Agency

Question 1

What is required to form an agency relationship?

CBC

Answer 1

Under the rules, an agency relationship requires:
(1) consent by both the principal and the agent
(2) that the agent will act for the benefit of the principal; and
(3) subject to the principal’s control.

Question 2

How is an agency relationship terminated?

Answer 2

Authority to act for the principal can terminate when the principal manifests a desire to the agent to discontinue the relationship.

Question 3

When is a principal bound by an agent’s acts?

Answer 3

only when the agent acted with authority (actual, apparent, or ratification)

Question 4

What is actual authority?

Answer 4

Authority the agent reasonably believes that have based on her dealings with the principal.

Question 5

What are the 2 types of actual authority?

Answer 5

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?

Question 6

Examples of Implied Authority

Answer 6

Implied authority can be based on:

past conduct
custom
necessity
emergency
pay for and accept goods
manage investments
give general warranties

Question 7

How is actual authority terminated?

Answer 7

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)

Question 8

What is apparent authority?

Answer 8

Authority a third person reasonably believes the agent has based on the third party’s dealings with the principal.

Question 9

What is required for apparent authority?

Answer 9

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?

Question 10

Requirements for ratification?

Answer 10

Principal must:
(1) have knowledge of all material facts regarding the contract
(2) accept the entire transaction
(3) have capacity (competent and legal age).

Question 11

Liability of:
Third Party v. Principal

Answer 11

Principal is liable to the third party entered into by their agent if the agent had valid authority (actual, apparent, or ratification) to act.

Question 12

Liability of:
Third Party v. Agent

Answer 12

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.

Question 13

Disclosed Principal Liability

Answer 13

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.

Question 14

Unidentified and Undisclosed Principal Liability

Answer 14

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.

Question 15

Steps to analyze a principal’s contract liability

Answer 15

1. Did the agent have actual or apparent authority at the time of the contract or did the principal ratify the contract later?
2. If yes, then the principal is liable on the contract (but usually, the agent is not).

Question 16

Steps to analyze a principal’s (employers) tort liability

Answer 16

1. was the tort committed by the employee in the scope of the employment?
2. If so, then the employer and employee are jointly and severally liable to the third party.

Question 17

What duties does an agent owe to a principal?

Answer 17

Duty of care
Duty of loyalty (no self dealing)
Duty of obedience

Question 18

What can a principal recover from an agent if an agent breaches their duties?

Answer 18

Principal may recover loses from and profits made by the breaching agent

Question 19

What is a principal’s duty to an agent?

Answer 19

Principal’s do NOT owe agents a fiduciary duty.

However, a principal must:

act according to a contract if any;
reasonably compensate the agent; and
reimburse the agent for expenses.

Question 20

Does death terminate an agency?

Answer 20

YES!

Death terminates the agency unless it is irrevocable (agency is coupled with an interest OR supported by consideration).

Question 21

The type of principal (disclosed or undisclosed) is only relevant when:

Answer 21

considering whether the AGENT is liable.

Do not discuss the type of principal when analyzing the principal’s liability.