Agency Flashcards
Formation of Relationship
An agency relationship is created when a principal manifests assent to an agent, the agent acts on the principal’s behalf, the agent’s actions are subject to the principal’s control, and the agent manifests assent or otherwise consents.
The principal will generally be bound by any contract created on the principal’s behalf, by an agent with the power to bind the principal, whether the power to bind is expressed orally or in a writing, implied by principal’s conduct, or misinterpreted by a 3rd party.
Principal: Control
The principal has the right to control the result or the ultimate objectives of the agent’s work. The consensual nature of the relationship requires an agent to have minimal capacity, manifest assent and consent to act on the principal’s behalf, and to be subject to the principal’s control.
To become a principal and be bound by an agent’s actions, a person must have capacity both to consent to the agency relationship and to enter into the transaction to which the agent purports to bind the principal.
Agent
A person can serve as an agent as long as he has the physical and mental capability to do whatever he has been appointed to do.
Liability to Third Parties: Contract
Under contract law, agents perform acts of negotiating and making contracts with third persons. A contract made by an agent on behalf of a principal with a third person establishes certain rights and duties, depending on the agent’s level of authority and how the contract is executed. An agency relationship is created when: (i) a principal manifests assent to an agent; (ii) the agent acts on the principal’s behalf; (iii) the agent’s actions are subject to the principal’s control; and (iv) the agent manifests assent or otherwise consents.
Principal Liability: Contract
A principal is subject to liability on a contract that the agent enters into on the principal’s behalf if the agent has the power to bind the principal to the contract. An agent has the power to bind the principal to a contract when: (i) the agent has actual authority (express or implied); (ii) the agent has apparent authority; or (iii) The principal is estopped from denying the agent’s authority. In addition, even if an agent acts with no power to bind the principal, the principal can become subject to liability on the contract if the principal ratifies the contract.
Express Actual Authority
Express actual authority can be created via: (i) oral or written words; (ii) clear, direct, and definite language; or (iii) specific detailed terms and instructions. For express (actual) authority to exist, the principal’s manifestation must cause the agent to believe that the agent is doing what the principal wants (subjective standard), and the agent’s belief must be reasonable (objective standard).
Implied Actual Authority
Implied actual authority allows an agent to take whatever actions (designated or implied in the principal’s manifestations) are properly necessary to achieve the principal’s objectives, based on the agent’s reasonable understanding of the manifestations and objectives of the principal. A principal may manifest assent to the actions of his agent by placing the agent in a position that customarily has certain authority, such as vice president or treasurer.
Apparent Authority
Apparent authority derives from the reasonable reliance of a third party on that party’s perception of the level of authority granted to the agent by the principal. The perception is based on the principal’s behavior over a period of time.
Estoppel Ratification
A principal can ratify an act performed by another person, whether or not the person is an actual agent of the principal. Ratification occurs when a principal affirms a prior act that was done or purported to be done on the principal’s behalf. The principal’s affirmation may be either express or implied (such as through conduct), and consideration is not required. If the principal ratifies the agent’s action, then the principal is bound just as if the action had been authorized at the time it occurred.
