Agency 1 Flashcards
Agency
Fiduciary relationship…
…which results from the manifestation of consent…
…by one person (the principal) to another (the agent)…
…that the other shall act on his behald and subject to his control
… and consent by the other so to act.
Agency is a fiduciary relationship that arises when one person (the “principal”) appoints another (the “agent”) to act on the principal’s behalf and the agent consents to act. The agent must also act subject to the principal’s control.
Consent
Both the principal and the agents MUST consent, either expressly or impliedly, for agency relationship to form.
Consent may be established expressly (through written or oral statements) or by implication from the parties’ conduct
On Behalf Of
Agent must be acting primarily for benefit of principal, rather than for the benefit of someone else or a third party
This requirement is generally understood to mean that the agent must be acting primarily for the benefit of the principal, rather than for the benefit of the agent or some other party.
Control
Degre need not be significant
• Sufficient if Principal species tasks agent should perform.
The agent must act subject to the principal’s control, but the degree of control exercised by the principal doesn’t have to be significant.
The requisite level of control may be found simply by the fact that the principal has specified the task that the agent should perform, even if the principal hasn’t prescribed the details of how the task should be accomplished.
Creation of Agency relationship
Requireemtns?
Agency is consensual.
Not all contractual formalities are necessary to create an agency relationship.
REQUIREMENTS:
1. Capacity
- Principal must have full contractual capacity
- Agent must have at least minimal mental capacity
2. Consent
— of both parties
3. Writing if required
— by Statute of Frauds (equal dignities rule)
Note: Consideration is not required.
Capacity
Prinipal must have contractual capacity. Agent does not ahve to have it.
- Thus, a minor can be an agent but not a principal.
a. Principal Must Have Contractual Capacity
A principal must have contractual capacity.
Thus, a minor’s appointment of an agent is voidable, and incompetents and most unincor- porated organizations cannot be principals.
(However, in many jurisdictions, partnerships and other organized business entities can be principals and appoint agents.)
b. Agent Needs Only Minimal Capacity
While a principal needs contractual capacity, an agent doesn’t.
So a person may be an agent even though they have no contractual capacity.
(Exception: If the agent has literally no mental capacity, they cannot act for the principal.)
Tip: A principal must have contractual capacity, but an agent need not. Thus, a minor can be an agent but not a principal.
c. Disqualification of Agents
An agent may be disqualified for representing both parties or failing to have a required license.
Formalities:
Consent
Writing
a. Consent
Consent of both parties is required.
b. Writing
Generally, agency law does not require the appointment of an agent to be in writing.
However, the Statute of Frauds may require one.
Many states require agency agreements to be in writing when the agent is to enter into certain contracts within the Statute of Frauds (mostly land transactions), or when the agency agreement itself would fall within the Statute of Frauds.
This is called the “equal dignities” rule.
c. Consideration Not Required
No consideration is necessary for the creation of an agency relationship.
One may agree to serve as an agent gratuitously and be saddled with the duties of an agent.
Equal dignities rule
Agency agmts must be in writing when agent is to enter certain contracts within statute of frauds
OR
agency agreements itself within SoF. (year, property)
Modes of Creating Agency Relationship
The agency relationship may be created by an act of the parties or by operation of law.
a. By Act of Parties
•Parties may create an agency by agreement between the principal and agent (that is, actual authority).
• Parties may also be bound in an agency relationship through holding out by the principal (that is, apparent authority), or
• Parties may also be bound in an agency relationship by ratification.
b. By Operation of Law
• Estoppel
An agency may be created through estoppel.
Estoppel is virtually the same as apparent authority in that it requires third-party reliance on the principal’s communication.
• Statute
Statutes creating agencies are usually designed to accomplish a limited purpose
(statute appointing secretary of state as out-of-state motorist’s agent for service of process for damages arising from driving in-state).
Agent’s Duties to principal
Fiduciary duties: even unpaid agent is a fiduciary of its principal and owes fid’ duties.
- An agent (even an unpaid one) is a fiduciary of their principal.
