Agency Flashcards
Agency By Estoppel
Agency by Estoppel is a legal principle in corporate law that says if a corporation creates the impression that someone has the power to act on its behalf, even if they don’t, the corporation may be held responsible for any deals that person makes with third parties.
For example, if an employee of a corporation tells a customer that they can make a deal on behalf of the corporation, the customer may believe that the employee has the authority to do so. Even if the employee does not actually have the authority to make the deal, the corporation may be held responsible for it if the customer relied on the employee’s representations and suffered a loss.
The purpose of Agency by Estoppel is to protect third parties who rely on a corporation’s apparent authority, even if that authority was not actually given. It holds the corporation accountable for the actions of its representatives and ensures that innocent third parties are not unfairly disadvantaged by a corporation’s conduct.
To establish Agency by Estoppel, a third party must show that they reasonably believed the person had authority to act on behalf of the corporation, and that they relied on that belief to their detriment. If the third party knew or should have known that the person did not have the authority to act on the corporation’s behalf, the principle of Agency by Estoppel will not apply.
Duties of an agent to a principal
Duty of Loyalty: An agent must be loyal to their principal and act in the principal’s best interests. This means that the agent cannot act in a way that conflicts with the principal’s interests or benefits the agent at the expense of the principal. For example, an agent cannot take a business opportunity that rightfully belongs to the principal.
Duty of Obedience: An agent must obey the principal’s lawful instructions and act within the scope of their authority. This means that the agent cannot act outside of their authority or act in a way that is inconsistent with the principal’s wishes. For example, an agent cannot make a decision that goes against the principal’s instructions.
Duty of Care: An agent must use reasonable care and skill in carrying out their duties. This means that the agent must exercise the same level of care and diligence that a reasonable person in their position would use. For example, an agent cannot be careless in handling the principal’s property.
Duty to Account: An agent must keep accurate records and accounts of all transactions they conduct on behalf of the principal. This means that the agent must keep track of all the money and property that they handle for the principal and provide an accounting to the principal upon request. The agent cannot mix the principal’s funds with their own or use the principal’s property for their own benefit.
Duty to Inform: An agent must keep the principal informed of all material information related to the agency relationship. This means that the agent must disclose any information that may affect the principal’s interests or that the principal would want to know. For example, an agent must inform the principal of any changes in the market that may affect the value of the principal’s property.
These duties are designed to protect the principal’s interests and ensure that the agent acts in a trustworthy manner. By fulfilling these duties, an agent can build trust with the principal and help maintain a successful agency relationship.
Duites of the Principal to Agent
Duty to Compensate: A principal has a duty to pay the agent for their services. This means that the principal must agree to a reasonable amount of compensation before the agent begins work. The principal must pay the agent in a timely manner and cannot withhold payment for any reason that is not justified.
Duty to Reimburse: A principal has a duty to reimburse the agent for any expenses incurred while carrying out their duties. These expenses must be reasonable and necessary, and must be directly related to the agency relationship. For example, if the agent incurs expenses while traveling to a meeting on behalf of the principal, the principal must reimburse the agent for those expenses.
Duty of Cooperation: A principal has a duty to cooperate with the agent in carrying out their duties. This means that the principal must provide the agent with all the information, resources, and support necessary to carry out the work. For example, if the agent needs access to certain documents or resources to complete a task, the principal must provide them.
Duty of Good Faith: A principal has a duty to act in good faith towards the agent. This means that the principal cannot act in a way that is contrary to the agent’s interests or that undermines the agency relationship. For example, the principal cannot withhold information from the agent that is necessary for them to carry out their duties, or make decisions that are intended to harm the agent.
These duties are designed to ensure that the principal acts fairly towards the agent and supports them in carrying out their duties. By fulfilling these duties, the principal can help maintain a successful agency relationship with the agent.
Ratification
Ratification is when a company approves an action taken by one of its employees or agents, even if the action was not authorized beforehand.
For example, if an employee signs a contract without permission, the company can later approve or “ratify” the contract, which makes it legally binding.
To ratify an unauthorized action, the company must know about it and agree to it after the fact. Once the company approves the action, it becomes responsible for any legal consequences that result from it.
Ratification is an important tool for companies to manage the actions of their employees or agents and to ensure that they are acting in the company’s best interests.
Apparent Authority
Apparent authority is a legal concept that refers to the authority that an agent appears to have to third parties based on the actions or statements of the principal. It means that even if an agent does not have actual authority to act on behalf of the principal, the principal may still be bound by the agent’s actions if the agent had apparent authority.
For example, if a company allows an employee to act as a manager and make decisions on behalf of the company, even though the employee is not officially a manager, then the employee has apparent authority to make decisions. If the employee makes a decision that harms a third party, the company may be held liable for the employee’s actions, even if the company did not explicitly give the employee authority to make that decision.
In other words, apparent authority is based on the reasonable belief of a third party that an agent has authority, even if that belief is not based on the actual authority given to the agent by the principal. The principal is responsible for ensuring that third parties are not misled by the actions or statements of its agents, and that the agents do not exceed their actual or apparent authority.
