⚡ 10-Second Rule
An agency starts with agreement plus control, and the boss is stuck with deals that looked authorized.
🧒 ELI-10 Scene
Rosa tells the baker, Mr. Lee, "My son Theo picks up my cake order every Friday." Theo agrees to do it Rosa's way. That's all it takes — no contract, no paycheck, no paperwork. One month later, Rosa privately tells Theo, "Stop ordering cakes." But she never tells Mr. Lee. Friday comes. Theo orders a giant chocolate cake and walks out with it. Rosa still has to pay. To Mr. Lee, nothing changed. Rosa built Theo's power in Mr. Lee's eyes. Only Rosa's words to Mr. Lee can tear it down.
⚖️ Actual Rule
Under Restatement (Third) of Agency § 1.01 (paraphrased), an agency relationship needs three ingredients: one person agrees to have another act for them, the arrangement keeps that person in charge of how the work is done, and the one doing the acting agrees to the job. Both sides must consent, whether by words or conduct. No writing and no consideration are required — a gratuitous agent is still an agent. An agent has actual authority when, per § 2.01, the agent reasonably believes, based on the principal's manifestations to the agent, that the principal wants the act done; § 2.02 extends actual authority to acts necessary or incidental to the authorized objective (implied authority). Apparent authority under § 2.03 is different: it exists when a third party reasonably believes the actor is authorized, and that belief is traceable to the principal's own manifestations. Under § 4.01 a principal may ratify an earlier unauthorized act by affirming it, but § 4.06 requires the principal to have knowledge of the material facts. Actual authority ends on events listed in § 3.06 — including revocation and renunciation; under the Restatement (Third), an individual principal's death or loss of capacity ends actual authority only once the agent has notice of it (§§ 3.07(2), 3.08, softening the older automatic-termination rule) — yet under § 3.11 apparent authority survives until the third party learns, or reasonably should learn, that the authority is gone.
ELI-10 translation: real power comes from what the boss tells the helper; look-real power comes from what the boss shows outsiders.
🔍 Ask These Questions
- Was an agency created — did the principal assent to the agent acting on the principal's behalf and under the principal's control, and did the agent agree? (Did the boss say "act for me, my way," and the helper say yes?)
- Is there actual express authority — did the principal's words or conduct tell the agent to do this exact act? (Did the boss actually say "go do this thing"?)
- Is there actual implied authority — is the act necessary or incidental to what was expressly authorized, or consistent with past dealings? (Does the job naturally include this step, even if nobody spelled it out?)
- Is there apparent authority — did the principal's manifestations reach the third party and make the belief in authority reasonable? (Did the boss make the helper look powerful to the outside person?)
- If authority was missing, did the principal ratify — affirm the act with knowledge of the material facts? (Did the boss learn the whole story and still say "I'll take that deal"?)
- Has authority terminated — and if actual authority ended, did the third party ever get notice killing the apparent authority? (Firing the helper in private doesn't erase the power outsiders still see.)
⚠️ Bar Trap
Exam language: Examiners plant an agent who loudly proclaims his own authority to the third party, then ask whether the principal is bound by apparent authority. Apparent authority must be traceable to the principal's manifestations — the agent cannot bootstrap it by his own statements. The mirror trap: a principal secretly revokes actual authority, and students wrongly conclude the principal cannot be bound on later deals with third parties who never learned of the revocation.
ELI-10: A helper can't hand himself power by bragging. Only the boss's words and actions count. And firing someone in secret leaves their look-real power alive until outsiders hear the news.
🧪 Question
For six years, a restaurant owner employed a purchasing manager who ordered produce weekly from the same wholesale supplier, and the owner always paid the invoices. On March 1, the owner terminated the manager and told her that her authority to place orders had ended immediately. The owner did not notify the supplier. On March 3, the former manager, hoping to embarrass the owner, placed a standard weekly produce order with the supplier in the restaurant's name. The supplier, unaware of the termination, delivered the produce, and the owner refused to pay. The supplier sued the owner for the contract price.
Is the owner liable to the supplier?
(A) No, because the manager's actual authority terminated before the order was placed. (B) No, because the manager placed the order with intent to harm the owner rather than to serve the restaurant. (C) Yes, because an agent's authority cannot be revoked without the agent's consent once a course of dealing is established. (D) Yes, because the manager had apparent authority arising from the owner's prior conduct, and the supplier had no notice of the termination.
Answer: (D). The owner's six years of honoring the manager's orders was a manifestation to the supplier that the manager was authorized. Termination ended actual authority, but apparent authority persists until the third party knows or has reason to know of the termination, and the supplier had no notice.
💡 Why the Wrong Answers Are Wrong
- (A) correctly spots that actual authority ended but overlooks that apparent authority survives termination until the third party receives notice.
- (B) confuses the agent's secret motive with the third party's reasonable belief; apparent authority turns on what the supplier reasonably believed, not the manager's intent.
- (C) states a false rule — a principal can always revoke actual authority, even mid-contract, though revocation may breach the agency agreement itself.
- ELI-10: The misconception is thinking a private firing wipes out all the helper's power. The look-real power outsiders see lives on until the boss tells them it's over.