Duty of care: Carry out agency with reasonable care
(sliding scale depending on any special skills that the agent may have) (reasonable agent would act under the circumstances
- Cts will probably expect a gratuitous agent to put less effort into being careful than they would expect a paid agent to exercise
Duty of loyalty: Agent owes duty of undivided loyalty to Principal. Includes obligations:
- not use their position as agent to profit for themselves.
– If they do, account to Pr for profits made while carrying out the principal’s instructions.
- act solely for benefit of Pr and not act for himself or thrid party
- refrain from dealing with Pr as an adverse paerty or acting on behalf fo adverse party
- not compete with principal concering the SM of the agency.
- use Ps property (including CI) for agents purposes or anotehr partys purposes.
can sue for daamges, or equitable remedy of disgorgement.
Duty of obedience: Agency must obey all reasonable directions of their principal.
- liabel for loss. If the agent disobeys a reasonable direction, the agent will be liable to the principal for any loss that the principal suffers.
In addition to any express contractual duties that the agent owes the principal, fiduciary duties of loyalty, obedience to lawful instructions, and reasonable care under the circumstances (including duty to disclose all relevant information) are owed.
Principal’s Remedies for Agent’s Breach of Duties
The principal’s remedies against the agent include contract actions (against compensated agents),
tort actions,
actions for secret profits,
equitable actions for an accounting, imposition of a constructive trust (an equitable remedy whereby a “trust” is imposed to transfer property gained through unjust enrichment back to the intended party, meaning, from the wrongdoing agent to the principal), and withholding of compensation for intentional torts or intentional breaches of fiduciary duty.
The principal may recover the actual profits or properties held by the agent whether or not the agent’s profit has caused the principal any loss.
The principal may also terminate the agency prior to any termination date in a contract.
When it comes to breach of fiduciary duty, note that a wide range of equitable remedies are available to a court. In general, a court can do whatever it wants to “do justice” in the situation.
Principal duties to agent
Not fiduciary in nature.
Indemnify A’s losses in carrying out principal’s instructions (reimburse)
Compensate agent for services (inferred unless agmt otherwise
Subagents
A subagent is a person appointed by an agent to perform functions that the agent has consented to perform on behalf of the agent’s principal.
*not every person appointed by an agent is a subagent. An agent may also appoint a coagent (that is, another agent of the principal). In doing so, the agent does not delegate their own power to that person. Employees of a single organization are presumed to be coagents, not subagents (for example, manager and store clerk are coagents).
a. Liability of Agent
An agent has absolute liability to the principal for breaches by a subagent.
b. Duties
If the principal authorized the agent to appoint the subagent, the subagent owes the principal the same duties as the agent owes the principal. If the agent was not authorized to appoint a subagent, the subagent does not owe duties to the principal but does owe duties to the agent.
Principal’s Duties to the Agent
A principal’s duties to an agent are not fiduciary in nature, as fiduciary responsibilities run only from the agent to the principal. Nevertheless,
a principal has several obligations to an agent. The principal owes the agent all of the duties imposed by their contract, reasonable compen- sation, and reimbursement for expenses. So, for example, if an agent incurs expenses or suffers other losses in carrying out the principal’s instructions, the principal has a duty to indemnify the agent. The principal also generally should cooperate with the agent and not unrea- sonably interfere with the agent’s performance.
Note that if the agency agreement is silent regarding compensation, the agent is entitled to reasonable com- pensation. Also remember that a principal generally owes
no duty to compensate a subagent even if the agent had authority to hire the subagent.
a. Agent’s Remedies
A compensated agent has the usual contract remedies against the principal (but has a duty to mitigate damages).
Real Estate Brokers’ Contracts
In a typical real estate broker’s contract, the broker is entitled to compensation when there is a buyer ready, willing, and able to purchase the property. If the seller/principal refuses a buyer’s offer that was within the terms agreed by the broker/agent and the seller/ principal, the seller/principal will be found to be breaching the duty not to interfere with the agent’s duties and will owe the agent their agreed compensation.
