AGENCY LAW Flashcards
Agency
AIAFRIWAA4P
Rule Statement:
Agency is a fiduciary relationship in which the agent acts for the principal.
Fiduciary Relationship:
A relationship based on trust and confidence, where one party (the agent) must act in the best interests of the other (the principal).
Agent:
The person who is authorized to act on behalf of the principal.
Principal:
The person who grants the authority to the agent to act on their behalf.
Common Tricks on the Exam:
Scope of Authority:
Questions might suggest actions outside the agent’s authority are still binding. Ensure the agent acts within the scope of their authority.
Fiduciary Duties:
Fact patterns may overlook the agent’s fiduciary duties to the principal. Confirm the agent’s actions are in the principal’s best interests.
Creation of Agency:
Scenarios might confuse agency relationships with independent contractor relationships. Verify the existence of control and fiduciary elements typical of agency.
Agency Relationship
ARE I FOIA APBP + PHR2CA
Rule Statement:
An agency relationship exists if there is:
a formal or informal agreement (assent);
the activity primarily benefits the principal (benefit); AND
the principal has the right to control the agent.
Formal or Informal Agreement (Assent):
The agreement can be either written or oral and does not necessarily require formal documentation, as long as both parties assent to the relationship.
Activity Primarily Benefits the Principal (Benefit):
The actions of the agent must primarily serve the interests of the principal.
Principal Has the Right to Control the Agent:
The principal must have the authority to direct or control the actions of the agent in the scope of the agency relationship.
Common Tricks on the Exam:
Assent Requirement:
Questions might suggest agency relationships exist without mutual assent. Ensure both parties have agreed to the relationship.
Benefit to Principal:
Fact patterns may overlook whether the agent’s actions primarily benefit the principal. Confirm the agent’s activity serves the principal’s interests.
Control by Principal:
Scenarios might imply an agency relationship where the principal lacks control over the agent. Verify the principal has the right to direct the agent’s actions.
Principal’s Obligation to Contract
PIO2 CEI2 BIA IAHAOAA
Rule Statement:
A principal is obligated to a contract entered into by its agent if the agent had actual or apparent authority.
Actual or Apparent Authority:
The principal is bound by the agent’s actions if the agent had the power to act on behalf of the principal, either through direct permission (actual authority) or through the principal’s behavior leading others to believe the agent had such power (apparent authority).
Common Tricks on the Exam:
Actual Authority:
Questions might suggest the agent’s actions bind the principal without clear actual authority. Ensure the agent was directly granted authority by the principal.
Apparent Authority:
Fact patterns may overlook the principal’s role in creating apparent authority. Confirm that the principal’s conduct led third parties to reasonably believe the agent had authority.
Distinguishing Authority Types:
Scenarios might confuse actual and apparent authority. Verify the basis of the agent’s authority, whether it is direct or implied through the principal’s actions.
Actual Authority
AACBEOIA
Rule Statement:
Actual authority can be express or implied authority.
Express Authority:
Authority given to the agent by the principal’s explicit instructions, either orally or in writing.
Implied Authority:
Authority that the agent reasonably believes they have as a result of the principal’s actions or because it is necessary to carry out the express authority.
Common Tricks on the Exam:
Scope of Express Authority:
Questions might suggest authority that wasn’t explicitly given. Ensure the authority is directly stated by the principal.
Basis for Implied Authority:
Fact patterns may overlook the actions or situations leading to implied authority. Confirm the agent’s reasonable belief based on the principal’s conduct or the necessity to carry out duties.
Distinguishing Authority Types:
Scenarios might confuse express authority with implied authority. Verify whether the authority was explicitly granted or reasonably inferred.
Express Authority
EAMT AIAA2 PED2A
Rule Statement:
Express authority means that the agent is acting according to the principal’s explicit directions to the agent.
Principal’s Explicit Directions:
Clear and definite instructions given by the principal to the agent, either orally or in writing.
Agent:
The individual who has been given the express authority to act on behalf of the principal.
Common Tricks on the Exam:
Clarity of Instructions:
Questions might imply authority based on vague or ambiguous instructions. Ensure the directions are explicit.
Scope of Authority:
Fact patterns may suggest actions outside the explicit directions given. Confirm the agent’s actions are within the scope of the express authority.
