MODULE 29 AGENCY 289

thority and consists of all authority expressly given by the versely to the principal, unless the principal knows and ap-
principal to his/her agent. Answer (b) includes the authority
that can be reasonably implied from the express authority
and the conduct of the principal. Answer (d) is not chosen
because even though a party was never authorized by a prin-
cipal to be an agent, if the principal leads a third party to
believe thatthe party did have authority, this is apparent
agency.
11. (b) An agency agreement normally does not need to
be in writing. Exceptions to this general rule include agency
contracts that cannot be completed within one year and
agreements whereby the agent is to buy specific real estate
for the principal. This question incorporates the latter.
Typical agency agreements need not be in writing; these
would include purchasing office supplies, retaining an inde-
pendent contractor to do renovation work, or hiring an attor-
ney to collect a business debt.

12. (c) An agent has implied authority to do what is

customary for agents of that type to do under the circum-
stances. It would be customary for one who is a principal's
accountant and business manager to have authority to insure
the principal's property against fire loss. Answers (a), (b),
and (d) are incorrect because they involve authority that is
beyond customary, ordinary authority.

B.S. Ratification
13. (d) Since Ames had no express, implied, or actual
authority, Trimon cannot enforce the contract. Answer (a) is
not chosen because ratifications under agency law require
that the contract be ratified in its entirety or not at all. An-
swer (b) is not chosen because until Clar ratifies the contract
in its entirety, Trimon may withdraw from the contract since
Ames had no authority to make the contract. Answer (c) is
not chosen because ratification can be accomplished by ac-
tions as well as words.

14. (b) When the third party is aware that there is a prin-
cipal, that principal, fully disclosed or partially disclosed,
may generally ratify the contract when he orshe is aware of
all material facts and if ratification of the entire contract
takes place.

C. Authority
15. (a) Since Beele authorized McDonald to be his
agent, the secret limitation has no effect on York. York may
enforce the contract for the full $140,000. Answer (b) is
incorrect because Beele authorized McDonald to be his
agent. Even though his agent was instructed to pay at most
$125,000 in the contract, this was a secret limitation that did
not limit York who was unaware of it. Answer (c) is incor-
rect because McDonald was given authority to purchase real
estate on Bee1e's behalf. The limitation on the dollar
amount was not known by York and therefore does not limit
her. Answer (d) is incorrect because although York can
enforce the contract against Beele, it is because Beele gave
authority to McDonald rather than how much the real estate
is worth.

