Agency Definitions & Concepts

Question 1

Agency Defined

Answer 1

Agency is the fiduciary relationship that arises when one person (a =principal=) manifests assent to another person (an =agent=) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act.

Question 2

Agency Elements

Answer 2

1. Principal consents 2. Agent acts on behalf of the principal 3. Principal exercises control

Question 3

Authority Used in Agency Law

Answer 3

Restatement 3d is the most recently published, but Restatement 2d is more widely used.

Question 4

What is the difference between a fiduciary relationship and a contract relationship?

Answer 4

In a fiduciary relationship, the agent must act in the principal’s best interest. In contractual relationships, parties generally owe each other much lower levels of duty.

Question 5

What are the key questions in analyzing whether an agency relationship exists?

Answer 5

Is someone the agent of a principal? If so, for what purpose or in what capacity?

Question 6

Can entities act as agents?

Answer 6

Yes.

Question 7

What is objective manifestation?

Answer 7

If, looking at the parties’ outward manifestation, a reasonable person would conclude that there is an agency, then the agency relationship is =objectively manifest.=

Question 8

How is manifestation expressed?

Answer 8

Through words (written or oral) or conduct.

Question 9

What types of authority are there?

Answer 9

• Actual Authority - Apparent Authority - Authority by Estoppel - Authority by Ratification

Question 10

Elements of Actual Authority

Answer 10

[1] The principal provides an objective manifestation (either express or implied). [2] The manifestation leads the agent to believe that the agent is authorized to act for the principal. [3] The agent’s interpretation of the manifestation is reasonable.

Question 11

When does the actual authority have to exist?

Answer 11

At the time the transaction took place.

Question 12

What can a principal be?

Answer 12

• Disclosed - Unidentified - Undisclosed

Question 13

If the principal is undisclosed, when is a 3rd party not bound?

Answer 13

A third party is not bound to a contract if the transaction: - Changes the nature of the duty to be performed (or may insist on performing duty for agent), or - The contract does not allow it, or - In a specific kind of fraud: [1] The agent fraudulently represented that the agent is not acting for the undisclosed principal; [2] The 3rd party would not have entered into the contract if he knew who the undisclosed principal was; and [3] The agent or principal knew or should have known that 3rd party would not have entered the contract.

Question 14

What is apparent authority?

Answer 14

[1] The apparent principal makes a manifestation (which has to be traceable to the principle, not only the agent) [2] That somehow reaches 3rd party [3] Who reasonably believes, given the context or other circumstances, that the apparent agent is indeed authorized to act for the apparent principal.

Question 15

Examples of Apparent Authority:

Answer 15

• Position principal puts one in, e.g. dry cleaning clerk. - Position in an organization, e.g. CEO.

Question 16

Notice to agent is normally notice to principal if agent had actual or apparent authority to receive notice, UNLESS…

Answer 16

The agent, at the time he received the notice, [1] Is acting adversely to principal and [2] The 3rd party knew or had reason to know this.

Question 17

Requirements of Agency by Estoppel

Answer 17

Agency by estoppel imposes liability on a principle if [1] The principal intentionally or carelessly caused a belief, [2] The principal has notice of the transmission of such belief, [3] And, knowing that such belief might induce others to change their positions, the principal did not take reasonable steps to notify 3rd parties of the truth.

Question 18

Agency by Ratification

Answer 18

Principal affirms a previously unauthorized act by an agent. Ratification validates the original unauthorized act where there is no basis for estoppel, and produces the same legal consequences as if original act had been authorized. At the time of ratification, the principal must have knowledge of material facts and the 3rd party must have no intention to withdraw from the transaction.

Question 19

Manifestation

Answer 19

A person manifests assent or intention through written or spoken words or other conduct.

Question 20

Imputation of Agent’s Knowledge to Principal

Answer 20

• Facts known by agent imputed to principal even if agent learns them =off the job= or forgot them. - Facts agent should know but negligently did not learn are not imputed to principal.

Question 21

Agency by Estoppel

Answer 21

The principal can be liable to a 3rd party in the absence of actual or apparent authority if [1.] The principal intentionally or carelessly causes a 3rd party to think someone is an agent, OR [2.] The principal knows that a 3rd party mistakenly and reasonably thinks agent has authority and does not tell 3rd party the facts. [Note]: The 3rd party must show detrimental reliance. [Note]: No manifestation from principal is required.

Question 22

Terminating Agency Relationship

Answer 22

[1.] Both the principal and the agent have the power to end relationship at any time. [2.] An objective standard is used for judging whether this has been communicated. [3.] The relationship will also normally end (a) If the objective of agency accomplished (b) Upon the occurrence of an event that the parties agreed would end the agency (c) If the property underlying the agency relationship is destroyed or not legally available (d) Upon the expiration of reasonable time [Note]: If agency ends in violation of contract rights, there might be damages claim.

Question 23

Effect of the Death or Mental Incapacity of the Principal (R2d vs. R3d)

Answer 23

R2d: Ends the agency R3d: Only ends the agency if the agent and 3rd party have notice.

Question 24

What is it called when the principal exercises his power to end the agency relationship?

Answer 24

Revocation

Question 25

What is it called when the agent exercises his power to end the agency relationship?

Answer 25

Renunciation

Question 26

Effect of Gratuitous Agent’s Renunciation

Answer 26

By definition, there is no contractual limitation on ending agency. However, a gratuitous agent may be estopped from ending an agency relationship if the principal is not given enough time to make alternative arrangements.

Question 27

Effect of Revoking an Agency Relationship in Bad Faith

Answer 27

If principal ends the agency in bad faith, he may be liable to the agent for lost fees.

Question 28

Effects of Termination

Answer 28

• Termination ends actual authority. - Under R2d, termination also ends apparent authority in the case of death or mental incapacity (but not under R3d). - Otherwise apparent authority continues until the 3rd party knows or should know that the agency is terminated.

Question 29

When does apparent authority terminate?

Answer 29

When the 3rd party learns that the agency ended, or otherwise in light of the 3rd party’s knowledge of other facts that no longer allow him to reasonably believe that the agent is authorized to act for the principal.

Question 30

Agent’s Right to Compete with Principal

Answer 30

• May not do so during agency, as this would violate agent’s fiduciary duties to principal. - May compete after termination of agency, with three limits: [1.] Cannot use principal’s confidential information (trade secrets, specialized techniques). [2.] Must =get out clean=: (a) Cannot disregard loyalty obligations to further post-termination plans. (b) Cannot lie about post-term plans (c) If he does not =get out clean,= the agent may be liable for damages, disgorgement. [3.] Must abide by valid non-compete agreements. (In order to be enforceable, such agreements must be reasonable in duration and geographical limitations.).

Question 31

Is information that a president of a corporation have attributable to a shareholder?

Answer 31

No. The president is agent of the corporation. There is no agency relationship between the president and the shareholder.