Source of Authority:
Scenarios might confuse express authority with implied or apparent authority. Verify that the authority is directly given by the principal’s explicit instructions.
Implied Authority
IAHWA1OTFIS
GAIN4A2COIEAD
AASIPDWSP OR
IIC4AITP2AITW
Rule Statement:
Implied authority happens when any one of the following is true:
A given action is necessary for the agent to carry out its expressly authorized duties;
The agent acted similarly in prior dealings with the same principal; OR
It is customary for an agent in this position to act in this way.
1. Necessary for Carrying Out Expressly Authorized Duties:
The action is required for the agent to fulfill their explicitly given responsibilities.
2. Agent Acted Similarly in Prior Dealings:
The agent has performed the same actions in previous interactions with the principal, establishing a pattern of conduct.
3. Customary for an Agent in This Position:
It is standard practice for agents in the same role or industry to perform such actions.
Common Tricks on the Exam:
Necessity of Action:
Questions might suggest actions that are not essential for carrying out express duties. Ensure the action is necessary.
Prior Dealings:
Fact patterns may overlook the history of similar actions by the agent with the same principal. Confirm the agent has a precedent of acting similarly.
Customary Actions:
Scenarios might confuse unusual actions with customary practices. Verify the action is typical for agents in the same position or industry.
Apparent Authority
AAEW
3PRBAHA2A4P +
3PBIT2PM
Rule Statement:
Apparent authority exists when:
A third party reasonably believes that the agent has authority to act for the principal; AND
The third party’s belief is traceable to the principal’s manifestations.
Third Party Reasonably Believes:
The belief of the third party must be based on reasonable grounds, given the circumstances.
Authority to Act for the Principal:
The agent appears to have the power to act on behalf of the principal.
Third Party’s Belief:
The belief held by the third party about the agent’s authority.
Traceable to the Principal’s Manifestations:
The principal’s actions or statements that lead the third party to believe the agent has authority.
Common Tricks on the Exam:
Reasonableness of Belief:
Questions might suggest apparent authority without reasonable belief. Ensure the third party’s belief is justified.
Source of Belief:
Fact patterns may overlook whether the belief is traceable to the principal’s conduct. Confirm the belief stems from the principal’s manifestations.
Scope of Authority:
Scenarios might imply apparent authority beyond what the principal’s actions suggest. Verify the authority is within the scope of the principal’s manifestations.
Indication of Authority by Principal
PITAHAW
GAPOTIA
PHAOAA&DNPR
OR
CAWAOA
Rule Statement:
A principal indicates that an agent has authority when he:
gives the agent a position or title that indicates authority;
previously held the agent out as authorized and did not publicly revoke; OR
cloaked the agent with the appearance of authority.
1. Position or Title Indicating Authority:
The principal assigns the agent a role or designation that suggests they have authority to act on the principal’s behalf.
2. Previously Held Out as Authorized and Did Not Publicly Revoke:
The principal has earlier presented the agent as having authority and has not announced to third parties that the agent’s authority has been revoked.
3. Cloaked the Agent with the Appearance of Authority:
The principal’s actions or statements make it seem to third parties that the agent has the authority to act.
Common Tricks on the Exam:
Assignment of Position/Title:
Questions might ignore the implications of titles or roles. Ensure the position or title reasonably suggests authority.
Revocation of Authority:
Fact patterns may overlook the necessity of public revocation. Confirm whether the principal has publicly revoked the agent’s authority.
Appearance of Authority:
Scenarios might misinterpret the actions creating the appearance of authority. Verify that the principal’s conduct has led to this appearance.
Apparent Authority Limitation
AADNE I 3P KTADNHAA
Rule Statement:
Apparent authority does NOT exist if the third party knew that the agent did not have actual authority.
Third Party Knew:
The third party must have actual knowledge that the agent lacked authority.
Agent:
The individual who is purported to act on behalf of the principal.
Actual Authority:
The genuine power given by the principal to the agent to act on their behalf.
Common Tricks on the Exam:
Knowledge of Third Party:
Questions might suggest apparent authority exists regardless of the third party’s knowledge. Ensure the third party does not know the agent lacks authority.
Scope of Knowledge:
Fact patterns may overlook the third party’s actual knowledge about the agent’s lack of authority. Confirm the third party’s awareness.
