Agency Flashcards
What is required to form an agency relationship?
Under the rules, an agency relationship requires:
(1) consent by both the principal and the agent that the agent will act for the benefit of the principal; and
(2) subject to the principal’s control.
How is an agency relationship terminated?
Authority to act for the principal can terminate when the principal manifests a desire to the agent to discontinue the relationship.
When is a principal bound by an agent’s acts?
only if the agent acted with authority (actual, apparent, or ratification)
What is actual authority?
Authority the agent reasonably believes that have based on her dealings with the principal.
What are the 2 types of actual authority?
Actual authority can be express or implied.
Express authority arises when the agent is expressly given authority to act for the principal.
Implied authority arises when the agent has a reasonable belief that they have authority to act based on the principal’s words or actions.
*What did the principal do to make agent believe he has authority?
Examples of Implied Authority
Implied authority can be based on:
past conduct
custom
necessity
emergency
pay for and accept goods
manage investments
give general warranties
How is actual authority terminated?
After a lapse in reasonable time
Change in circumstances
Agent’s breach in fiduciary duty
Death or Incapacity of the principal (only if agent has notice of it)
What is apparent authority?
Authority a third person reasonably believes the agent has based on the third party’s dealings with the principal.
What is required for apparent authority?
Apparent authority requires:
(1) a third party has a reasonable belief that the agent has authority to act for the principal; and
(2) the belief is based on the principal’s words or conduct.
*What did the principal do to indicate to a THIRD PARTY that the agent had authority?
Requirements for ratification?
Principal must:
(1) have knowledge of all material facts regarding the contract
(2) accept the entire transaction
(3) have capacity (competent and legal age).
Liability of:
Third Party v. Principal
Principal is liable to the third party entered into by their agent if the agent had valid authority (actual, apparent, or ratification) to act.
Liability of:
Third Party v. Agent
If the agent had actual authority or apparent authority to enter a contract for the principal, or if the principal ratifies the contract, the agent is NOT personally liable for the contract.
EXCEPTION:
Agent can be personally liable if the identity and existence of the principal were not disclosed.
Disclosed Principal Liability
If a principal’s identity and existence are disclosed to a third party, then the principal is liable on the contract and the agent is not.
Unidentified and Undisclosed Principal Liability
If a principal’s identity is unidentified or undisclosed, then EITHER the principal or the agent can be held liable on the contract if the agent had authority.
Steps to analyze a principal’s contract liability
- Did the agent have actual or apparent authority at the time of the contract or did the principal ratify the contract later?
- If yes, then the principal is liable on the contract (but usually, the agent is not).
