Agency

Question 1

Define agency

Answer 1

Legal relationship whereby an agent is authorized to represent a principal in business dealings with third parties.

Question 2

How is agency created?

Answer 2

1. Principal must have contractual capacity. The principal cannot be a minor (outside entertainment industry), incompetent, or an unincorporated organization.
2. Agent must have minimal capacity; someone can be an agent even without contractual capacity. Exception: person with no mental capacity cannot be an agent.
3. Consent of both parties is required.
4. Consideration is not required.
5. Writing is not required EXCEPT when the agent is entering into a contract on the principal’s behalf for an interest in land for more than one year.

Question 3

Who cannot be principals?

Answer 3

A minor (outside entertainment industry), incompetent, or an unincorporated organization.

Question 4

How much capacity must an agent have?

Answer 4

Agent must have minimal capacity.

Someone can be an agent even without contractual capacity.

Exception: a person with zero mental capacity cannot be an agent.

Question 5

In the principal-agent relationship, who must have contractual capacity?

Answer 5

A principal must have contractual capacity, but an agent doesn’t need to. As a result, a minor can be an agent but not a principal.

Question 6

Is consideration required to be an agent?

Answer 6

No.

Question 7

Is consent required to be an agent?

Answer 7

Yes - of both parties.

Question 8

Does the agency relationship need to be in writing?

Answer 8

Generally, no. Exception: when the agent is entering into a contract on the principal’s behalf for an interest in land for more than one year.

Question 9

How can an agent be disqualified?

Answer 9

1. For representing both parties.
2. For self-dealing.
3. For failing to have a required license.

Question 10

What are the two modes of creating an agency relationship?

Answer 10

1. Act of the parties - actual authority, apparent authority, or ratification.
2. Operation of law - estoppel or statute.

Question 11

What is agency created by estoppel and how is it created?

Answer 11

Virtually the same as apparent authority. Requires third party reliance on the principal’s communication.

Question 12

How is agency created by statute?

Answer 12

Usually designed to accomplish a limited purpose (e.g., statute appointing secretary of state as out of state motorist’s agent for service of process for damages arising in state).

Question 13

When analyzing an agency relationship, in what order should you consider inherent authority, ratification, and actual authority?

Answer 13

1. Did the agent have actual authority?
2. If not, was there apparent authority?
3. If neither, was the contract ratified by the principal afterward?
4. Was authority terminated?

Question 14

What is actual authority?

Answer 14

The agent reasonably believes she possesses authority based on the principal’s dealings with her. It may be expressed or implied.

Question 15

Does actual authority have to be expressed or implied?

Answer 15

Either

Question 16

Under what conditions is a principal bound by the act of an agent?

Answer 16

If there is actual authority, apparent authority, or the contract was ratified afterward by the principal.

Question 17

What is express authority?

Answer 17

Authority contained within the four corners of the agency agreement. It’s effective even if granted mistakenly or because of misrepresentation.

Question 18

What is implied authority?

Answer 18

It is authority the agent reasonably believes she has as a result of the principal’s actions.

Question 19

What are the 9 implied authorities?

Answer 19

1. Incidental to express authority.
2. Arising out of custom known to the agent.
3. Resulting from prior acquiescence by the agent.
4. To take emergency measures.
5. To agree to a settlement during litigation.
6. To delegate authority in cases of ministerial acts, where circumstances require, where performance is impossible without delegation, or where the delegation is customary.
7. To pay for and accept delivery of goods where there is authority to purchase.
8. To give general warranties as to fitness and quality and grant customary covenants in land sales, collect payment, and deliver where there is authority to sell.
9. To manage investments in accordance with the prudent inventory standard.

Question 20

How can actual authority be terminated? (Hint: 6 ways)

Answer 20

1. Lapse of a specified of reasonable time.
2. Happening of a specified event.
3. A change in circumstances (e.g., destruction of the subject matter of the authority; insolvency; change in law or business conditions.
4. An agent’s breach of fiduciary duty.
5. Either party’s unilateral termination (even if it’s a breach of contract).
6. Operation of law (e.g., death or loss of capacity of either party, unless there is a durable power of attorney).