnership generally will not be bound UNLESS the partner had actual authority.

Inherent Authority

• Inherent Authority
  • Authority that arises from the relationship between the parties itself.

Hypothetical

• Shepherd is president of XYZ Corporation.
• In that capacity, Shepherd signs a contract that obligates XYZ Corporation to buy ordinary supplies from TP.
• Shepherd did not have actual authority to do this.
• Neither did he have apparent authority, because the corporation made no manifestation to TP that Shepherd could bind it.
• Rather, the corporation is bound on the contract because Shepherd, as president, had the inherent agency power to bind it.
• Generally, the corporation’s president has the authority (by virtue of being president) to bind the company to contracts in the ordinary course of business.

Restatement Third Approach

• Restatement Third:
  • R-3 abolishes the concept of inherent authority.
  • R-3 expands the notion of what constitutes “manifestation by principal to third-party,” which broadens the scope of apparent authority.

Question About Law

• Question:
  • How do you hold a corporation liable on a contract with a third-party under the R-3 approach?
• Answer
  • Apparent Authority.
  • The corporation manifested to the third-party (by giving Shepherd the title of president) that Shepherd had the authority to bind the corporation to deals in the ordinary course of business.

Is the Agent Bound as Party to the Contract?

• Liability for contracts formed by the agent depends on:
  • Authority: Whether the agent acted with authority, and
  • Type of Principal: Whether the principal is (1) disclosed, or (2) undisclosed.

Without Authority

• General Rule:
  • If an agent enters a contract on behalf of a principal acting without authority, then the agent is obligated to perform under the contract.
  • The principal is not obligated to perform under the contract (the agent cannot bind the principal to a contract without the authority to do so).

Principal Does Not Exist (R-3§6.04)

• A person who makes a contract with a third-party purportedly as an agent on behalf of a principal becomes a party to the contract if the purported agent knows that the purported principal does not exist.

Remedies Against Unauthorized Agent (R-3 §6.10)

• Agent’s Implied Warranty of Authority
  • A person who purports to make a contract with a third-party on behalf of another person lacking the power to bind that person gives an implied warranty of authority and is subject to liability to the third party for damages for loss caused by breach of that warranty (including loss of benefit expected from performance by the purported principal).
• Plain English
  • The third-party gets to sue the agent for expectation damages, and not just rescission of the contract.

With Authority

• If the agent acted with authority, then next determine whether the principal was:
  • Disclosed
  • Undisclosed

Disclosed Principal (R-3§ 6.01)

• If an agent acting with authority makes a contract on behalf of a disclosed principal, then the agent is not a party to the contract.
• Example
  • Sprint employee paid to get prospective customers to sign cellphone contracts.

Undisclosed Principal (R-3§ 6.03)

• If an agent acting with authority makes a contract on behalf of an undisclosed principal, then the agent is a party to the contract.
• Rationale:
  • The basis for treating the agent as a party to the contract is the expectation of the third-party:
  • the agent has dealt with the third party as if the agent were the sole party whose legal relations would be affected by the contract.

Illustration Hypo

• T enters a contract with A in which A promises to manage T’s investment portfolio.
• A does not disclose that A makes the contract on behalf of P.
• P offers to manage T’s portfolio.
• T is free to reject P’s offer of performance and insist upon performance by A.
• T has a substantial interest in receiving investment-management services from A.

Disney Example

• Question:
  • Would the seller of land be bound by the contract in this circumstance?
• Answer:
  • A third party cannot void a contract merely because the third-party contracted with the agent.
  • There might be some other type of misrepresentation that the seller can rely on to void the contract.

Hypothetical Hypo

• Carhart hires Agee as a cook and tells her that part of the job will be to order food for the restaurant.
• Agee does so by ordering meat and veggies and other essential ingredients for the business from TP, telling TP that she is ordering food for Carhart.
• TP delivers the food to Carhart.
• Question
  • Is Carhart legally obligated to pay for the food?
  • Is Agee legally obligated to pay for the food?

Hypothetical Hypo

• After several months, it becomes clear that Agee has been ordering too much food.
• Carhart instructs Agee to reduce food purchases from TP from $2,200 per month to $1,000 per month.
• Despite this clear instruction, for the next month, Agee orders $2,200 of new food from TP.
• Question:
  • Is Carhart legally obligated to pay $2,200 to TP?
  • Is Agee legally obligated to pay $2,200 to TP?
  • Is Agee liable to Carhart for violating a fiduciary duty to Carhart?

Apparent Authority by Inaction

• Tricky Point:
  • In limited circumstances, the apparent principal’s inaction might constitute a manifestation.
  • In these circumstances, the apparent principal’s silence constitutes a manifestation known to the third-party
  • This factual circumstance is better dealt with through the doctrine of agency by estoppel.