E. Obligations and Rights

16. (b) As a fiduciary to the principal, an agent must act

in the best interest of the principal. Therefore, the agent has
an obligation to refrain from competing with or acting ad-
proves of such activity. Answer (c) is incorrect because the
Statute of Frauds would not require that the described
agency relationship be contained in a signed writing since it
is possible for the contract to be performed within one year.
Answer (d) is incorrect because the mere right of the agent
to receive a percentage of proceeds is not sufficient to con-
stitute an agency coupled with an interest. In order to have
an agency coupled with an interest, the agent must have
either a property interest or a security interest in the subject
matter of the agency relationship. Answer (a) is incorrect
because in all agency relationships, except agencies coupled
with an interest, the principal always has the power to dis-
miss the agent. However, the principal does not necessarily
have the right to terminate the relationship. In certain situa-
tions the dismissed agent could ~ue for breach of contract. c
heck is not liable on the negotiable
17. (c) In an agency relationship, the agent owes a fi- instrument. An-
duciary duty to the principal but the principal does not owe a s
fiduciary duty to the agent. Also, even though there is often wers (a) and (b) are incorrect because the
a contract between the principal and agent, this is not a re- third party can
quirement, for example, when the agent consents to act for elect to hold either the agent or the
the principal as a friend. principal liable when the
, agent makes a contract for an undisclosed
E.3. Principal's Liability to Third Parties principal. An-
swer (d) is incorrect because the party who
18. (a) When the principal is undisclosed in an agency signs a check is
relationship, the agent generally has the same authority as if liable on it.
the principal were disclosed. The main difference is in the
liability of the agent to third parties. Answe (b) is incorrect F
because the principal is liable on the contract because of the
express authority given to the agent to make the contract on
. Termination of Principal-Agent
behalf of the principal. Apparent authority exists when the Relationship
principal represents the agent to third parties to be his/her
agent. In this case, the principal wished to be undisclosed. 2
Answer (c) is incorrect because principal can be held liable 3. (c) The declaration of Ogden's
for negligence committed by the agent within the course and incapacityconsti-
scope of the agency. Answer (d) is incorrect because the tutes the termination of the agency
agent can be held liable on the contract by third parties when relationship by operation
the principal is undisclosed. oflaw. When an agency relationship is
terminated by op-
19. (c) An agent is liable to a third party on a contract eration of law, the agent's authority to enter
when the principal is undisclosed or partially disclosed. If into a binding
the principal is fully disclosed, the agent is not liable. agreement on behalf of the principal ceases.
There is no
E.4. Agent's Liability to Third Parties requirement that notice be given to third
parties when the
20. (b) When an agent enters into a contract with a third agency relationship is terminated by
person on behalf of an undisclosed principal, the agent is operation of law. In
personally liable, unless the third person discovers the exis- this case, Ogden will not be liable to Datz
tence and identity of the principal and chooses to hold the because Thorp
principal to the contract instead of the agent. Ratification is was without authority to enter into the
the approval after the fact of an unauthorized act done by an contract. Answer (a)
agent or of an act done by someone who is not yet an agent. is incorrect because insanity of the principal
Undisclosed principals cannot ratify unauthorized acts of the terminates the
agent. agency relationship even though the third
parties are un-
21. (c) When a third party contracts with an agent repre- aware of the principal's insanity. Answer (b)
senting an undisclosed principal, the agent is liable for per- is incorrect
formance of the contract. The third party is not entitled to because Thorp's authority terminated upon
disclosure of the principal. Answer (b) is incorrect because the declaration
ratification of a contract by the principal is the approval of Ogden' s incapacity. ' Answer (d) is
required after the fact related to an unauthorized act by the incorrect becausean
agent or one not yet an agent. Answer (d) is incorrect be- undisclosed principal is liable unless the
cause the third party generally is not allowed the option of third party holds
voiding the contract after disclosure of the principal. the agent responsible, the agent has fully
performed the '
22. (c) One who issues a personal check is liable on it; contract, the undisclosed principal is
however, any party or principal who is not disclosed on the expressly excluded by
contract or the contract is a negotiable
instrument. How-
ever, Ogden will not be liable 'as Thorp was
without author-
ity to enter into the agreement.

2
4., (c) An agency relationship is terminated,
by opera-
tion of law if the subject of the agreement
becomes illegal or
impossible, the principal or the agent dies
or becomes in-
sane, or the principal becomes bankrupt.
Answers (a), (b),
and (d) are incorrect because they will
cause the termination
of an agency relationship by operation of
law. Answer Cc),
agent's renunciation of the agency, will not
cause the termi-
nation of an agency relationship. -

2
5. (c) When the agency relationship is
terminated by
an act of the principal and/or agent, third
parties are entitled
to notice of the termination from the
principal. Failure of
the principal to give the required notice
gives the agent ap-
parent authority to act on behalf of the
principal. Specifi-
cally, the principal must give actual notice
to all parties who
had prior dealings with the agent or
principal. Constructive
or public notice must be given to parties
who knew of the
existence of the agency relationship, but did
not actually
have business dealings with the agent or
principal. Since
Bolt Corp. did not give proper constructive
notice to Young
Corp., Ace had apparent authority to bind
the principal and:
therefore, Young Corp. will win.
Accordingly, answer (a) is
incorrect. Answer (b) is incorrect because
although Ace
lacked express authority, apparent authority
was present due
to the inadequacy of Bolt's notice. Answer
(d) is incorrect
because a principal is not an absolute
insurer of his agent's
acts. A principal is liable for his agent's
torts only if the

,
principal expressly authorizes the
conduct or the tort is
committed within the scope of the
agent's employment.