Agency

Question 1

2 Elements of Agency (Gorton v. Doty)

Answer 1

Agency exists where

(1) one person (principal) consents that another (agent) shall act on P’s behalf and subject to P’s control; AND
(2) A consents so to act.

Question 2

Who must give consent to establish agency?

Answer 2

Both the principal and the agent.

Agency requires mutual consent of both the principal to control and direct the agent and the agent to consent to be controlled and directed

Question 3

Must a principal exercise physical control over the actions of the agent?

Answer 3

No, so long as the principal may direct the result or ultimate objectives of the agent relationship. (Green v. H&R Block, Inc.)

Question 4

Must there be compensation or other consideration for agency to exist?

Answer 4

No. When one asks a friend to do a slight service for him, such as to return for credit goods recently purchased from a store, an agency relationship exists even though no compensation or other consideration was contemplated. (Restatement Second Sec 1(1) cmt. B.)

Question 5

Can a financier be liable as a controller? Based on what?

Answer 5

Yes, a financier can be liable as a controller because of the amount of control that is exercised. (Gay Jenson Farms Co. v. Cargill, Inc.)

Question 6

What monitor/control factors did the court find relevant when determining Cargill was liable based on the amount of control it exercised?

Answer 6

1. constant telephone recommendations
2. right of first refusal
3. inability to enter into mortgages
4. purchase stock/pay dividends without approval
5. right of entry into premises for periodic checks or audits
6. correspondence and criticism of finances
7. officers’ salaries and inventory
8. provision of drafts and forms
9. financing of all purchases and operating expenses
10. power to discontinue financing of operations.

Question 7

What must a principal allow agents to do?

Answer 7

principals must allow agents to make decisions for principals / allow them to make decisions based on agent’s information. (Gay Jenson Farms Co. v. Cargill Inc.)

Question 8

“Principal-Agent Problem”

Answer 8

Principal is concerned that the agent will not do what the principal would normally do because agents have their own preferences.

Question 9

Does agency require a written contract?

Answer 9

No, it may be express or implied. No written contract is required.

Question 10

Can an individual bind a principal even without being an agent in fact or without having a contract?

Answer 10

Yes.

Question 11

Types of Agency Authority

Answer 11

1. Actual Express Authority
2. Actual Implied Authority
3. Apparent Authority
4. Implied Authority by Custom
5. Inherent Agency

Question 12

Actual Express Authority

Answer 12

Standard arrangement where principal tells agent what to do and agent consents and does task. Parties are bound.

Question 13

Actual Implied Authority

Answer 13

Principal tells agent general duties and agent does something within scope of the duties. Parties are bound even if the task was not expressly stated. (Mill Street Church of Christ v. Hogan)

Question 14

How is actual implied authority determined?

Answer 14

Through circumstantial evidence that the agent reasonably believes because of present or past conduct that it is how the principal wants the agent to act.

Question 15

Restatement (Third) Sec 2.02(1) (note) (Implied authority)

Answer 15

An agent has actual authority to take action designated or implied in the principal’s manifestations to the agent and acts necessary or incidental to achieving the principal’s objectives, as the agent reasonably understands the principal’s manifestations and objectives when the agent determines how to act.

Question 16

Apparent Authority

Answer 16

principal holds agent out to the public as if individual is an agent in fact. Principal is bound even if individual is not agent in fact.

Question 17

How is apparent authority prove?

Answer 17

through evidence of the appearance of the agent’s authority on which the third party comes to rely. (Mill Street Church of Christ)

Question 18

apparent authority can exist if third party believes…

Answer 18

agent had authority based on the past and relies on agent’s representation.

Question 19

Is apparent authority actual authority?

Answer 19

No. but rather it is only a third party’s reasonable belief.

Question 20

Implied Authority by Custom

Answer 20

implied authority is “a kind of authority arising solely from the designation by the principal of a kind of agent who ordinarily possesses certain powers,

Question 21

Inherent Agency

Answer 21

individual performed function that is not permitted by the principal, but considered within the scope of duties. the principal is bound.

