Jones's unauthorized agency and ABC Corp's liability for breach

Agency Law -- Case Study

Summary of Facts

Jones solicited and obtained the offer from XYZ Corp at a time when Jones was not yet an authorized agent of ABC Corp. The President of ABC Corp subsequently ratified the agency relationship by issuing instructions to Jones to follow up and negotiate the acceptance of XYZ Corp's offer to ABC to purchase the property for $450,000. As agent, Jones breached his duty to fully inform ABC of the material facts about the contract provision reducing the sale price by $50,000 if asbestos was found. Relying on the contract, XYZ hires an asbestos removal company to evaluate the cost of removing asbestos found during inspection. When ABC discovers the asbestos provision in the sales contract, ABC refuses to complete the sale. The XYZ Corp sues ABC for breach of contract and seeks specific performance. The ABC response is that Jones was not acting as an authorized agent of ABC and that Jones's failure to fully inform ABC about a material fact negates any ratification of Jones's agency authority or of any agreement negotiated by Jones.

Issues

1. Was Jones acting as an authorized agent of ABC Corp when he first approached XYZ Corp? (No)

2. Did ABC ever establish an authorized agency relationship with Jones by ratifying his actions after the fact? (Yes)

3. Is ABC liable to XYZ on the material contract provision that was never disclosed to ABC by Jones? (Yes)

4. May XYZ enforce the entire contract against ABC? (Yes)

5. May XYZ recover the cost of the asbestos removal estimate from ABC? (Yes)

6. May XYZ recover the cost of the asbestos removal estimate from Jones? (Possibly, but depends on additional facts regarding the disclosure of agency)

Predicted Decision and Reason/Rationale

The ABC Corp will be liable to XYZ to execute the sale as per the contract signed by Jones, acting as ABC's agent. Jones was not acting as an authorized agent of ABC Corp when he first approached XYZ Corp because the conversation between Jones and ABC was insufficient to create a contractual relationship. However, when ABC authorized Jones to follow up with XYZ and negotiate the sale, ABC ratified the agency relationship between ABC and Jones. Whether or not Jones disclosed the agency to XYZ, the XYZ Corp was still entitled to rely on the apparent authority of Jones to sign the contract that included the asbestos provision.