Agency Flashcards
When are parties in agency?
Agency is generally defined as the relationship that arises when one person (the principal) manifests assents that another (the agent) shall act on his behalf and under his control, and the agent consents to so act.
What are the requirements to create an agency relationship?
- Capacity: principal must have contractual capacity; agents need only minimal capacity.
- Formalities:
a. consent manifested by BOTH the principal and the agent to create.
b. No consideration required.
c. Generally no writing required (but see SOF)
What is the “equal dignities” rule?
Many states require an agreement to be in writing when the agent is to enter into certain contracts within the SOF (mostly land transactions) or when the agency agreement would fall within the SOF.
How might an agency relationship be created?
- By act of parties: parties may be bound through holding out by the principal (i.e., apparent authority) or ratification.
- By operation of Law:
a. Estoppel (reliance)
b. statute (statutes create agencies usually to accomplish a limited purpose).
Generally, what are the agent’s duties to the principal?
An agent is a fiduciary of their principal, so, in addition to any express contractual duties, the agent also owes the fiduciary duties of loyalty, obedience to lawful instructions, and reasonable care under the circumstances.
What is the agent’s duty of care?
An agent owes a duty to their principal to carry out their agency with reasonable care—this is a sliding scale depending on any special skills that the agent may have.
What is the agent’s duty of loyalty?
The agent owes a duty of undivided loyalty to the principal, which includes the following obligations:
a. agent may not use position to profit themselves.
b. agent must act solely for the benefit of the principal and not to benefit themselves or a third party.
c. agent must refrain from dealing with their principal as an adverse party or from acting on behalf of an adverse party.
e. an agent may not compete with their principal concerning the subject matter of the agency.
f. the agent may not use the principal’s property for the agent’s own purposes or a third party’s purposes.
What is the agent’s duty of obedience?
An agent must obey all reasonable directions of their principal. If the agent disobeys a reasonable direction, the agent may be liable to the principal for any loss that the principal suffers.
What remedies are available to the principal for an agent’s breach of duties?
contract actions, tort actions, actions for secret profits, equitable actions for an accounting, imposition of a constructive trust, and withholding of compensation for intentional torts or intentional breaches of fiduciary duty.
Is the principal’s duty to an agent fiduciary in nature?
No. Fiduciary responsibilities run only from the agent to the principal.
What duties does the principal have to an agent?
The principal owes the agent all of the duties imposed by their contract, reasonable compensation, and reimbursement expense. The principal also generally should cooperate with the agent and not unreasonably interfere with the agent’s performance.
When does an agent have the power to bind a principal?
When the agent enters to a contract on the principal’s behalf and has acted with authority.
What are the three types of authority?
- Actual;
- Apparent; and
- Ratified.
What is actual authority?
Actual authority is authority that the agent reasonably believes they possess based on the principal’s dealings with them. If the principal’s words or conduct would lead a reasonable person in the agent’s position to believe that the agent has the authority to act on the principal’s behalf, the agent has actual authority to bind the principal.
Actual authority may be expressed or implied.
What is express authority?
Express authority is that which is actually contained within the four corners of the agency agreement. it is effective even if it was granted mistakenly or because of misrepresentations.
What is implied authority?
Implied authority is authority that the agent reasonably believes they have as a result of the principal’s words or actions. It includes authority:
1. incidental to express authority;
2. arising out of custom known to the agent;
3. resulting from prior acquiescence by the principal;
4. to take emergency measures;
5. to delegate authority in cases of ministerial acts, where circumstances require, where performance is impossible without delegation, or where delegation is customary;
6. to pay for and accept delivery of goods where there is authority to purchase;
7. to give general warranties as to fitness and quality and grant customary covenants in land sales, collect payment, and deliver where there is authority to sell; and
8. to manage investments in accordance with the “prudent investor” standard.
When might actual authority be terminated?
Termination (or revocation) of actual authoirty occurs by:
1. The happening of an event specified in the agent’s and principal’s agreement as something that will terminate the agent’s authority;
2. Lapse of a reasonable time if a time for termination is not specified in the agreement;
3. a change in circumstances, including the destruction of the subject matter of the authority, insolvency of the agent or principal, and a change in the law or business conditions;
4. agent’s breach of fiduciary duty;
5. either party’s unilateral termination; or
6. operation of law (think death (but death of principal is only termination when agent has notice of it), loss of capacity (absent durable power of attorney
What is ratification and how can it bind the principal?
Ratification occurs when the purported agent acts on behalf of a principal without any authority at all but then the principal validates the act and becomes bound. Ratification is essentially a substitute for before-the-transaction authority—it gives the transaction attractive effect unless the principal lacked contractual capacity at the time the agent entered into the transaction.
What is apparent authority?
Apparent authority exists when the principal “holds out” another as possessing authority and based on this holding out, a third party is reasonably led to believe that authority exists. I.e., if the principal’s words or conduct would lead a reasonable person in the third party’s position to believe that the agent has authority to act o the principal’s behalf, the agent has apparent authority to bind the principal.
What are the methods of ratification?
Ratification may be express or implied through the conduct of the “principal.” The most common form of express ratification is oral or written affirmation of a contract. The most common form of implied ratification is when the principal accepts the benefits of the contract. A principal can also ratify through silence (if there is a duty to disaffirm) or suing on the transaction.
What are the requirements for ratification?
For ratification to occur, the principal must:
1. have knowledge of (or have reason to know) all material facts regarding the contract;
2. accept the entire transaction (i.e., cannot ratify only a portion of the transaction and
3. have capacity (competency and be of legal age).
When will a principal be liable to a third party on a contract entered into by their agent?
When the agent had valid authority—either actual, apparent, or through ratification—to act.
When is an agent held personally liable on the contract?
If the existence and identity of the principal are not disclosed.
But generally, if the agent had actual authority or apparent authority to enter a contract for the principal, or if the principal ratified a previously unauthorized contract, the agent cannot be held personally liable on the contract.
If the principal is unidentified or if the principal is undisclosed, who may be liable on the contract if the agent had authority to enter the contract?
Either the princpal or the agent can be held liable.
