Agency, authority and vicarious liability

Answer: C. The company is bound because its payment of similar prior orders reasonably indicated that the buyer had authority.

The company is bound because its payment of similar prior orders reasonably indicated that the buyer had authority. - The owner accepted and paid three earlier orders of $6,000 to $8,000 from the same supplier without disclosing the buyer’s private limit. - That course of conduct reasonably indicated to the supplier that the buyer had apparent authority to place the $7,500 flour order, binding the bakery when it was placed. The company is not bound because the buyer lacked actual authority under the owner's private instruction. - The private $5,000 limit restricted the buyer’s actual authority, but the supplier had no notice of it. - Lack of actual authority does not defeat the apparent authority created by the owner’s handling of the earlier orders. The company is not bound because only the buyer's statements supported the supplier's belief in authority. - The supplier’s belief rested on the owner’s acceptance and payment of three similar orders, not solely on the buyer’s statements. - A principal’s conduct can support apparent authority when it reasonably leads the third party to believe the agent may act. The company is bound only if it later expressly approves the order after learning every material term. - Later ratification is unnecessary because the owner’s prior conduct gave the buyer apparent authority for this order. - The bakery became bound when the buyer placed the $7,500 order, so the owner’s refusal before delivery does not prevent liability.

Answer: A. The company is bound because its conduct caused the supplier reasonably to believe that the manager had authority to purchase inventory.

The company is bound because its conduct caused the supplier reasonably to believe that the manager had authority to purchase inventory. - Apparent authority arises from the company’s conduct: it gave the employee a purchasing-manager role and company email address, then performed contracts the manager signed. - The supplier had completed three earlier transactions through the manager and did not know of the private $25,000 limit, supporting a reasonable belief that the manager could make the $40,000 purchase. The company is bound because a managerial title conclusively gives an employee actual authority to enter any ordinary supply contract. - A title does not conclusively establish actual authority; the company privately limited this manager’s purchases to less than $25,000. - The title matters instead as part of the company’s manifestations supporting apparent authority, alongside its performance of earlier contracts. The company is not bound because the manager lacked actual authority, regardless of the company's communications to the supplier. - The $40,000 contract exceeded the manager’s actual authority under the private $25,000 limit. - That limit does not defeat apparent authority if the company’s conduct reasonably led the supplier to believe the manager could bind it. The company is not bound because an agent cannot create apparent authority unless the agent expressly describes the authority to the third party. - An agent’s own description of authority is neither required nor, by itself, sufficient to create apparent authority. - Here, the relevant manifestations came from the company: its placement of the manager in the purchasing role and its performance of contracts the manager signed.

Answer: C. The supplier can enforce the order because the board, with knowledge of the president's lack of approval, ratified the purchase by accepting delivery of the oven and using it for six weeks without objection.

The supplier can enforce the order because the board, with knowledge of the president's lack of approval, ratified the purchase by accepting delivery of the oven and using it for six weeks without objection. - The board learned that the $70,000 order lacked approval, then inspected and installed the oven and used it for six weeks. - Keeping and using the custom oven without objection after learning of the unauthorized purchase ratified the order, binding the corporation despite the president’s lack of approval. The supplier can enforce the order because the president had apparent authority arising from the corporation's manifestations and the supplier's reasonable reliance. - Apparent authority depends on the corporation’s manifestations to the supplier and the supplier’s reasonable reliance when the order was placed. - The supplier had no prior agreement or dealings with the corporation, so apparent authority is less certain than the board’s later ratification. The supplier cannot enforce the order because the president lacked actual authority under the board's bylaw. - The bylaw required advance board approval for purchases exceeding $50,000, which the president did not obtain for this $70,000 oven. - Lack of actual authority does not prevent the corporation from becoming bound when its board later ratifies the purchase. The supplier cannot enforce the order because a corporate officer's position cannot support apparent authority for ordinary transactions. - An officer’s position can contribute to apparent authority for transactions ordinarily entrusted to that officer; it is not categorically irrelevant. - Regardless of what the president’s position conveyed when he ordered the oven, the board’s informed acceptance and use provide the stronger basis for enforcement.

