Business Law 107
Agency and Employment Exam
1. This fact pattern revolves around the termination of an agency. The duration of an agency is usually stated in the parties’ agreement. In general, either party may terminate an agency at any time for any reason; however if the terminating party is in violation of the contract terms, they may be liable for damages. In this case, Barnes was designated as a special agent, authorized to make decisions in the management of one specific subdivision of residential housing. As such he was not authorized to use project funds towards his own venture, essentially committing embezzlement and giving Morgan grounds to terminate the agency. Unauthorized actions taken by an agent may be ratified by the principal, however in this situation Barnes was not acting on behalf of Morgan when he misused the funds, nor was Morgan accepting of the action. Termination is effective upon notice to the agent therefore Barnes is incorrect and the termination was carried out properly. He will appear to have binding power against Morgan, however until all third parties are notified of his termination. It is also likely Barnes would be brought up on criminal charges for his personal use of business funds.
2. The described scenario deals with agency by ratification. Unauthorized actions by an agent do not bind the principal to a contract. If an agent attempts an unauthorized act on behalf of the principal, the principal may either ignore or ratify the act. Ratification may be expressed in words or conduct and requires three conditions—that the agent purported to act on behalf of the identified principal, that the principal must have been capable of authorizing the act when it occurred and when it was ratified, and that the principal have full awareness of all material facts. Once an act is ratified, it is in effect as if originally authorized. While Ames was not initially authorized to purchase such merchandise at the price he paid, he acted with Baker’s interest in mind, Baker was capable of authorizing or stopping the purchase and Baker had full knowledge of all pertinent details. In turn, Baker’s efforts to sell the desk serve as her ratification of Ames’s action, binding her to the contract with Carter. While she may request a refund, Carter is by no means liable for providing one.
3. This situation brings into question party liability in contracts between agencies and third persons—particularly those with undisclosed principals. In an agency between an agent and a principal wishing to conceal her identity, the agent not only acts on behalf of the undisclosed principal, but also is considered to be the party making the contract with the third person. As a party to the contract, the agent is bound to carrying out the terms even if the principal breaches the contract. In most cases of contract breach, the agent, the principal (if/when existence is disclosed) and/or both can be sued and deemed responsible for satisfying any judgments. Applying this information to this fact pattern, it is conceivable that the seller will be successful in suing and collecting judgments from both Rosemary and Sid until judgments are fully satisfied for the breach of contract. As for the bad check claim, while Sid committed the crime, vicarious liability imposes liability on Rosemary. The client should be able to successfully bring the charge against both Sid (civilly and criminally) and Rosemary (civilly and most likely criminally). In addition to this, Sid would have been able to sue Rosemary for her breach of their contract if he had paid the monies owed; however his criminal actions were not justified by her breach and he lost his opportunity to do so.
4. This fact pattern deals with the liability of agency parties when an agent commits a crime (specifically fraud). While the common law imposes no liability for an agent’s intentional torts on the principal, modern decisions hold principals...
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