Agency Flashcards
Agency General Rule Statement
Agency is the fiduciary relationship which results when one person (the principal) appoints another person (the agent) to act on the principal’s behalf and subject to his control and the agent so agrees.
Do the Principal and the Agent both have to have contractual capacity?
No. A principal must have contractual capacity, but the agent need only have minimal capacity.
Thus, a 16 year old can be an agent, but not a principal.
Is a writing required to form an agency relationship?
Generally, no writing is needed. However, under the equal dignitaries rule, many states require agency agreements to be in writing when the agent is to enter into certain transactions within the Statute of Frauds (mostly land transactions), or when the agency agreement itself would fall within the Statute of Frauds (i.e., A is to work for P for 2 years).
Is consideration required?
No.
Compensation of agents and subagents
If an agency agreement is silent regarding compensation, the agent is entitled to reasonable compensation.
A principal owes no duty to compensate a subagetn, even if the agent had authority to hire the subagent.
How is an agency relationship formed?
By action:
- Actual Authority: P and A can agree to the agency relationship
- Apparent Authority: P can hold another out as their A
- Ratification: P may agree to be bound by previously unauthorized acts.
By operation of law:
- Estoppel: P may be estopped from denying the existence of an agency relationship if 3P relies.
- Statute
Agent’s Duties to the Principal
An agent (even an unpaid one) is a fiduciary of their principal. So, in addition to any express contractual duties that the agent owes the principal, the agent owes fiduciary duties to the principal.
- Duty of Care: An agent must act with reasonable care.
- Duty of Loyalty: An agent owes a duty of undivided loyalty to the principal. The agent must disclose interests adverse to the principal, cannot use the position to profit for themselves, must act solely for the benefit of the principal, etc.
- Duty of Obedience: Agent must obey all lawful instructions of principal.
- Duties under contract: agenty must comply with the terms of agency contract.
Principal’s Duties to Agent
The principal does not owe fiduciary duties to the agent.
Principal must:
- compensate and reimburse agent (unless agent agrees to act gratuitously)
- cooperate with agent and help them carry out their agency functions
- comply with any terms of the agency contract
Actual Authority
Actual Authority is the authority that the agent reasonably believes they possess based on the principal’s dealings with them.
Express: contained in the 4-courners of the agency agreement/words actually conveyed.
Implied: authority that A reasonably believes they have as a result of actions of P (for example: if A has express authority to manage an apartment building, there may be implied authority to hire a janitor).
Termination of Actual Authority
Termination or revocation of actual authority occurs by:
- happening of an event specified in the agency agreement as something that will terminate the agent’s authority
- Lapse of a reasonable time if a time for termination is not specified in the agreement
- a** change in circumstances,** including destruction of the subject matter of the authority, insolvency of the A or P, and a change in the law of business conditions
- A’s breach of fiduciary duty
- Either party’s unilateral termination OR
- operation of law (including death of P – only effective when A has notice of death!)
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.
This arises from the reasonable beliefs of 3Ps based on Principal’s conduct.
Ratification
Principal can be bound by contract if principal later ratifies transaction. To ratify, principal must: (1) have knowledge of (or have reason to know) all material facts regarding the k; (2) accept the entire transaction; and (3) have capacity (competent & legal age).
Methods of Ratification:
- Acceptance of transaction’s benefits
- SIlence if there is a duty to affirm
- Suing on transaction
Consequences of Ratification: Contract will be treated as if it had originally been entered into with authority.
Principal’s Liability on Contracts Entered into by Agent
3P v. Principal: P will be liable to a 3P on a k entered into by their A if the A had valid authority (actual, apparent, or ratification) to act.
3P v. Agent: A’s liability depends on whether P was disclosed, unidentified (i.e., 3P knows A is working on behalf of a P, just doesn’t know exactly who P is), or undisclosed (A does not reveal they are k-ing on behalf of P):
- Disclosed P: A generally not liable.
- Unidentified or Undisclosed P: generally, eitehr P or agent can be held liable (3P chooses).
P or A v. 3P: Where P is disclosed, only P (not A) may enforce k and hold 3P liable. If P is unidentified or undisclosed, either P or A may hold 3P liable.
Respondeat Superior Analysis for Whether P is Liable for A’s Torts
P may be vicariously liable for acts of EE committed within scope of employment:
ER/EE Relationship: Courts will consider various factors to determine whether A is EE or IC, but generally, most important factor is whether P had right to control manner and method of A’s work.
Conduct Within Scope of Employment: ER liable only for torts of EEs committed w/in the scope of employment. Courts consider: (1) the nature of the work, (2) whether conduct was substantially removed from authorized time and space limits of employment (frolic v. detour), and (3) whether conduct was actuated, at least in part, by purpose to serve ER.
Independent Contractors: P is not liable for acts of ICs UNLESS: (1) inherently dangerous activities are involved; (2) nondelegable duties have been delegated; or (3) P knowingly selected incompetent IC.
P’s liability for A’s intentional torts
The general rule is that ER is not liable for the intentional torts of an EE because intentional torts are usually not within the scope of employment.
Exceptions: Intentional torts will be viewed as within the scpoe of employment if conduct is:
(1) a natural incident of EE’s duties (i.e., there’s authority b/c EE is a bouncer);
(2) where the EE is promoting the ER’s business or is motivated to serve the ER; or
(3) specifically authorized or ratified by ER.