Answer: B. The corporation’s actual notice to the supplier of the limitation terminated the manager’s apparent authority, making the supplier’s continued reliance unreasonable.

The corporation’s actual notice to the supplier of the limitation terminated the manager’s apparent authority, making the supplier’s continued reliance unreasonable. - The corporation’s payments for larger orders and its website listing previously gave the supplier reason to believe the manager could order on its behalf. - Once the supplier received the corporation’s signed letter stating that she no longer had authority to order, that earlier course of dealing could not justify shipping the $12,000 order. The manager lacked actual authority to place the order, so the corporation cannot be bound under any theory of agency. - The private $8,000 monthly limit meant the manager lacked actual authority for this $12,000 order. - Lack of actual authority alone does not defeat apparent authority, which the corporation’s earlier conduct had created before it notified the supplier. The supplier’s decision to ship the tools despite the notice constituted an independent breach that excuses the corporation’s performance. - Shipping after receiving the letter does not itself establish a breach by the supplier that excuses the corporation. - The decisive issue is whether the supplier could reasonably rely on the manager’s authority after receiving notice, not whether shipment was prudent. Because the manager exceeded her authority once, all of her subsequent apparent authority was automatically revoked as a matter of law. - The corporation had paid larger orders for two years, so exceeding the private limit did not automatically end the authority the supplier reasonably perceived. - The supplier’s belief became unreasonable because of the corporation’s direct notice, not because a prior order exceeded the manager’s authority.

Answer: B. Only the corporation is potentially liable because the lease expressly disclaimed the promoter's liability once the corporation adopted the lease.

Only the corporation is potentially liable because the lease expressly disclaimed the promoter's liability once the corporation adopted the lease. - BrightPath adopted the lease by moving into the office and paying rent for six months, making it potentially liable for unpaid rent. - The lease expressly ended Elena’s personal liability once BrightPath was formed and adopted it, and both conditions occurred. Only the promoter is potentially liable because a corporation cannot assume obligations arising before its formation. - A corporation can become liable on a preformation contract by adopting it after incorporation, as BrightPath did through occupancy and rent payments. - Elena’s liability ended under the lease’s express provision when BrightPath formed and adopted the lease. Both the corporation and the promoter are potentially liable because adoption alone never releases a promoter absent a contrary agreement. - Ordinarily, a corporation’s adoption does not by itself release a promoter from a preformation contract. - This lease supplies the contrary agreement: Elena has no personal liability once BrightPath is formed and adopts it. Neither is potentially liable because the landlord knowingly contracted with an entity that did not yet exist. - The landlord’s knowledge that BrightPath had not yet formed does not prevent the corporation from later adopting the lease. - BrightPath’s occupancy and rent payments support its liability, while the lease’s express terms govern Elena’s release.

Answer: D. The company is not liable because the technician substantially departed from assigned work for a purely personal purpose.

The company is not liable because the technician substantially departed from assigned work for a purely personal purpose. - Respondeat superior generally requires a tort committed within the scope of employment, but the technician damaged the ceiling while repairing an unrelated fan after clocking out. - He used his own tools and accepted payment personally, supporting the company’s argument that the repair was a personal undertaking, not company work. The company is liable because the technician had actual authority to attend the customer’s property. - Authority to enter for the scheduled furnace inspection did not extend the technician’s assigned work to an unrelated fan repair. - The customer knew the written appointment covered only inspection services, even though the technician remained a company employee. The company is liable because technicians commonly perform repairs of the type the technician attempted. - The facts do not establish that company technicians commonly repair ceiling fans; the company expressly instructed them not to repair unrelated appliances. - Even similarity to a technician’s usual skills would not make this after-hours, personally paid repair part of the assigned inspection. The company is not liable because the customer, rather than the company, requested the additional repair. - The technician offered to repair the fan, and the customer agreed; the customer did not initiate the request. - In any event, a customer’s request alone does not determine scope of employment; the separate task and personal purpose make the company’s stronger argument.