Question 22

Does a marriage create an agency relationship between spouses?

Answer 22

No.

Question 23

“Inherent Agency Power” Restatement Sec 8A

Answer 23

the power of an agent which is derived not from authority, apparent authority or estoppel, but solely form the agency relation and exists for the protection of persons harmed by or dealing with a servant or other agent.

Question 24

Liability of undisclosed principal. Restatement (Third) of Agency Sec. 2.06

Answer 24

abandons inherent agency. undisclosed principal is subject to liability to a 3rd party who is justifiably induced to make a detrimental change in position by an agent acting without actual authority and principal knows the action and does not take reasonable steps to notify 3rd party. Principal may not rely on instructions to the agent.

Question 25

Ratification

Answer 25

an individual is not an agent, but principal ratifies behavior. Principal is bound.

Question 26

what does ratification require of the agent’s actions by principal to which the law will give effect?

Answer 26

valid affirmation

Question 27

Ratification occurs when

Answer 27

(1) agent acts without authority (of any kind) and there are no grounds for estoppel.
(2) principal will only be bound if principal ratifies the contract.

Question 28

Can principal ratify a contract made by agent who was not agent of principal?

Answer 28

Yes. if agent was not principal’s agent, ratification of the contract also creates an agency relationship by ratification.

Question 29

How can you ratify a transaction?

Answer 29

(1) express affirmation by the principal
(2) implied affirmation through acceptance of the benefits of a transaction at a time when it is possible to decline such benefits. (Cannot wait and accept the benefit and then change mind when it doesn’t work out)
(3) Implied affirmation through silence or inaction. (Principal cannot wait forever before repudiating an unauthorized transaction.
(4) Implied affirmation through bringing a lawsuit to enforce the contact

Question 30

Restatement (third) Sec 4.01(2)

Answer 30

a person ratifies an act by (a) manifesting assent that the act shall affect the person’s legal relations OR
(b) conduct that justifies a reasonable assumption that the person so consents.

Question 31

Restatement (Third) Sec. 4.05

Answer 31

a ratification of a transaction is not effective unless it precedes the occurrence of circumstances that would cause the ratification to have adverse and inequitable effects on the rights of third parties. These circumstances include a specific time that determines whether a third party is deprived of a right or subjected to a liability.

Question 32

Ratification is not effective:

Answer 32

(a) in favor of a person who causes it by misrepresentation or other conduct that would make a contract voidable;
(b) in favor of an agent against a principal when the principal ratifies to avoid a loss; or
(c) to diminish the rights or other interests of persons, not parties to the transaction, that were acquired in the subject matter prior to the ratification.

Question 33

Estoppel

Answer 33

binds the principal ONLY. Principal has no cause of action under estoppel.

Question 34

Elements of estoppel

Answer 34

(1) principal creates, through intentional or negligent acts or omissions, an appearance of authority in the purported agent
(2) 3rd party reasonably and in good faith acts in reliance on such appearance of authority.
(3) 3rd party changes her position in reliance upon the appearance of authority.

Question 35

Distinction between estoppel and apparent authority

Answer 35

estoppel requires a change in position by a third party.

Question 36

Agents liability on a contract

Answer 36

for an agent to not be liable individually he must not only reveal that he is working for a company, but who the company is.

Question 37

Servant/Employee

Answer 37

P is liable if A is within scope of employment

Question 38

independent contractors

Answer 38

P is not liable in agency law

Question 39

Can parties forego liability by calling it something else?

Answer 39

No. The relationship of the parties does not depend upon what the parties themselves call it, but rather in law what it actually is. If the license agreement is sufficient to establish an agency relationship, the disclaimer clause does not defeat it.

Question 40

The test to determine liability of principal to third party is

Answer 40

the nature and extent of the control agreed upon. The relationship hinges on the principal being able to specify the task the agent is to perform.