Creation of Authority

• Authority is created by:
  • Agreement (Express or Implied)
  • Estoppel, or
  • Ratification by Principal.

Agency by Estoppel (R-3§ 2.05)

• Estoppel to Deny the Existence of an Agency Relationship
  • A person, who has not made a manifestation that an actor has authority as an agent, is subject to liability to a third party who justifiably is induced to make detrimental change in position because the transaction is believed to be on that person’s account if:
    • Action: The person intentionally or carelessly caused such belief, or
    • Inaction: Having notice (including constructive notice) of such belief and that it might induce others to change their positions, the person failed to take reasonable steps to notify them of the facts.

Apparent Authority vs. Estoppel

• Similarities
  • Both doctrines focus on the principal creating the impression that a putative agent might act on her behalf.

Apparent Authority vs. Estoppel

• Differences
  • Estoppel does not require the manifestation of authority to the third-party—instead, the principal must have failed to dispel the third-party’s belief that one is an agent of the principal.
  • Estoppel requires a showing of detrimental reliance by the third-party—apparent authority does not.
  • Estoppel can apply even when no principal-agent relationship exists.

Hypothetical: Agency by Estoppel

• Hypo
  • Vanek (who is Azur’s personal assistant) took unauthorized cash advances from Azur’s credit card account with Chase Bank over a 7-year period.
  • Azur finally discovers this, fires Vanek, and closes the credit card account.
• Question
  • As Azur’s attorney, what do you argue?
• Answer
  • Vanek did not have (actual or apparent) authority to withdraw funds from Azur’s Chase Bank account.
• What does Vanek’s attorney argue?

Hypothetical: Agency by Estoppel

• Holding
  • Azur is estopped (or prevented) from arguing that Vanek did not have the authority to withdraw funds from his credit card account.
• Question
  • What is the impact on the banking sector if the court rules the other way?

Equity Gap-Filler

• Comment
  • Agency by estoppel is rare.
• Rationale
  • Agency by estoppel allows courts to prevent injustice when, in the court’s view, the asserted principal’s inaction cannot serve as a manifestation.

Ratification Defined (R-3§ 4.01)

• Ratification is the affirmance of a prior act done by another, whereby the act is given effect as if done by an agent acting with actual authority.
• Ratification is effective immediately even if the fact of ratification is not communicated to the third-party or agent.

Ratification in Plain English

• Ratification
  • If an agent acts without authority, then the principal can bind herself to the contract if the principal later ratifies the transaction.
  • The principal’s ex post facto approval of the transaction.
• Example
  • Stetson thinks Bunting’s real estate deal is not so crazy after all and decides to proceed forward with the deal.

Manner of Ratification

• The purported principal ratifies an act by either:
  • Express Ratification: Making a manifestation that (viewed objectively) indicates a choice to treat the unauthorized act as authorized (e.g., Stetson tells Bunting’s contract counterparty that they want to proceed with the deal), or
  • Implied Ratification: Engaging in conduct that is justifiable only if the purported principal has chosen to treat the unauthorized act as authorized
    • E.g., Stetson sends a check in the amount of the purchase price to Bunting’s contract counterparty.

Evans v. Ruth: Facts

• Facts
  • The principal had a contract with the State to provide crushed stone for use in highway construction.
  • The principal’s foreman, without authority, hired the Company to haul stone to the construction site.
  • The principal had received “weigh slips” from the Company, which the Principal submitted to the State for payment.

Evans v. Ruth: Holding

• Holding
  • The principal was liable to pay the Company for transportation.
• Rationale
  • Having accepted the benefit of what the Company had done, the Principal impliedly ratified the deal between the foreman (agent) and the Company (third-party).

Hypothetical Hypo

• Cook calls a local newspaper and tells the advertising director that she is running a restaurant for its owner, Carhart (which is not true).
• Cook places a series of 4 full-page ads for the restaurant with the newspaper. Carhart is not aware of these facts.
• Question
  • Is Carhart liable to the newspaper for these series of advertisements placed by Cook?
• Answer:
  • NO.

Hypothetical Hypo

• Suppose Carhart does not contact the newspaper to complain about Agee’s lack of authority until after all 4 advertisements have run in the newspaper (even though Carhart knew about them when the first ad was printed).
• Question
  • Is Carhart liable to the newspaper for the advertisements placed by Cook?
• Answer:
  • YES. By accepting the benefit of advertising (inaction or silence) BEFORE asserting a problem exists, Carhart has implied ratified the deal Cook struck.

Undisclosed Principal

• Ratification by Undisclosed Principal
  • Ratification by an undisclosed principal does not eliminate the agent’s liability to