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Wayne State University Law School
White, Katherine E.

Contracts Outline – K. White – Winter 2016

Multiparty Transactions

Manifesting Assent Through an Agent: Types of Authority

Elements of Agency

An agency relationship consists of two consensual elements: mutual consent to a relationship in which (1) one party (the agent) acts on behalf of another (the principal) and (2) subject to the principal’s control.

Types of Authority

The principal can give general authority or specific authority.

Specific authority can be express – in words or in writing – or can be implied.
The principal has to consent to all the authority that the agent takes and the power of the agent can be revoked.

Actual authority – the principal manifests authority to an agent through conduct, words, or circumstances.

This can be express or implied.

Apparent authority – the principal makes the manifestation of the agent’s authority to the third party

This can be through acquiescence.The principal cannot be idle or apparent authority can be found.

New England Educational Training v. Silver Street


Defendant hired an attorney and gave him general authority to reach a settlement on an outstanding mortgage.The attorney was given specific authority to settle for $10,000.
After the offer was refused, the defendant’s agent offered $60,000.The defendant objected and claimed he was not bound to pay, because he never authorized the $60,000.


The court holds that the settlement was not binding.
There was no express authority given to D’s attorney to settle; hiring an attorney and instructing him to negotiate toward a settlement does not imply authority to settle and bind the D; and finally, there was no evidence that D’s conduct manifested to P a reasonable belief that P could rely on D’s attorney as authority.

Sauber v. Northland Insurance Co.


McDonald purchased a two-year insurance policy on his automobile from defendant.The premium was paid.McDonald sold his automobile to plaintiff and gave plaintiff an envelope which contained the insurance policy.
Plaintiff called defendant and Helen Serres answered.She said that it was alright that plaintiff drive the car.
Serres testified that she made no assurances that the policy was transferred and only that it could be done.She made a memo of who the car was sold to and then called the Industrial Credit Company and found that the policy was paid in full.
Serres said that the purpose of this call was to know if the policy had been paid in full and that if the insured called back to transfer, then she was ready to do it.
McDonald borrowed the car from plaintiff and got into an accident.This suit was filed to collect for damages from the insurance company as a result of the accident.


The court finds that when an employee of a business establishment is authorized to answer calls, it is only right that the burden of proving the lack of authority should rest on the one who has placed such employee in a position where others dealing with the place of business would be apt to rely on his apparent authority.
Defendant argues that Helen Serres had no actual authority.But the court dismisses this argument because apparent authority exists by virtue of conduct on the part of the principal which warrants a finding that a third party, acting in good faith, was justified in relying on the assumption that the agent had authority to act.
The court finds a presumption of apparent authority, because the business held itself out to accept phone calls and it is reasonable that the plaintiff relied on the agent theory.
This presumption is rebuttable by the defendant if the plaintiff was acting in bad faith or if the employee was acting outside the scope of their employment.

Jennings v. Pittsburgh

Jennings wants his commissions
This agreement is not similar to prior dealings because it was an enormous transaction
Court puts P’s on notice to enquire as to Egmore’s authority
Egmore is the agent, but he is not the principal, because the actual authority has to come from the principal
Jennings is trying to say that Egmore is a principal
Cant look to just the agent to see what kind of authority they have
Be suspect of authority, the principal has to really tell you for you to be sure
If they do have authority, they can bind the prinicpal
Why is the court’s reliance on the restatement section misplaced?

The apparent authority usually arises when someone thinks that the agent can bind the principal
Confuse actual and apparent authority

– Principal is holding the agent out as his agent to a 3rd party

When is the principal bound to a K by an agent?

————>When the agent has authority to bind- either actual or apparent- that’s it

Third-Party Beneficiaries

Intended Beneficiaries

Each of these contracts involves an attempt by a person other than one of the parties who had made the contract to enforce it.
Persons who are benefited by a contract to which they are not a party are known as third-party beneficiaries.

Traditionally, two types of third-party beneficiaries are allowed to enforce a contract to which they are not a party: creditor beneficiaries and done beneficiaries.
Incidental beneficiaries are third parties who cannot enforce the contract.

Seavor v. Ransom


Mrs. Beman (the promisee) had a favorite niece, Marion Seaver (the third-party beneficiary), to whom she wanted to leave her house.
Mrs. Beman was near death and her husband, Judge Beman (the promisor), had already written a will for her signature that left the house to him.
Since Mrs. Beman was failing they decided not to change the will and Judge Beman promised Mrs. Beman that he would leave Seaver enough in his will to make up the difference, in return for which Mrs. Beman signed the will before she died.
When Judge Beman died, it was found that he had not kept his promise.Seaver sued his executors.


The Court of Appeals allowed recovery.
The Court reasoned that Seaver is allowed to sue on the contract even though she is not in privity to the contract because the contract was made intending to benefit her.
All we are interested in is if Seaver was an intended beneficiary to the contract.Since there was no other purpose of the contract, Seaver was an intended beneficiary.

Restatement §302.Intended and Incidental Beneficiaries.

In order to qualify as an intended beneficiary, one must meet two requirements.

First, one must show that “recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties.”
Second, one must show either:

(a) the performance o

legal rule becomes based upon itself; this is circular reasoning.

Restitution – this principle stresses that enforceability is justified to prevent the unjust enrichment of a promisor who seeks to go back on his word.

This is a minority of cases.Most contract suits have no unjust enrichment, thus there must be another principle to justify enforcement in the majority of cases.
Also, the fact that the promisor is enriched at the promisee’s expense does not tell us why the promise should be enforced until we know why it is unjust to break one’s promise.The restitution principle offers no justification.

Standards-based Principles

Efficiency – this is concerned with the maximization of a concept of social wealth.Contracts are justifiably enforced only if the benefits to be gained form enforcement exceed costs.Efficiency can be evaluated in an abstract approach or in a particular approach.

The less abstract the efficiency analysis becomes the more problematic.This approach assumes that a neutral observer has access to information that will show which agreements increase wealth and which do not.

Fairness – enforceability is only justified if the substance, not the process, of a contract is fair.

This presupposes a standard of value by which any agreement can be directly evaluated.

Process-based Principles:

Bargain – according to this approach, it is not what is bargained for that is important to the justified enforcement of contracts; all that matters is that each party’s promise or performance is induced by the other’s.This has its advantages: the existence of a bargain provides good evidence of the making of a serious promise; it captures a majority of the sort of promises that are ordinarily intended to be legally binding; and it tends to exclude most social promises not intended to create legal relations.

In several kinds of cases, promisees have traditionally had considerable difficulty obtaining legal relief for nonperformance because bargained-for consideration is lacking, although it is generally conceded that the parties may have intended to be legally bound and that enforcement should be available.
With a restrictive definition of consideration, like that of bargain, serious promises which merit enforcement are left unenforced.
With a more expansive formulation, informal promises that are thought to be properly outside the province of legal coercion will be made the subject of legal sanctions.
Besides its purely process-based character, the principle of bargain to justify enforcing contracts is limited because it seems to have erred too far in the direction of under enforcement.