Distinguishing Apparent and Actual Authority:
Scenarios might confuse apparent authority with actual authority. Verify that the third party’s belief in the agent’s authority is reasonable and based on the principal’s conduct.
Apparent Authority Based on Principal Disclosure
ITIUOPDP AACE
IFIUP AACNE
Rule Statement:
If there is an unidentified or partially disclosed principal, then apparent authority CAN exist.
If there is an undisclosed principal, then apparent authority CANNOT exist.
Unidentified or Partially Disclosed Principal:
Unidentified Principal: The third party knows there is a principal but does not know the principal’s identity.
Partially Disclosed Principal: The third party knows the principal’s identity but is not fully aware of all relevant details.
Undisclosed Principal:
Undisclosed Principal: The third party is unaware that the agent is acting for a principal; the agent appears to be acting on their own behalf.
Common Tricks on the Exam:
Principal’s Disclosure Status:
Questions might ignore the distinction between different levels of principal disclosure. Ensure the principal’s identity status is clear.
Existence of Apparent Authority:
Fact patterns may suggest apparent authority exists with an undisclosed principal. Confirm that apparent authority cannot exist in this scenario.
Scope of Agent’s Actions:
Scenarios might misinterpret the agent’s authority based on the disclosure status. Verify the authority in light of the principal’s disclosure.
Agent’s Liability
AAWUHNLI
FDP23P + AWSOA
Rule Statement:
An agent will usually have no liability if they:
fully disclosed the principal to the third party; AND
acted within their scope of authority.
1. Fully Disclosed the Principal to the Third Party:
The agent must make it clear to the third party that they are acting on behalf of a principal and disclose the principal’s identity.
2. Acted Within Their Scope of Authority:
The agent’s actions must be within the range of powers granted to them by the principal.
Common Tricks on the Exam:
Full Disclosure:
Questions might imply partial or unclear disclosure suffices. Ensure the principal’s identity and the agency relationship are fully disclosed.
Scope of Authority:
Fact patterns may suggest actions outside the agent’s authority. Confirm the agent acted within the granted authority.
Liability of Agent:
Scenarios might confuse situations where the agent is liable. Verify that the agent has no liability if both conditions are met.
Agent’s Liability
AWBLI
CWUA OR
PWUD OR
PDWON23P
Rule Statement:
The agent WILL be liable if:
the conduct was unauthorized; OR
the principal was undisclosed or partially disclosed (without a name) to the third party.
1. Conduct was Unauthorized:
The agent acted outside the scope of their authority granted by the principal.
2. Principal was Undisclosed or Partially Disclosed:
Undisclosed: The third party was unaware of the principal’s existence.
Partially Disclosed: The third party knew the agent was acting for a principal but did not know the principal’s identity.
Without a Name:
The principal’s identity was not provided to the third party.
Common Tricks on the Exam:
Scope of Authorization:
Questions might suggest liability without considering the agent’s authorization. Ensure the conduct was within the agent’s scope of authority.
Disclosure Status:
Fact patterns may overlook the principal’s disclosure status. Confirm whether the principal was undisclosed or partially disclosed.
Agent’s Liability:
Scenarios might confuse conditions under which the agent is liable. Verify that liability arises if either condition is met.
Agent Indemnification
AMSIFPI
AIL +
CWA
Rule Statement:
The agent may seek indemnification from the principal if:
the agent is liable; AND
his conduct was authorized.
1. Agent is Liable:
The agent has been found liable for actions taken on behalf of the principal.
2. Conduct was Authorized:
The agent’s actions were within the scope of authority granted by the principal.
Common Tricks on the Exam:
Liability Requirement:
Questions might overlook the necessity for the agent to be liable. Ensure the agent has incurred liability.
Authorization of Conduct:
Fact patterns may suggest indemnification for unauthorized actions. Confirm the conduct was authorized by the principal.
Indemnification Scope:
Scenarios might confuse situations where indemnification is not applicable. Verify that both conditions are satisfied for the agent to seek indemnification.
Principal’s Control Over Agent
PMIWPHR2CM&MIWJWP
Rule Statement:
Deciding between these two labels depends on a number of factors, but the primary focus is whether the principal had the right to control the manner and method in which the job was performed.
