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Agency • Liability of Principal for Agent's Contracts
AG#010
Legal Definition
An agent has actual express authority where the principal uses words (written or orally) to express authority to the agent. However, though the actual express authority may be given orally, there is an exception: where the contract itself must be in writing (due to the Statute of Frauds, for example), so too must the express authority. This is known as the equal dignity rule.
A principal's authority will be narrowly construed to the actual words used.
A principal's authority will be narrowly construed to the actual words used.
Plain English Explanation
If an employer tells their employee to enter into a contract on behalf of the company with another party, then the agreement is binding. Why? Because the employee did what their employer instructed them to do.
Hypothetical
Hypo 1: Sam owns a taco cart and has one employee, Bob. Sam is planning on bringing on a large customer, Amy, and has scheduled a meeting to sign the contract. On the day of the meeting, Sam is deathly ill. Not wanting to lose the new customer, Sam tells Bob to meet with Amy and sign on his behalf. Result: Bob has actual express authority to contract with Amy, which binds Sam. Note, however, that if the contract with Amy was for more than $500, then Bob's actual express authority must be in writing. In other words, Sam would need to give Bob a permission slip to sign on his behalf rather than just call on the phone and tell Bob to do it. Why? Because, as you'll learn in the Contracts flashcards, contracts for the purchase of goods over $500 must be in writing in order to satisfy the Statute of Frauds. Thus, under the equal dignity rule, the grant of authority must also be in writing.
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 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?
When is a principal liable for contracts created by their agent?
