Business 631

Assignment #12
Mailloux, #4914

For each of the following fact patterns, discuss who will have liability for each of the
following bills and under what theory.

1. Bill owns a house that he rents to Dave. Bill manages the house himself and the
lease agreement requires Dave to get permission for any repair over $100.00.

A. Actual Authority, Expressed is the best theory of power because it is the

quintessential element of the agency relationship. All power of authority is granted to the
agent by the principal that can be implied from the principal’s manifestations and
construed from the agent’s point of view.

When the water heater broke, Dave, the tenant/agent called Bill for authorization because
it was a repair over $100. Bill is the principal, owner of the house as well as manager.
Consequently, Bill who has authority in matters over $100.00 gave the rightful go ahead
for the $895.water heater repair to be made. Therefore, it was proper procedure and the
liability for the bill is with Bill, the manager and owner.

B. Implied Authority is the contractual power that principal implied by words or

conduct between the two of them that the agent may infer. Incident to Express
Authority is a given general authority or objective, since rarely does the principal grant
detailed authority so as to cover any and all situations. This implied authority gives the
agent the power to do all acts reasonably necessary to meet the objective; that is
inferred authority.

Here, agent/Dave noticed that the lines leading to the water heater were leaking. If
replaced while the water heater is out, it will cost $400.as opposed to $800.after
replacement. Dave tried to reach Bill to get approval, but to no avail. It is reasonable to
conclude, that Dave’s directive to the plumber to fix the lines was a good call and based
on inferred authority because he was saving Bill $400. by making the decision now and
getting the job/objective done. This is incidental to express authority. It is very likely
that the liability is Bill’s because he approved the original repair and that is a
manifestation to Dave that he has the right to make the call since he could not reach him.

C. Actual Authority- Expressed, defined supra.

Here, Dave is told the faucet needs a new washer because it leaks. The cost is $95
complete. Dave has the actual authority from Dave to make any repairs under $100.
according to their contract. Consequently, Dave was working within his scope and will
have no liability whereas Bill will be responsible for the bill as the agreement dictates.

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Assignment #12
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D. Breach of Warranty of Authority is creating an impression of agency where no such

relationship exists. An agent who enters into a contract with a 3rd party by implication
warrants that he or she has the authority to do so is generally liable alone for breach of
warranty of authority because the principal has not been bound,

A person dealing with an agent cannot hold the principal liable for any act or transaction
of the agent not within the scope of his actual or apparent authority, unless the limitations
are known or can be readily ascertained, then the principal is bound by unauthorized acts
of an agent through which a third party has sustained a loss.

Here, Dave hating the bathroom faucet is subjective and a matter of fancy and taste, not
an issue of repair which is objective and part of the contractual agreement between Bill
and Dave. (Contractual Authority) Since this is not a repair and he did not get separate
approval to replace it for bad taste reasons, Dave breached the terms of his agency and
acted outside of his scope. Further, since the plumber was certainly unaware of Dave’s
limitations of authority, he relied on Dave’s alleged apparent authority. Therefore, Dave
breached the contractual terms of his agreement with Bill and he will be liable for the
cost of the faucet of his dreams.

E. Estoppel is a source of power related to apparent authority when principal

intentionally or carelessly causes a 3rd party to believe another to be his agent, and 3rd
party relies on that belief to his detriment. That stops the principal from denying liability
and this “reliance” automatically makes the principal liable for 3rd party’s resulting losses.
However, a principal will be bound by an agent’s acts only if a third party reasonably
believes that the agent has the authority based on certain manifestations by the principal.

Here we have a major problem for Dave since he replaced the faucet without authority
not because it needed to be so, but because he didn’t like its design, discussed, supra.
Complications ensued when the plumber did a poor job of installing the bathroom faucet
and it leaked undetected causing $1000.in damage. This agency relationship is derived
from the previous agreement, but is arising out of Dave’s apparent authority. Every
time an agent acts without disclosing that he is acting on behalf of someone else’s
authority, the agent and the principal will be liable.

On the other hand, the third party plumber relied on Dave’s authority to his detriment.
Whether Bill is bound by Dave’s acts requires a case by case inquiry as to whether the
principal’s conduct reasonably induced the plumber to believe that Dave had the
authority to act for Bill. Further, the plumber relied on Dave’s authority and went
forward with the repair.
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Assignment #12
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Even if the act is done contrary to principal, Bill will be liable unless the plumber didn’t
know that Dave was exceeding his authority or violating instructions. Therefore, if
Estoppel applies, Bill will be liable for the bill.