Right to Control:
The principal’s authority to dictate how the agent completes their tasks.
Manner and Method:
The specific way and procedures the agent uses to perform their job.
Job was Performed:
The actual execution and completion of tasks by the agent.
Common Tricks on the Exam:
Extent of Control:
Questions might misinterpret the level of control required. Ensure the principal’s right to control both manner and method is clear.
Independent Contractor vs. Employee:
Fact patterns may overlook distinctions between an independent contractor and an employee. Confirm the nature of the control exerted by the principal.
Scope of Job Performance:
Scenarios might confuse the principal’s control over results with control over methods. Verify that the principal’s control extends to how tasks are performed.
Factors to Determine Employee vs. Independent Contractor
FTCU2AWPIEORIC
TOW
P
WSE&T
DOS
LOSR
IWBEB
EOPCOWD
WAIEIDB
LOTOE
C&BOR
WAWH4BP
Rule Statement:
Factors that courts use to analyze whether a person is an employee or an independent contractor:
the type of work;
the pay (hourly vs. by project);
who supplied the equipment and tools;
the degree of supervision;
the level of skill required;
if the work benefits the employer’s business;
the extent of the principal’s control over work details;
whether the agent/contractor is engaged in a distinct business;
the length of time of the employment/engagement;
the characterization and belief of relationship; and
whether the agent was hired for a business purpose.
1. Type of Work:
The nature of the work being performed.
2. Pay: Hourly vs. By Project:
Whether compensation is based on time worked or completion of a specific task.
3. Who Supplied the Equipment and Tools:
Determining if the principal or the worker provides the necessary tools and equipment.
4. Degree of Supervision:
The level of oversight and direction the principal has over the worker.
5. Level of Skill Required:
The amount of expertise or training needed for the job.
6. Benefits to Employer’s Business:
Whether the work primarily benefits the principal’s business.
7. Extent of Principal’s Control Over Work Details:
The principal’s authority over how the work is performed.
8. Engaged in a Distinct Business:
If the worker operates their own independent business.
9. Length of Time of Employment/Engagement:
Duration of the working relationship.
10. Characterization and Belief of Relationship:
How the parties view and describe their working relationship.
11. Hired for a Business Purpose:
Whether the worker was engaged to fulfill a business need.
Common Tricks on the Exam:
Focus on One Factor:
Questions might emphasize one factor over others. Ensure consideration of all relevant factors.
Misinterpret Control:
Fact patterns may confuse the degree of control required. Confirm the principal’s control over work details.
Independent Business:
Scenarios might misinterpret the significance of the worker being engaged in a distinct business. Verify the overall context of the working relationship.
Employer’s Liability for Employee’s Acts
EIL4ENA I EWAWSOE
Rule Statement:
An employer is liable for an employee’s negligent acts if the employee was acting within the scope of the employment.
Scope of Employment:
Performing Work Assigned by the Employer:
The employee is carrying out tasks that have been assigned by the employer.
Engaging in a Course of Conduct Subject to the Employer’s Control:
The employee is involved in activities that are under the direction and control of the employer.
Common Tricks on the Exam:
Scope of Employment:
Questions might misinterpret activities as outside the scope of employment. Ensure the actions were within the employee’s job duties.
Distinction Between Employee and Independent Contractor:
Fact patterns may confuse liability for employees with independent contractors. Verify the nature of the working relationship.
Control Over Conduct:
Scenarios might ignore the employer’s control over the employee’s actions. Confirm that the employer had control over the conduct in question.
Scope of Employment
2DSOE CAWC
IKEIE2P
HSWAT&SL&
IM2SE IWOP
Rule Statement:
To determine the scope of employment, courts analyze whether the conduct:
is the kind the employee is employed to perform;
happens substantially within the authorized time and space limits; and
is motivated to serve the employer (in whole or part).
1. Kind the Employee is Employed to Perform:
The conduct is of the type that the employee was hired to do.
2. Happens Substantially Within the Authorized Time and Space Limits:
The actions occur during the employee’s working hours and within the location where the employee is expected to be.
3. Motivated to Serve the Employer (in Whole or Part):
The conduct is intended, at least in part, to benefit the employer.
Common Tricks on the Exam:
Type of Conduct:
Questions might suggest activities outside the employee’s job description are within the scope. Ensure the conduct matches the type of work the employee is hired to perform.
