Agency Law

Question 1

What is Agency Law?

Answer 1

Agency Law deals with someone’s ability to bind you to a contract with a third party

Question 2

What is required for Agency to exist?

Answer 2

Both parties must consent to the relationship and intend for an Agency relationship to exist

Agent owes Principal fiduciary duty

Principal doesn’t owe Agent fiduciary duty

A written contract is NOT required and an Agency agreement is not based on Contract Law; Exception - If duties cannot be performed within a year or the contract is related to the agent selling real estate; a signed writing is required

Question 3

What is Actual Authority in an agency?

Answer 3

Actual Authority is what is expressly granted or is implied by the duties you expect the Agent to perform and is necessary to carry them out

Includes express authority (explicitly stated) and implied authority)

Ex: Hiring a bartender gives them actual authority to sell drinks at the bar

Question 4

What is Implied Authority in an agency?

Answer 4

When authority is expressly granted; it is implied that the agent has the authority to carry out the duties

Does not include authority to sell or alter a business

Question 5

What is Apparent (Ostensible) Authority in an agency?

Answer 5

Apparent Authority is based on the third party’s perspective - they believe that the Agent has the
authority to enter into a contract based on:

• Prior dealings with agent
• Agent’s title leads the third party to believe they can enter into a contract
• The Principal hires the Agent to carry out duties that normally carry with them the rights to enter into contracts

Ex: Giving someone the title VP gives apparent authority for a broad range of contracts. Title could be for prestige.

Question 6

How is an Agency terminated?

Answer 6

• Both Agent and Principal agree to terminate
• Principal fires Agent
• Agent fires Principal (agent resigns)
• Agent breaches their contract by doing something like violating their obligation to act as a fiduciary to Principal (Death of principal, Insanity of Principal, Illegal, Principal Bankrupt)

Question 7

How do you terminate Apparent Authority?

Answer 7

• Constructive Notice - Let the public know
• Actual Notice - 3rd parties are directly informed
• In cases of death; or Principal is otherwise not competent to contract; ALL authority is revoked

Question 8

What is an Agency Coupled with an Interest?

Answer 8

Agent acquires an ownership interest in the Agency

Can only be terminated early (before the interest expiration date) by the Agent

Unless the Agency has a specific time limit spelled out in a contract; the Agent’s authority is irrevocable
by the Principal

Question 9

When is an employee an Agent; and when does this make the employer liable?

Answer 9

Employees are agents while acting within the scope of their duties.

For employees who injure third parties while acting within the scope of their duties; both Employee and Employer are liable

Question 10

When are Agents liable for torts (civil wrongs) they commit?

Answer 10

Agents are liable for torts (civil wrongs) committed whether they had authority or not

Question 11

Are Agents who act outside of their authority liable?

Answer 11

Agents who act outside of their authority will be liable for the act

Exception - Principal ratifies the contract which relieves Agent of liability

In order to ratify; Principal must know all of the facts and must ratify before third party cancels agreement

If Principal keeps the benefits of the contract; ratification is implied

Contract must be 100% ratified or there is no contract

Question 12

What is an Agent’s liability when acting for an undisclosed principle?

Answer 12

• Agent liable to third party even if acting within authority
• Principal is liable to the agent as long as the agent’s actions were authorized without requiring ratification.
• Third party can sue both Principal and Agent if Principal becomes disclosed
• Agent can then sue Principal

Question 13

What does it mean to ratify an agent’s authority?

Answer 13

The agent acted without authority, but the principal decides after the contract is made to honor it anyway.

Principal must be fully disclosed, understand the contract, and act to ratify before the third party discovers contract was made without authority

Agent will be held liable in this situation, even after it is ratified - the principal and agent would both be liable.

Question 14

What is a Power of Attorney?

Answer 14

A written authorization for the agent to act on behalf of the principal for a specific or indefinite period of time.

Can be limited (special) authority - only for certain matters; or
Can be general authority - on all matters

Question 15

What are the requirements for a Power of Attorney (POA)?

Answer 15

Must be in writing

Must be signed by person granting the POA

Ends upon death of Principal

Question 16

What is a sub-agent?

Answer 16

An agent appointed by another agent who is authorized to appoint sub-agents in connection with his performance of the principal’s business.

Sub-agent has a fiduciary duty and duty of loyalty to both principal and agent

Question 17

What is the difference in agent’s liability when acting on behalf of a disclosed principal versus an undisclosed principal?

Answer 17

The agent is not liable when acting on behalf of disclosed principals because the 3rd party is aware of the principal

The agent is liable when acting on behalf of an undisclosed principal, because the 3rd party is unaware of the principal.