Termination of An agent Authority
When someone acts as an agent for another person or entity (the principal), the agent has the authority to act on behalf of the principal, but this authority can be terminated in various ways.
Termination can occur by:
Agreement: The agent and the principal can agree to end the agency relationship at any time.
Operation of law: The agency relationship can be terminated by law, such as when the agent dies or becomes incapacitated.
Revocation: The principal can revoke the agent’s authority at any time by notifying the agent. However, the principal may be liable for any damages caused by the revocation.
Renunciation: The agent can renounce their authority at any time by notifying the principal. However, the agent may be liable for any damages caused by the renunciation.
When the agent’s authority is terminated, the agent is no longer authorized to act on behalf of the principal. However, the termination of the agency relationship does not affect any rights or obligations that arose during the agency relationship, such as contracts entered into by the agent on behalf of the principal.
In summary, termination of an agent’s authority means the end of the agent’s legal ability to act on behalf of the principal and can occur by agreement, operation of law, revocation, or renunciation.
An agency relationship is also terminated when an agent breaches their fiduciary duty.
Actual Authority
Express authority is given directly to the agent by the principal, either verbally or in writing. This type of authority is specific and clear, and the agent knows exactly what they are authorized to do on behalf of the principal. For example, if a principal hires an agent to purchase a particular property, and the principal explicitly tells the agent that they can only offer a certain amount for the property, the agent has express authority to offer only that amount and cannot offer more without further authorization.
Implied authority, on the other hand, is not explicitly given but is implied by the actions of the principal and agent. It allows the agent to do what is necessary or customary to carry out the principal’s business. For example, if a principal hires an agent to manage a business, the agent has implied authority to do things like hiring employees, ordering supplies, and paying bills.
It is important for both the principal and agent to understand the scope of the actual authority given to the agent. If the agent exceeds their actual authority, the principal may not be bound by their actions and the agent may be liable for any resulting damages. Similarly, if the principal limits the agent’s actual authority, the agent must act within those limits or risk breaching their duty to the principal.
In summary, actual authority in agency law refers to the authority given to an agent by the principal to act on their behalf, and it can be either express or implied. It is important for both parties to understand the scope of the actual authority given to avoid any misunderstandings or liability issues.
LIABILITY UNDER THE LAW OF AGENCY
Disclosed Principal
In agency law, a “disclosed principal” is a term used to describe a situation where an agent is acting on behalf of a principal, and the third party with whom the agent is dealing is aware of both the existence of the principal and the fact that the agent is acting on the principal’s behalf.
To put it simply, when a disclosed principal is involved in a transaction, the third party knows that the agent is representing someone else and also knows the identity of the principal. This means that the third party is aware that the agent is not acting on their own behalf, but rather is representing someone else in the transaction.
A key characteristic of a disclosed principal is that the principal is bound by the acts of the agent. This means that any action taken by the agent within their actual authority on behalf of the principal is legally binding on the principal.
For example, if a real estate agent is representing a property owner and shows the property to a potential buyer, the buyer is aware that the agent is acting on behalf of the property owner. If the buyer agrees to purchase the property and signs a contract with the agent, the contract is binding on the property owner because the agent was acting within their actual authority on behalf of the owner.
Overall, a disclosed principal is an important concept in agency law because it determines the legal relationship between the agent, the principal, and the third party in a transaction.
LIABILITY UNDER THE LAW OF AGENCY
Undisclosed Principal
An undisclosed principal is a situation in which an agent is acting on behalf of a principal, but the third party with whom the agent is dealing is unaware of the existence of the principal. This means that the third party believes they are dealing directly with the agent and has no knowledge that the agent is representing someone else.
For example, suppose a company hires a salesperson to sell their products. The salesperson goes to a customer and makes a sale, but does not disclose that they are acting on behalf of the company. In this situation, the customer is not aware that the salesperson is an agent for the company and believes that they are dealing directly with the salesperson.
In the case of an undisclosed principal, the third party may be able to hold the principal liable for the actions of the agent if they later discover the existence of the principal. However, the principal may also be able to avoid liability if they can show that the agent acted outside of their actual authority or if the third party should have been aware that the agent was not acting on their own behalf.
One of the key differences between a disclosed principal and an undisclosed principal is that in the case of a disclosed principal, the third party is aware that the agent is acting on behalf of someone else. This means that the third party knows that they are not dealing directly with the principal, but with the agent who is representing the principal. In contrast, in the case of an undisclosed principal, the third party does not have this knowledge.
Overall, the concept of an undisclosed principal is important in agency law because it can have legal implications for the agent, the principal, and the third party involved in the transaction.
also agent/principal both bound
LIABILITY UNDER THE LAW OF AGENCY
Partially Disclosed Principal
In a partially disclosed principal situation, the third party is aware that the agent is acting on behalf of a principal, but the identity of the principal is not fully disclosed. This means that the third party knows that there is a principal involved, but does not know the principal’s identity.