Time and Space Limits:
Fact patterns may overlook the timing and location of the conduct. Confirm the actions took place within authorized time and space limits.
Motivation to Serve Employer:
Scenarios might misinterpret personal activities as serving the employer. Verify the conduct was motivated to benefit the employer.
Intentional Torts Within Scope of Employment
ITAGOSOEU
AWSABE
AWMBD2SE
OR
AWRONOFFTOE
Rule Statement:
Intentional torts are generally outside the scope of employment UNLESS:
the act was specifically authorized by the employer;
the act was motivated by a desire to serve the employer; OR
the act was the result of naturally occurring friction from the type of employment.
Exceptions:
Specifically Authorized by the Employer:
The employer explicitly permitted the act.
Motivated by a Desire to Serve the Employer:
The employee’s actions were intended to benefit the employer.
Naturally Occurring Friction from the Type of Employment:
The nature of the job naturally leads to such acts (e.g., security work).
Conduct Not Within Scope:
Unrelated and Not Intended to Serve Any Purpose of the Employer:
Actions that do not relate to the job and are not meant to benefit the employer are outside the scope of employment.
Common Tricks on the Exam:
Specific Authorization:
Questions might suggest liability without explicit authorization. Ensure the act was specifically allowed by the employer.
Motivation to Serve:
Fact patterns may confuse personal motives with employer benefits. Confirm the intent to serve the employer.
Naturally Occurring Friction:
Scenarios might misinterpret typical job-related actions as exceptions. Verify the friction is a natural outcome of the job type.
Unrelated Conduct:
Ensure actions unrelated to the job and not intended to benefit the employer are recognized as outside the scope.
Duties Owed by Agent to the Principal
DOC
DOL
DOO
RC
Rule Statement:
Duty of Care:
The duty to use reasonable care when performing duties as agent.
Duty of Loyalty:
The duty to act solely and loyally for the principal’s benefit.
Duty of Obedience:
The duty to obey all reasonable directions from the principal.
Common Tricks on the Exam:
Reasonable Care:
Questions might suggest higher or lower standards of care. Ensure the agent uses reasonable care in performing duties.
Loyalty to Principal:
Fact patterns may imply that agents can act for their own benefit. Confirm the agent’s actions are solely for the principal’s benefit.
Following Directions:
Scenarios might overlook the requirement for directions to be reasonable. Verify that the agent only needs to obey reasonable directions from the principal.
Agency Definition
Agency Law: Creation of an Agency Relationship
Rule Statement
Agency is a fiduciary relationship in which the agent acts for the principal.
Detailed Elements
Fiduciary Relationship
Rule Statement: An agency relationship is a fiduciary relationship, meaning the agent owes a duty of loyalty and care to the principal.
Key Points:
The agent must act in the best interests of the principal.
The relationship is based on trust and confidence.
Common Exam Testing: Scenarios involving breaches of fiduciary duties.
Common Confusions: Misunderstanding the nature and extent of fiduciary duties.
Common Exam Testing
Fiduciary Relationship
Scenarios involving breaches of fiduciary duties by the agent.
Evaluating the agent’s loyalty and care towards the principal.
Agreement (Assent)
Identifying the existence of an agency relationship based on agreements.
Differentiating between formal and informal agreements.
Benefit
Determining if the agent’s actions primarily benefit the principal.
Evaluating cases where the agent may also benefit incidentally.
Control
Assessing whether the principal has the right to control the agent.
Analyzing the degree of control required for different agency relationships.
Authority
Determining the presence of actual or apparent authority in contract scenarios.
Identifying the principal’s representations that give rise to apparent authority.
Common Confusions
Fiduciary Relationship
Misunderstanding the extent and nature of fiduciary duties.
Confusing fiduciary duties with general obligations.
Agreement (Assent)
Misinterpreting the necessity of a formal agreement or consideration.
Overlooking implied agreements based on conduct.
Benefit
Failing to recognize the primary benefit to the principal.
Misapplying the incidental benefits to the agent as negating the agency relationship.
Control
Confusing the right to control with actual control.
Misunderstanding the level of control necessary for an agency relationship.
Authority
Misapplying actual and apparent authority.
