Agency Flashcards
2 Elements of Agency (Gorton v. Doty)
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.
Who must give consent to establish agency?
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
Must a principal exercise physical control over the actions of the agent?
No, so long as the principal may direct the result or ultimate objectives of the agent relationship. (Green v. H&R Block, Inc.)
Must there be compensation or other consideration for agency to exist?
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.)
Can a financier be liable as a controller? Based on what?
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.)
What monitor/control factors did the court find relevant when determining Cargill was liable based on the amount of control it exercised?
- constant telephone recommendations
- right of first refusal
- inability to enter into mortgages
- purchase stock/pay dividends without approval
- right of entry into premises for periodic checks or audits
- correspondence and criticism of finances
- officers’ salaries and inventory
- provision of drafts and forms
- financing of all purchases and operating expenses
- power to discontinue financing of operations.
What must a principal allow agents to do?
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.)
“Principal-Agent Problem”
Principal is concerned that the agent will not do what the principal would normally do because agents have their own preferences.
Does agency require a written contract?
No, it may be express or implied. No written contract is required.
Can an individual bind a principal even without being an agent in fact or without having a contract?
Yes.
Types of Agency Authority
- Actual Express Authority
- Actual Implied Authority
- Apparent Authority
- Implied Authority by Custom
- Inherent Agency
Actual Express Authority
Standard arrangement where principal tells agent what to do and agent consents and does task. Parties are bound.
Actual Implied Authority
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)
How is actual implied authority determined?
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.
Restatement (Third) Sec 2.02(1) (note) (Implied authority)
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.
Apparent Authority
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.
How is apparent authority prove?
through evidence of the appearance of the agent’s authority on which the third party comes to rely. (Mill Street Church of Christ)
apparent authority can exist if third party believes…
agent had authority based on the past and relies on agent’s representation.
Is apparent authority actual authority?
No. but rather it is only a third party’s reasonable belief.
Implied Authority by Custom
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,
Inherent Agency
individual performed function that is not permitted by the principal, but considered within the scope of duties. the principal is bound.
Does a marriage create an agency relationship between spouses?
No.
“Inherent Agency Power” Restatement Sec 8A
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.
Liability of undisclosed principal. Restatement (Third) of Agency Sec. 2.06
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.
Ratification
an individual is not an agent, but principal ratifies behavior. Principal is bound.
what does ratification require of the agent’s actions by principal to which the law will give effect?
valid affirmation
Ratification occurs when
(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.
Can principal ratify a contract made by agent who was not agent of principal?
Yes. if agent was not principal’s agent, ratification of the contract also creates an agency relationship by ratification.
How can you ratify a transaction?
(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
Restatement (third) Sec 4.01(2)
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.
Restatement (Third) Sec. 4.05
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.
Ratification is not effective:
(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.
Estoppel
binds the principal ONLY. Principal has no cause of action under estoppel.
Elements of estoppel
(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.
Distinction between estoppel and apparent authority
estoppel requires a change in position by a third party.
Agents liability on a contract
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.
Servant/Employee
P is liable if A is within scope of employment
independent contractors
P is not liable in agency law
Can parties forego liability by calling it something else?
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.
The test to determine liability of principal to third party is
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.