For example, imagine that a company hires a salesperson to sell its products to customers. The salesperson makes it clear to the customers that they are acting on behalf of a company, but does not reveal the name of the company. In this case, the customers are aware that there is a principal involved, but do not know the identity of the principal.
In a partially disclosed principal situation, the third party may have legal recourse against both the agent and the principal for any actions that the agent takes during the transaction. This is because the third party has some information about the principal, but not enough to fully protect themselves against any potential risks or liabilities.
However, the extent of the principal’s liability may be limited to the authority that they gave to the agent. This means that if the agent acted outside of their authority, the principal may not be held liable for those actions. Additionally, the principal may be able to assert certain defenses against the third party’s claims, such as the third party’s knowledge of the agent’s limited authority.
Overall, a partially disclosed principal situation can be complex, as it falls somewhere between a disclosed principal situation (where the third party knows the identity of the principal) and an undisclosed principal situation (where the third party does not know that the agent is acting on behalf of someone else). As such, it is important for all parties involved to understand their respective rights and liabilities in these situation
LIABILITY UNDER THE LAW OF AGENCY
Partially Disclosed Principal
In a partially disclosed principal situation, the third party is aware that the agent is acting on behalf of a principal, but the identity of the principal is not fully disclosed. This means that the third party knows that there is a principal involved, but does not know the principal’s identity.
For example, imagine that a company hires a salesperson to sell its products to customers. The salesperson makes it clear to the customers that they are acting on behalf of a company, but does not reveal the name of the company. In this case, the customers are aware that there is a principal involved, but do not know the identity of the principal.
In a partially disclosed principal situation, the third party may have legal recourse against both the agent and the principal for any actions that the agent takes during the transaction. This is because the third party has some information about the principal, but not enough to fully protect themselves against any potential risks or liabilities.
However, the extent of the principal’s liability may be limited to the authority that they gave to the agent. This means that if the agent acted outside of their authority, the principal may not be held liable for those actions. Additionally, the principal may be able to assert certain defenses against the third party’s claims, such as the third party’s knowledge of the agent’s limited authority.
Overall, a partially disclosed principal situation can be complex, as it falls somewhere between a disclosed principal situation (where the third party knows the identity of the principal) and an undisclosed principal situation (where the third party does not know that the agent is acting on behalf of someone else). As such, it is important for all parties involved to understand their respective rights and liabilities in these situation
Does the termination of an agent’s actual authority automatically terminate any apparent authority held by the agent?
The termination of an agent’s actual authority does not automatically terminate any apparent authority held by the agent. Apparent authority is based on the reasonable belief of third parties that the agent has authority to act on behalf of the principal, regardless of whether the principal actually gave the agent that authority. Therefore, if a third party had a reasonable belief that the agent had authority to act on behalf of the principal, even if that actual authority was terminated, the apparent authority may still exist.
When an agent has actual authority, it means that they have been given express or implied permission by the principal to act on their behalf. Apparent authority, on the other hand, is based on the reasonable belief of third parties that the agent has authority to act on behalf of the principal, even if the agent does not actually have such authority.
If the agent’s actual authority is terminated, it does not necessarily mean that their apparent authority is also terminated. This is because third parties may have already entered into agreements or transactions with the agent based on their reasonable belief in the agent’s authority.
However, the principal can take steps to limit or revoke the agent’s apparent authority as well. For example, the principal can make it clear to third parties that the agent’s actual authority has been terminated, and that they should not rely on the agent’s apparent authority to act on behalf of the principal. The principal can also take steps to ensure that the agent does not act on their behalf without proper authorization. If the principal takes such steps, it may help to limit or terminate the agent’s apparent authority as well.
Inherent Authority
Inherent authority is a type of authority that an agent may have to take actions that are reasonably necessary to carry out their duties or achieve the principal’s objectives, even if those actions were not expressly authorized by the principal.
In other words, an agent with inherent authority is authorized to take certain actions that are considered customary or necessary to carry out their job or duties. This authority is based on the nature of the agent’s job or position, and is not necessarily based on explicit instructions or authorization from the principal.
For example, if a salesperson is authorized to sell goods on behalf of a company, they may have inherent authority to negotiate prices or extend credit terms, even if they were not specifically instructed to do so. Similarly, a bank teller may have inherent authority to accept deposits or cash checks on behalf of the bank.
However, the scope of inherent authority is limited by the specific tasks or objectives that the agent was authorized to perform, as well as the customs and practices of the particular industry or profession. If an agent exceeds their inherent authority, the principal may not be bound by their actions.
Inherent authority is a concept in corporate law that refers to the implied authority of an agent to act on behalf of their principal, even if such authority is not explicitly granted or stated in the agency agreement.
This means that agents may have the ability to make certain decisions or take certain actions on behalf of their principal that are considered customary or necessary in the ordinary course of business, even if they have not been specifically authorized to do so.
For example, a sales agent may have inherent authority to negotiate and finalize sales contracts within certain limits, even if the principal did not expressly authorize the agent to do so. However, the scope of an agent’s inherent authority can vary based on factors such as the nature of the agency relationship, the customs of the industry, and the principal’s past conduct.