Confusing the principal’s representations and the agent’s actions.
Mnemonic for Creation of an Agency Relationship
A-B-C (Assent, Benefit, Control)
A: Agreement (assent)
B: Benefit to the principal
C: Control by the principal
Comprehensive Coverage
Understanding the Fiduciary Relationship
Recognizing the fiduciary duties owed by the agent to the principal.
Understanding the trust and confidence inherent in the relationship.
Identifying Agreements (Assent)
Distinguishing between formal, informal, and implied agreements.
Recognizing that no consideration is needed to form an agency relationship.
Determining Benefit
Assessing whether the agent’s actions primarily benefit the principal.
Understanding incidental benefits to the agent.
Assessing Control
Evaluating the principal’s right to control the agent’s actions.
Understanding the variation in control based on the nature of the agency relationship.
Establishing Authority
Distinguishing between actual (express or implied) and apparent authority.
Recognizing the principal’s role in creating apparent authority through representations.
Assent
Agreement (Assent)
Rule Statement: An agency relationship exists if there is a formal or informal agreement (assent) between the principal and the agent.
Key Points:
The agreement can be written, oral, or implied by conduct.
No consideration is necessary to form an agency relationship.
Common Exam Testing: Identifying whether an agreement to form an agency relationship exists.
Common Confusions: Misinterpreting the requirement for a formal agreement or consideration.
Benefit
Benefit
Rule Statement: The activity performed by the agent must primarily benefit the principal.
Key Points:
The agent’s actions should be intended to further the principal’s interests.
Incidental benefits to the agent do not negate the agency relationship.
Common Exam Testing: Determining whether the agent’s actions primarily benefit the principal.
Common Confusions: Overlooking the primary benefit requirement.
Control
Control
Rule Statement: The principal must have the right to control the agent’s actions.
Key Points:
The level of control can vary depending on the nature of the agency relationship.
The right to control, rather than actual control, is sufficient.
Common Exam Testing: Assessing the principal’s right to control the agent.
Common Confusions: Confusing the right to control with actual control.
Authority
Authority
Rule Statement: A principal is obligated to a contract entered into by its agent if the agent had actual or apparent authority.
Key Points:
Actual Authority: Express or implied authority given by the principal.
Apparent Authority: Authority the agent appears to have based on the principal’s representations to third parties.
Common Exam Testing: Scenarios involving actual and apparent authority.
Common Confusions: Distinguishing between actual and apparent authority.
Actual Authority
Actual Authority
Rule Statement
Actual authority can be express or implied authority.
Detailed Elements
Express Authority
Rule Statement: Express authority means that the agent is acting according to the principal’s explicit directions to the agent.
Key Points:
Express authority is clearly stated, either orally or in writing, by the principal to the agent.
The agent’s actions must align with the specific instructions given by the principal.
Common Exam Testing: Scenarios involving direct instructions from the principal to the agent.
Common Confusions: Misinterpreting vague or broad statements as express authority.
Implied Authority
Rule Statement: Implied authority happens when any one of the following is true:
A given action is necessary for the agent to carry out its expressly authorized duties.
The agent acted similarly in prior dealings with the same principal.
It is customary for an agent in this position to act in this way.
Key Points:
Implied authority allows the agent to take actions that are reasonably necessary to accomplish the principal’s objectives.
Implied authority can arise from past practices or the customary conduct of agents in similar positions.
Common Exam Testing: Identifying actions that fall within the scope of implied authority.
Common Confusions: Confusing implied authority with apparent authority or assuming it exists without supporting facts.
Fill-in-the-Blanks
Actual authority can be:
express or implied authority.
Express authority means that the agent is acting according to the:
principal’s explicit directions to the agent.
Implied authority happens when any one of the following is true:
A given action is necessary for the agent to carry out its expressly authorized duties;
The agent acted similarly in prior dealings with the same principal; OR
It is customary for an agent in this position to act in this way.
Fill-in-the-Blanks:
Actual authority can be express or implied authority.
Express authority means that the agent is acting according to the principal’s explicit directions to the agent.
Implied authority happens when any one of the following is true:
A given action is necessary for the agent to carry out its expressly authorized duties;
The agent acted similarly in prior dealings with the same principal; OR
It is customary for an agent in this position to act in this way.
