Caroline was employed as a receptionist for ABC Corporation. Her desk was located at the entrance to 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.

ABC's bookkeeper paid three months of premiums to XYZ Insurance Co. before realizing that this was a different insurance company. She immediately brought the matter to the attention of ABC's CEO. The CEO promptly notified XYZ Insurance Co. that Caroline had no authority to enter into the contract on behalf of ABC, and that ABC was not bound to the contract and would not pay further premiums.

XYZ Insurance Co. sued ABC for breach of contract, alleging that it was bound to the contract on three grounds that: (1) Caroline had actual authority to enter into the contract; (2) Caroline had apparent authority to enter into the contract; and (3) ABC Corporation ratified the contract.

Is XYZ Insurance Co. correct in its claims? BE SURE TO DISCUSS THE ELEMENTS OF EACH OF THE GROUNDS ASSERTED BY XYZ INSURANCE CO. AND THEN ANALYZE WHETHER THE FACTS SATISFY THOSE ELEMENTS.

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