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Agency • Liability of Principal for Agent's Contracts
AG#009
Legal Definition
A principal is liable for its agent's contracts only where the principal authorized the agent to enter the contract.
There are four types of authority an agent may have: (1) actual express authority, (2) actual implied authority, (3) apparent authority, or (4) post-ratification authority.
There are four types of authority an agent may have: (1) actual express authority, (2) actual implied authority, (3) apparent authority, or (4) post-ratification authority.
Plain English Explanation
Generally, people are only bound to obligations they personally agree to. However, there are specific instances when an employee may bind their employer to an agreement with a third party. Whether or not they had the authority to do so depends on the circumstances and fact pattern. We'll discuss each of these more in depth, but, in general, there are 4 circumstances:
(1) Actual express authority, which means that the employee was specifically told to engage in the contract;
(2) Actual implied authority, which means the employer did something to imply that the employee had authority;
(3) Apparent authority, which means the employee is in a role that would likely come with such authority, and the person who contracted with the employee has a reasonable belief that they were authorized to contract; and
(4) Post-ratification authority, which means the employee contracted without permission, but the employer was happy that they did and decided to support (i.e., ratify) the agreement, rather than fire the employee and call up the person they contracted with to explain the misunderstanding.
(1) Actual express authority, which means that the employee was specifically told to engage in the contract;
(2) Actual implied authority, which means the employer did something to imply that the employee had authority;
(3) Apparent authority, which means the employee is in a role that would likely come with such authority, and the person who contracted with the employee has a reasonable belief that they were authorized to contract; and
(4) Post-ratification authority, which means the employee contracted without permission, but the employer was happy that they did and decided to support (i.e., ratify) the agreement, rather than fire the employee and call up the person they contracted with to explain the misunderstanding.
Related Concepts
How can actual express authority be revoked?
How can a principal ratify an agreement that their agent made without authority to do so?
When does an agent have actual express authority to enter into an agreement?
When does an agent have actual implied authority to enter into an agreement?
When does an agent have apparent authority to enter into an agreement?
When is an agent liable to a third party for an agreement they entered into on behalf of their principal?
