Agency Flashcards
What is agency?
Fiduciary relationship arising when one person (principal) appoints another (the agent) to act on the principles behalf.
What are the requirements for creating an agency relationship?
- Consent of both parties
- Legal capacity (principal must have contractual capacity (be an adult); agent only needs minimal capacity.
- Agent must act on behalf of the principal (for the benefit of the principal)
- Agent must act subject to principal’s control
Do agency relationships require consideration?
No contractual consideration required.
Two ways agency relationships are created
- By operation of law–created by estoppel due to 3P reliance on principal’s communication
- By act of parties–when parties expressly or impliedly deem one to exist
What duties does the agent have to the principal?
An agent is a fiduciary of the principal and owes the fiduciary duties of:
1. Undivided loyalty
2. Obdenience to lawful instructions; and
3. Reasonable care under the circumstances
What is the agent’s duty of undivided loyalty?
Means that the agent owes undivided loyalty to the agent, and cannot use their position to profit at the expense of the agent or a 3P.
Agent must not deal with their principal as an adverse party
Agent cannot compete with the principal
What is the agent’s duty of obedience?
Agent has a duty to obey all lawful and reasonable directions of the principal.
If agent disobeys, the agent will be liable to the principal for any losses incurred as a result.
What is the agent’s duty of reasonable care?
Agent owes a duty of reasonable care in carrying out the ageny relationship.
What are the principal’s remedies for agent’s breach?
Upon agent’s breach of fiduciary duty, the principal may:
1. Sue in contract or tort
2. Seek equitable remedies
3. Withholding compensation for agent’s intentional torts or intentional breaches
Principal has a right to recover the actual profits/properties held by agent even if agent’s profit did not result in principal’s loss.
What are the principal’s duties to agent?
The principal’s duties are NOT fiduciary, however, the principal has obligations to the agent:
1. contractual duties
2. Reasonable compensation
3. Reimbursement for agent’s expenses in carrying out principal’s orders.
Can the principal liable be for agent’s contracts?
Yes. An agent has power to bind principal to a contract the agent enters on principal’s behalf only if agent acted with apparent or actual authority, or if the principal ratified the conduct.
What is actual authority?
Authority the agent reasonably believes they possess based on principal’s dealings iwth them.
If principal’s words/actions would lead a reasonable person to believe that the agent had the authority to act on principal’s behalf, the agent had actual authority to bind.
What are the two types of actual authority?
- Implied actual authority–authority that the agent reasonably believed they had based on the principal’s words/actions.
- Express actual authority–direct authority conveyed by the principal to the agent, either oral or written.
How may actual authority be terminated?
- Occurrence of an event (K specifying authority ends, etc.)
- Change in circumstances (subject matter destroyed; insovlency of agent or principal)
- Agent’s breach of fiduciary duty
- By operation of law (death/loss of capacity)
- By either party’s unilateral termination
What is apparent authority?
Apparent authority can exist when the principal holds out another as possessing authority and as a result, a third-party reasonably believed that the party had actual authority.
A principal’s words/conduct that would lead a reasonable person in the third-pary’s position to believe that the agent has authority to act on the principal’s behalf, then the agent has apparent authority to bind principal.
Because apparent authority is created upon the manifestation of a third party’s belief as to the principal’s conduct, apparent authority does not arise based on an agent’s misrepresentations.
What are the types of apparent authority?
Apparent authority may be found where:
- When agent exceeds their authority, but the principal previously permitted the agent to exceed their express or implied authority and knows the 3P was aware–this binds the principal
- Where agent had no actual authority. Principal will not be bound if he does not hold the agent out as having authority– This will not bind principal where agent misrepresented his authority
- A principal may be liable when principal negligently permits an imposter to be in a position to appear to have agency authority–this is agency by estoppel–principal will be estopped from denying the imposter was their agent.
Does the death/incompetency of principal terminate the agent’s apparent authority?
Under the majority view, no, it does not automatically terminate it.
What is ratification?
This is a type of agency relationship created when agent purports to act on behalf of a “principal” without any authority, but the principal subsequently validates the act and becomes bound.
How may a principal ratify?
The principal can ratify the conduct expressly or impliedly–impliedly means “principal” accepts benefits of the K, or if the principal is **silent when there’s a duty to disaffirm
**
What are the requirements for ratification?
The “principal” must:
1. Know/have reason to know the material facts of the K;
2. Accept the Entire transaction, AND
3. Have capacity
What can be ratified?
Anything can be ratified by a principal, unless:
- Performance was illegal at time of ratificaiton;
- Third party has withdrawn; OR
- There has been a material change in circumstances.
An undisclosed principal may NOT ratify, and only disclosed (known to 3P) may ratify.
Liabilities of principal to third parties?
P liable to 3P on a K entered by agent if agent had valid authority (actual, apparent, or thru ratification)
If agent did not have authority and principal has not ratified, P will NOT be bound.
Agents v. Third Party Liabilities
NO liability for agent acting on actual or apparent authority.
If principal was disclosed (existence and identity known), principal will be liable on an authorized K, but the agent is liable if parties to K intended agent to be liable.
EXCEPTION:
1. Agent liable if existence and identity of P is undisclosed (3P didn’t know agent acting on principal’s behalf) **OR unidentified ** (3P knew there was a principal but not who).
2. If principal undisclosed/unidentified, then either the P or the A can be liable on a K if agent had authority to enter the K.
Third Party liability to Agent and Principal
When P disclosed, only the P–not agent–can enforce the K and hold 3P liable.
When pirincipal is undisclosed/unidentified, either the P or A may enforce the K and hold 3P liable.
Principal cannot enforce the K if there was fraud misrepresentation of the P’s identity
