SAMPLE IRAC ANALYSIS
Caroline was employed as a receptionist for ABC Corporation. Her desk was located
at the entrance of the corporate office and her duties were to greet customers, answer
telephone calls, sort mail, and respond to general requests for information about ABC. One
day, while all of the managers of ABC were out of the office, a representative of XYZ
Insurance Co. stopped by to solicit ABC as a new client. He told Caroline that he wanted to
find out whether ABC might be interested in canceling its present employee health insurance
plan and adopting a plan provided by XYZ. Although Caroline explained that none of the
ABC managers were in the office, the XYZ representative nevertheless described his
company’s health insurance plan in detail. When Caroline reacted by stating that XYZ’s
plan sounded better than the current ABC plan, the XYZ representative immediately
produced a contract for Caroline to sign. Reluctantly, Caroline signed the contract accepting
the offer to adopt XYZ’s insurance plan. If XYZ seeks to enforce the contract against ABC,
is ABC bound to the contract?
ANSWER
Whether the insurance contract is binding on ABC Corp.
depends on whether A had actual or apparent authority to
enter into it. Actual authority is the agent’s power or
responsibility expressly or impliedly communicated by the
principal to the agent. Express actual authority includes the
instructions and directions from the principal, while implied
actual authority is the agent’s ability to do whatever is
reasonable to assume that the principal wanted the agent to
do to carry out his or her express actual authority. Here,
Caroline’s express authority was to answer phones, direct
messages, collect and sort the daily mail, greet visitors, and
schedule appointments for the company managers. Her
implied authority was to do anything reasonably related to
performing those duties. She was not given any express
authority to sign contracts, and signing contracts was not
related to or implied in her duties as a receptionist.
Therefore, Caroline had no actual authority to bind ABC to
the contract.
Apparent authority arises when the principal’s conduct, past
dealings, or communications cause a third party to
reasonably believe that the agent is authorized to act or do
something. In this case, ABC did not communicate to XYZ
that Caroline had authority to enter into an insurance
contract, and no facts suggest that ABC and XYZ had done
business in the past. The nature and typical responsibilities
of Caroline’s position as a receptionist does not make it
reasonable for the XYZ representative to conclude that she
was empowered to select and approve health insurance
plans for ABC’s employees. Thus, Caroline had no
apparent authority to authorize the contract. Because
Caroline did not have either actual or apparent authority to
sign the contract, it is not binding on ABC Corp.
EXPLANATION
First, the main issues to be
addressed are stated.
Next, the applicable rules of law
or legal tests to be used in
analyzing the issue are explained.
The rule of law or legal test is
applied to the facts. Note that the
facts are not merely repeated;
rather, they are linked to elements
of the rule or test as evidence to
explain and justify the ultimate
conclusion that there is no actual
authority.
Conclusion as to the first issue.
The general rule of law to be
applied in analyzing the next
issue is stated.
The rule is applied to the facts.
Note that the facts mentioned are
those that relate to the definition
of apparent authority.
Conclusion for the second issue.
An overall conclusion is reached
as to the issue of liability.