Common Exam Testing
Express Authority
Scenarios involving specific, direct instructions from the principal.
Assessing whether the agent’s actions align with the principal’s explicit directions.
Implied Authority
Identifying actions necessary to fulfill the agent’s express duties.
Evaluating the agent’s actions based on past dealings with the principal.
Determining if it is customary for agents in similar positions to act in the same manner.
Common Confusions
Express Authority
Misinterpreting broad or vague statements as express authority.
Overlooking the need for clear, explicit instructions from the principal.
Implied Authority
Confusing implied authority with apparent authority.
Assuming implied authority exists without evidence of necessity, prior dealings, or customary practices.
Mnemonic for Actual Authority
E-I-C (Express, Implied, Customary)
E: Express authority from explicit directions.
I: Implied authority necessary for duties or based on prior dealings.
C: Customary actions for agents in similar positions.
Comprehensive Coverage
Understanding Express Authority
Recognizing the need for clear, direct instructions from the principal to the agent.
Ensuring the agent’s actions are in line with the principal’s explicit directions.
Identifying Implied Authority
Assessing whether actions are necessary to carry out express duties.
Evaluating past dealings between the agent and the principal for consistency.
Understanding the customary practices of agents in similar positions.
Applying Authority in Practice
Distinguishing between express and implied authority in various scenarios.
Ensuring that the agent’s actions are supported by either express directions or reasonable implications.
Express Authority
Express Authority
Rule Statement: Express authority means that the agent is acting according to the principal’s explicit directions to the agent.
Key Points:
Express authority is clearly stated, either orally or in writing, by the principal to the agent.
The agent’s actions must align with the specific instructions given by the principal.
Common Exam Testing: Scenarios involving direct instructions from the principal to the agent.
Common Confusions: Misinterpreting vague or broad statements as express authority.
Implied Authority
Implied Authority
Rule Statement: Implied authority happens when any one of the following is true:
A given action is necessary for the agent to carry out its expressly authorized duties.
The agent acted similarly in prior dealings with the same principal.
It is customary for an agent in this position to act in this way.
Key Points:
Implied authority allows the agent to take actions that are reasonably necessary to accomplish the principal’s objectives.
Implied authority can arise from past practices or the customary conduct of agents in similar positions.
Common Exam Testing: Identifying actions that fall within the scope of implied authority.
Common Confusions: Confusing implied authority with apparent authority or assuming it exists without supporting facts.
Apparent Authority
Apparent Authority
Rule Statement
Apparent authority exists when:
A third party reasonably believes that the agent has authority to act for the principal; AND
The third party’s belief is traceable to the principal’s manifestations.
Detailed Elements
Reasonable Belief of Third Party
Rule Statement: Apparent authority exists if a third party reasonably believes that the agent has the authority to act on behalf of the principal.
Key Points:
The belief must be reasonable based on the circumstances.
The third party must rely on this belief when dealing with the agent.
Common Exam Testing: Scenarios where the third party’s belief in the agent’s authority is in question.
Common Confusions: Misinterpreting what constitutes a reasonable belief.
Traceable to Principal’s Manifestations
Rule Statement: The third party’s belief must be traceable to the principal’s manifestations.
Key Points:
The principal must have done something that led the third party to believe the agent had authority.
This can include direct communications or actions by the principal.
Common Exam Testing: Identifying whether the principal’s actions led to the third party’s belief.
Common Confusions: Confusing actions by the agent with actions by the principal.
Principal’s Indications of Authority
Position or Title
Rule Statement: The principal gives the agent a position or title that indicates authority.
Key Points:
A formal position or title can imply authority to perform certain tasks.
The third party must reasonably interpret the position as indicating authority.
Common Exam Testing: Situations involving agents with titles suggesting authority.
Common Confusions: Overestimating the authority implied by certain positions.
Previously Held Out as Authorized
Rule Statement: The principal previously held the agent out as authorized and did not publicly revoke this authority.
Key Points:
Past actions by the principal can create a continued belief in the agent’s authority.
The principal must take steps to revoke this authority publicly if it changes.
Common Exam Testing: Cases where the agent’s past actions create apparent authority.
Common Confusions: Failing to recognize the need for public revocation.
Appearance of Authority
Rule Statement: The principal cloaked the agent with the appearance of authority.
