(1) Agency: Formation & Types of Relationships Flashcards
Definition & Who can be an agent:
Agent
Formation
An agent is a person or entity that acts on behalf of another – the principal.
Anyone can be an agent (minor, incompetents, etc.).
Defintion & Do you need capacity?
Principal
Formation
A person who has the right to control the agent.
A principal must have the capacity to consent to the formation of the agency relationship.
Creation of Agency Relationship
Agency is a fiduciary relationship, and exists if there is: (1) assent/consent (a formal or informal agreement between the principal and the agent); (2) benefit (the agent’s conduct on behalf of the principal primarily benefits the principal); AND (3) control (the principal has the right to control the agent by being able to supervise the agent’s performance – the degree of control does not need to be significant).
Is there a writing requirement to form an agency relationship?
Formation
NO
How to termiante an agency relationship?
Termination of the agency relationship can occur unilaterally (aka only the agent or principal needs to want to terminate.)
Types of Agency Relationships
Overview
- Gratuitous Agency
- Employee
- Independent Contractor
- Sole-Proprietor
- Partner
- Member
- Shareholder
Gratuitous Agency
When the agent does not receive compensation.
Employee
An employee is a person who (1) is hired to work for another person or business, (2) for compensation, AND (3) is subject to the employer’s direction or control as to the details of how to perform the job. (Associates and non-equity partners are employees of the firm)
Independent Contractor
An independent contractor is a person who is hired by an employer for compensation and is subject to the employers direction or control as to what the independent contractor does BUT NOT they do it.
Other important factors to consider include: (a) the degree of the employers control; (b) whether the pay is hourly or by the job; (c) whether the employer furnished the tools or other items needed for the job; (d) whether the job was for the benefit of the employer’s business; AND (e) the length of the working relationship.
Sole-Proprietor
A sole proprietor is the owner of a sole proprietorship. A sole proprietorship is a single owner for-profit business, that operates without formally creating a business organization.
Partner
A partner is (1) a co-owner of a partnership; (2) shares in the profits of the business; (3) is a party to the partnership agreement; AND (4) has a capital account (the individual accounting of each partner’s investment in the partnership). Typically, partners share profits and losses equally, unless otherwise agreed.
Member
A member is (1) an owner or co-owner of an LLC; (2) is a party to the Operating Agreement; AND (3) has a capital account (the individual accounting of each member’s investment in the LLC).
Shareholder
A shareholder is the owner of one of more shares of stock in a corporation.
Actual Authority of Agent
Contractual Liability
A principal is bound to contracts entered into by its agent if the agent has actual authority. Actual authority may be express or implied.
Express Authority
Contractual Liability - Actual Authority of Agent
Express Authority occurs when the principal has explicitly told the agent (either orally or in writing) that they are entitled to act on their behalf.
Implied Authority
Contractual Liability - Actual Authority of Agent
Implied Authority occurs when either: (a) the agent believes they are entitled to act because the action is incidental or necessary to carry out their express authorized duties; (b) the agent has acted similarly in prior dealings between the principal and agent (prior acquiescence of principal); OR (c) it is customary for agents in that position to act in that way.
General Rule & When it arises.
Apparent Authority of Agent
Contractual Liability
A principal is bound to the contracts entered into by an agent if the agent had apparent authority.
Apparent authority arises where (1) the principal holds out another as having authority; AND (2) the 3rd party reasonably relies on that authority.
Aprincipal holds an agent out as having authority when they (a) give the agent a position or title indicating certain authority; (b) has previously held the agent out as having authority and has not published a revocation of said authority; OR (c) has clocked the agent with the appearance of such authority.
Apparent Authority of Agent Rule - if agent acts on own behalf
Contractual Liability
A principal will be bound to a contract even if the agent acted on his own behalf or in violation of specific instructions unless (a) the 3rd party had notice the agent was exceeding his authority; OR (b) the contract/transaction was not within the ordinary usages of busines (ordinary usage includes purchase of goods at a reasonable price).
When is Apparent Authority not Applicable?
Contractual Liability
Apparent authority is not applicable if the 3rd party has actual knowledge the agent did not have authority.
A 3rd party has a duty to ask questions when a situation suggests it is unreasonable to believes that an agent may not have authority.
Difference between the two:
Implied vs Apparent Authority
Contractual Liability
Implied authority is when the principals words or actions cause an agent to reasonably believe in the agents authority to act. Apparent authority results when the principal causes a 3rd party to reasonable believe that the agent has authority to act.
Reasonable Belief Factors
Contractual Liability
(a) past dealings between principal and agent that 3rd party is aware of; (b) trade customs; (c) relevant industry standards; (d) the principal’s written statements of authority; (e) transactions that benefit the principal; OR (f) extraordinary or novel transactions for the principal.
Ratification of Agents Contracts
Contractual Liability
A principal’s ratification of an agents conduct will make the principal liable for those contracts entered into by an agent without actual or apparent authority.
Ratification Rule
Contractual Liability - Ratification of Agents Contracts
Ratification occurs when the principal: (1) has knowledge of all material facts or contract terms; AND (2) thereafter manifests assent (approves) of the same through words or conduct. Approval can be shown through words or inferred from conduct.
Rule:
Doctrine of Respondent Superior
Vicarious Tort Liability
A principal is vicariously liable to a 3rd party for the harm caused by the conduct of another when (1) the agent is an employee and (2) the agent commits a tort while acting within the scope of employment.