Answer: B. The founders are not personally liable because Bright Labs qualifies as a de facto corporation, shielding them from personal liability to the supplier.

The founders are not personally liable because Bright Labs qualifies as a de facto corporation, shielding them from personal liability to the supplier. - The founders made a good-faith attempt to incorporate by signing and submitting articles, unaware that the filing had been rejected for a technical defect. - They then exercised corporate powers by operating and contracting as Bright Labs Corporation, so the de facto corporation doctrine shields them from personal liability on the supply contract. The founders are personally liable because a corporation that fails to file valid articles never exists for any purpose. - Rejection of the filing means Bright Labs was not a de jure corporation, but it does not rule out de facto corporate status. - Treating every defective filing as creating personal liability would disregard the founders’ good-faith attempt and their operation in the corporate name. The founders are personally liable because de facto corporation status requires actual notice to the third party of the incorporation defect. - De facto corporation status turns on the attempt to incorporate and the subsequent use of corporate powers, not the supplier’s notice of the defect. - The supplier believed it was dealing with a valid corporation; its lack of notice does not make the founders personally liable under this doctrine. The founders are not personally liable because the supplier's belief that a corporation existed automatically estops it from asserting personal liability. - The supplier’s dealings with Bright Labs may raise corporation by estoppel, a separate doctrine from de facto corporation. - The supplier’s belief alone does not automatically establish estoppel; the founders’ stronger basis for avoiding liability is their good-faith incorporation attempt and subsequent corporate operation.

Answer: A. The landowner is bound because her acceptance of the deposit and instructions to prepare closing documents ratified the unauthorized contract.

The landowner is bound because her acceptance of the deposit and instructions to prepare closing documents ratified the unauthorized contract. - After learning of the $200,000 contract, the landowner accepted the buyer’s $20,000 deposit and directed her attorney to prepare closing documents, conduct that ratified the agent’s act. - Ratification binds the landowner despite the agent’s initial lack of authority; returning the deposit two weeks later does not undo it. The landowner is bound because the agent's statement to the buyer independently established actual authority for the sale. - Actual authority must come from the landowner’s authorization, not from the agent’s statement to the buyer. - The landowner is bound by her later ratification, not by anything the agent said when signing the contract. The landowner is not bound because the agent had no actual or apparent authority at the time the contract was signed. - The agent had neither actual nor apparent authority when signing, so the contract did not bind the landowner at that time. - Her subsequent acceptance of the deposit and instructions to prepare closing documents ratified the contract. The landowner is not bound because ratification requires a signed writing identical to the original contract. - Ratification can be shown by affirming conduct, including knowingly accepting a transaction’s benefits. - The landowner’s acceptance of the $20,000 deposit and instructions to prepare closing documents support ratification without an identical signed writing.

Answer: A. Each partner has an equal vote, and admission of the investor requires unanimous partner consent.

Each partner has an equal vote, and admission of the investor requires unanimous partner consent. - Without a contrary agreement, each general partner has equal management rights, despite the 60%–20%–20% capital contributions. - Admitting a new partner requires unanimous consent, so the two opposing partners prevent the investor’s admission. Voting power follows capital contributions, and admission of the investor requires approval by partners holding a majority interest. - The 60% contributor does not receive 60% of management votes; each partner has an equal vote. - A majority capital interest cannot admit the investor because admission requires every partner’s consent. Each partner has an equal vote, and admission of the investor requires only a majority of the partners. - Equal voting rights are correct because the partners made no voting agreement. - Admission is not an ordinary matter decided by majority vote; the two partners’ objections defeat the required unanimous consent. Voting power follows profit shares, and admission of the investor requires approval by partners holding two-thirds of those shares. - Although profits are shared equally, management rights arise from partner status, not the agreed profit shares. - The opposing partners together hold two-thirds of the profit shares, but no two-thirds threshold governs admission; all three must consent.