Key Points:
The principal’s actions or inactions can give the agent an apparent authority.
This appearance must be such that a third party would reasonably believe in the agent’s authority.
Common Exam Testing: Situations where the agent appears to have authority due to the principal’s actions.
Common Confusions: Confusing appearance of authority with actual authority.
Limitations on Apparent Authority
Third Party Knowledge
Rule Statement: Apparent authority does not exist if the third party knew that the agent did not have actual authority.
Key Points:
The third party’s actual knowledge of the lack of authority negates apparent authority.
Common Exam Testing: Scenarios where the third party knows the agent lacks authority.
Common Confusions: Misunderstanding the impact of third party knowledge on apparent authority.
Unidentified or Partially Disclosed Principal
Rule Statement: If there is an unidentified or partially disclosed principal, then apparent authority can exist.
Key Points:
The third party may not know the principal’s identity but can still rely on apparent authority.
Common Exam Testing: Cases involving unidentified or partially disclosed principals.
Common Confusions: Misinterpreting the rules for unidentified or partially disclosed principals.
Undisclosed Principal
Rule Statement: If there is an undisclosed principal, then apparent authority cannot exist.
Key Points:
The third party cannot rely on apparent authority if they do not know a principal exists.
Common Exam Testing: Situations involving undisclosed principals.
Common Confusions: Confusing undisclosed principals with unidentified or partially disclosed principals.
Fill-in-the-Blanks
Apparent authority exists when:
A third party reasonably believes that the agent has authority to act for the principal; AND
The third party’s belief is traceable to the principal’s manifestations.
A principal indicates that an agent has authority when he:
gives the agent a position or title that indicates authority;
previously held the agent out as authorized and did not publicly revoke; OR
cloaked the agent with the appearance of authority.
Apparent authority does NOT exist if the:
third party knew that the agent did not have actual authority.
If there is an:
unidentified or partially disclosed principal, then apparent authority CAN exist.
undisclosed principal, then apparent authority CANNOT exist.
Common Exam Testing
Reasonable Belief of Third Party
Scenarios assessing the reasonableness of the third party’s belief in the agent’s authority.
Evaluating the basis of the third party’s belief.
Traceable to Principal’s Manifestations
Identifying actions or communications by the principal that led to the third party’s belief.
Analyzing whether the third party’s belief is justifiable based on the principal’s conduct.
Common Confusions
Reasonable Belief of Third Party
Misinterpreting what constitutes a reasonable belief.
Overlooking the need for the belief to be reasonable based on the circumstances.
Traceable to Principal’s Manifestations
Confusing actions by the agent with actions by the principal.
Misunderstanding how the principal’s manifestations create apparent authority.
Mnemonic for Apparent Authority
R-T-C (Reasonable belief, Traceable to principal, Control)
R: Reasonable belief of the third party.
T: Traceable to the principal’s manifestations.
C: Principal’s control or actions indicating authority.
Comprehensive Coverage
Understanding Reasonable Belief
Assessing the reasonableness of the third party’s belief in the agent’s authority.
Ensuring the belief is based on objective circumstances.
Identifying Principal’s Manifestations
Recognizing actions or communications by the principal that create apparent authority.
Distinguishing between principal’s and agent’s actions.
Applying Authority in Practice
Distinguishing between actual and apparent authority in various scenarios.
Ensuring that the third party’s belief is justified based on the principal’s conduct.
Reasonable Belief of Third Party
Reasonable Belief of Third Party
Rule Statement: Apparent authority exists if a third party reasonably believes that the agent has the authority to act on behalf of the principal.
Key Points:
The belief must be reasonable based on the circumstances.
The third party must rely on this belief when dealing with the agent.
Common Exam Testing: Scenarios where the third party’s belief in the agent’s authority is in question.
Common Confusions: Misinterpreting what constitutes a reasonable belief.
Traceable to Principal’s Manifestations
Traceable to Principal’s Manifestations
Rule Statement: The third party’s belief must be traceable to the principal’s manifestations.
Key Points:
The principal must have done something that led the third party to believe the agent had authority.
This can include direct communications or actions by the principal.
Common Exam Testing: Identifying whether the principal’s actions led to the third party’s belief.
Common Confusions: Confusing actions by the agent with actions by the principal.