As mentioned, Apparent Authority could also come into play here because Dave never
disclosed Bill as principal, making Dave and Bill liable. The $1000.worth of damages
was the direct result of the non- authorized directive by Dave to the plumber to install it.
It is likely that both theories could apply here, estoppel and apparent authority, thus
making both principal and agent potentially liable, respectively.
However, to complicate further, the fact pattern indicates that the plumber is guilty of
negligent work. If the parties or party were successful in bringing a tort’s negligence
case, the plumber would be held liable for the actual cause of the damages for the faulty
labor. Thus, the plumber would be indemnifying the injured party.

2. Bill owns a second rental property at the beach that he rents during the summer
for a week at a time. He has Mitch, his agent manage the property. Mitch has
complete authority to rent and repair the property. Mitch is supposed to screen all
applicants and only rent to people who have a credit score of 700 and pay the full
rent of $1000.per week in advance. Mitch is not an employee. He is a real estate
agent that gets 10% of the rent.

A. Actual Authority and limitations on it. Frequently an issue arises as to whether

particular instructions given to the agent constitute limitations on agent’s authority or just
advice! The answer turns on whether the court interprets as to what the principal intended
or what can be assumed he intended. They will consider what the purposes were, whether
he could be reached and or any other relevant factor.

Consequently, when he rented to Sam without checking his score because he knew him
for a long time and knew his score was acceptable, did he disregard directions from Bill
and breach his duty? Mitch, a compensated R.E. agent, has a Fiduciary Duty to Bill and
should act morally in relation to Bill’s interests. It seems like he ignored the care that
should have been taken and took a short cut.

Mitch will say he was he acting on Bill’s behalf quickly to close the deal. The court
would determine whether a willful act not in the best interest of the principal was
committed, to determine whether Mitch will be responsible for a breach of fiduciary duty
because he didn’t check; the check bounced, even though his score (750) was higher than
Bill’s prerequisite (700). The court will look at whether there was reasonable care used
by Mitch as well as whether he was acting in his capacity as a decision- making
fiduciary. However, it is likely that Mitch will be held liable because he failed to follow
un-iidentified principal’s instructions for the rent as well as his 10%, to indemnify Bill
from Sam’s bad check. 3.

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Mailloux, #4914

B. Breach of Warranty of authority, defined supra.

Mitch, compensated agent relied on past custom with Ed much to his chagrin, because
Sam’s check bounced and his past high credit score and job had taken a dive. Mitch is an
agent with a duty of care, trust owed. Mitch shirked his role by not checking the score
because that was what he was getting paid to do, since Bill entrusted him to do so. It is
likely that Mitch/agent will be responsible for a breach of duty of care and trust. He failed
his fiduciary duties and liability/losses ensued. Clearly, the court will view Mitch as
liable by his breach of care/loyalty and to following instructions. If he is sued by Bill his
errors and omissions insurance as a R.E. agent will indemnify.

C. Breach of Warranty of Authority, defined, supra.

Agent Mitch took Lola’s bribe and ignored her 650 score Lola’s check bounces. Here,
Mitch breached his duty of care, trust, fair dealing, and loyalty with his irresponsible and
illegal actions. It would automatically serve to terminate any grant of actual authority.
Further as an agent, he cannot take profits that rightfully belong to the principal. He will
be disgorged of the financial bribe and be liable for the rent from the bounced check. In
addition to the indemnification, he may be subject to punitive and or sanctions for
unethical conduct as a R.E. agent.

D. Breach of Warranty of Authority, defined, supra.

Mitch breached his duty of loyalty and trust when he allowed his sister’s family to stay
for free on the weekend. Only, the principal can make a call on that action and Mitch did
not attempt to ask his permission. Reliance is required, so if the sister knew there was no
authority on her brother’s part, he would not be liable. However, under this same theory
of liability, if Mitch intentionally misrepresented the necessary authority, he could be
held in tort for deceit.

When his nephews, broke a window causing a $250.repair, Mitch became liable for
probably a weeks rent and the cost to repair the window because Mitch acted willfully in
a breach of authority against the principal.

E. Breach of Contract – failure to perform a contractual duty.

Here, Mitch breached his duty to Bill when he failed to tell Bill the window was broken.
That was his duty as agent to report and take responsibility for the repair. He did neither.

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Breach of Warranty of Authority, defined supra.

Mitch failed to repair the window broken by his nephews playing football on the
premises without actual authority. Once again it is required that the agent has believed
authority by the third party in order for that agent to be liable. It is likely that is the case
here.

Because the broken window was not reported, it was not fixed. That was the catalyst for a
homeless person to climb in and squat for a week. When Mitch failed to report it and it
didn’t get repaired, Mitch breached his duty of care and loyalty to Bill. He automatically
became liable for that reason alone. In addition, the homeless person stole a tv and stereo
to the cost of $750. Mitch will be liable for the repair of window, rent (compensatory
damages thru tort or contract liability) and the $750 in stolen goods through
indemnification. Perhaps punitive for bad faith.

Mitch is responsible for stolen stuff because he did not repair the window. $750 for Tv
and stereo
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