Agency Law

Question 1

Rest. 3rd Agency § 1.01

Answer 1

Agency Defined

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

Rest. 3rd Agency § 1.02

Answer 2

Parties’ Labeling And Popular Usage Not Controlling

An agency relationship arises only when the elements stated in § 1.01 are present. Whether a relationship is characterized as agency in an agreement between parties or in the context of industry or popular usage is not controlling.

Question 3

Rest. 3rd Agency § 1.03

Answer 3

Manifestation

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

Question 4

Rest. 3rd Agency § 1.04 - Coagents

Answer 4

Coagents have agency relationships with the same principal. A coagent may be appointed by the principal or by another agent actually or apparently authorized by the principal to do so.

Question 5

Rest. 3rd Agency § 1.04 - Disclosed, undisclosed, and unidentified principals.

Answer 5

(a) Disclosed principal. A principal is disclosed if, when an agent and a third party interact, the third party has notice that the agent is acting for a principal and has notice of the principal’s identity.
(b) Undisclosed principal. A principal is undisclosed if, when an agent and a third party interact, the third party has no notice that the agent is acting for a principal.
(c) Unidentified principal. A principal is unidentified if, when an agent and a third party interact, the third party has notice that the agent is acting for a principal but does not have notice of the principal’s identity.

Question 6

Rest. 3rd Agency § 1.04 - Gratuitous agent

Answer 6

A gratuitous agent acts without a right to compensation.

Question 7

Rest. 3rd Agency § 1.04 - Notice

Answer 7

A person has notice of a fact if the person knows the fact, has reason to know the fact, has received an effective notification of the fact, or should know the fact to fulfill a duty owed to another person. Notice of a fact that an agent knows or has reason to know is imputed to the principal as stated in §§ 5.03 and 5.04. A notification given to or by an agent is effective as notice to or by the principal as stated in § 5.02.

Question 8

Rest. 3rd Agency § 1.04 - Person

Answer 8

A person is (a) an individual; (b) an organization or association that has legal capacity to possess rights and incur obligations; (c) a government, political subdivision, or instrumentality or entity created by government; or (d) any other entity that has legal capacity to possess rights and incur obligations.

Question 9

Rest. 3rd Agency § 1.04 - Power given as security

Answer 9

A power given as security is a power to affect the legal relations of its creator that is created in the form of a manifestation of actual authority and held for the benefit of the holder or a third person. It is given to protect a legal or equitable title or to secure the performance of a duty apart from any duties owed the holder of the power by its creator that are incident to a relationship of agency under § 1.01.

Question 10

Rest. 3rd Agency § 1.04 - Power of attorney

Answer 10

A power of attorney is an instrument that states an agent’s authority.

Question 11

Rest. 3rd Agency § 1.04 - Subagent

Answer 11

A subagent is a person appointed by an agent to perform functions that the agent has consented to perform on behalf of the agent’s principal and for whose conduct the appointing agent is responsible to the principal. The relationship between an appointing agent and a subagent is one of agency, created as stated in § 1.01.

Question 12

Rest. 3rd Agency § 1.04 - Superior and subordinate coagents

Answer 12

A superior coagent has the right, conferred by the principal, to direct a subordinate coagent.

Question 13

Rest. 3rd Agency § 1.04 - Trustee and agent trustee

Answer 13

A trustee is a holder of property who is subject to fiduciary duties to deal with the property for the benefit of charity or for one or more persons, at least one of whom is not the sole trustee. An agent-trustee is a trustee subject to the control of the settlor or of one or more beneficiaries.

Question 14

Rest. 3rd Agency § 2.01

Answer 14

Actual Authority

An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principal’s manifestations to the agent, that the principal wishes the agent so to act.

Question 15

Rest. 3rd Agency § 2.02

Answer 15

Scope of actual authority

(1) 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.
(2) An agent’s interpretation of the principal’s manifestations is reasonable if it reflects any meaning known by the agent to be ascribed by the principal and, in the absence of any meaning known to the agent, as a reasonable person in the agent’s position would interpret the manifestations in light of the context, including circumstances of which the agent has notice and the agent’s fiduciary duty to the principal.
(3) An agent’s understanding of the principal’s objectives is reasonable if it accords with the principal’s manifestations and the inferences that a reasonable person in the agent’s position would draw from the circumstances creating the agency.

Question 16

Rest. 3rd Agency § 2.03

Answer 16

Apparent Authority

Apparent authority is the power held by an agent or other actor to affect a principal’s legal relations with third parties when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal’s manifestations.

Question 17

Rest. 3rd Agency § 2.04

Answer 17

Respondeat Superior

An employer is subject to liability for torts committed by employees while acting within the scope of their employment.

Question 18

Rest. 3rd Agency § 2.06

Answer 18

Liability of undisclosed principal

(1) An undisclosed principal is subject to liability to a third party who is justifiably induced to make a detrimental change in position by an agent acting on the principal’s behalf and without actual authority if the principal, having notice of the agent’s conduct and that it might induce others to change their positions, did not take reasonable steps to notify them of the facts.
(2) An undisclosed principal may not rely on instructions given an agent that qualify or reduce the agent’s authority to less than the authority a third party would reasonably believe the agent to have under the same circumstances if the principal had been disclosed.

Question 19

Rest. 3rd Agency § 3.01

Answer 19

Creation of actual authority

Actual authority, as defined in § 2.01, is created by a principal’s manifestation to an agent that, as reasonably understood by the agent, expresses the principal’s assent that the agent take action on the principal’s behalf.

Question 20

Rest. 3rd Agency § 3.02

Answer 20

Formal requirements

If the law requires a writing or record signed by the principal to evidence an agent’s authority to bind a principal to a contract or other transaction, the principal is not bound in the absence of such a writing or record. A principal may be estopped to assert the lack of such a writing or record when a third party has been induced to make a detrimental change in position by the reasonable belief that an agent has authority to bind the principal that is traceable to a manifestation made by the principal.

Question 21

Rest. 3rd Agency § 3.03

Answer 21

Creation of apparent authority

Apparent authority, as defined in § 2.03, is created by a person’s manifestation that another has authority to act with legal consequences for the person who makes the manifestation, when a third party reasonably believes the actor to be authorized and the belief is traceable to the manifestation.

Question 22

Rest. 3rd Agency § 3.10

Answer 22

Manifestation terminating actual authority

(1) Notwithstanding any agreement between principal and agent, an agent’s actual authority terminates if the agent renounces it by a manifestation to the principal or if the principal revokes the agent’s actual authority by a manifestation to the agent. A revocation or a renunciation is effective when the other party has notice of it.
(2) A principal’s manifestation of revocation is, unless otherwise agreed, ineffective to terminate a power given as security or to terminate a proxy to vote securities or other membership or ownership interests that is made irrevocable in compliance with applicable legislation. See §§ 3.12–3.13.

Question 23

Rest. 3rd Agency § 3.11

Answer 23

Termination of apparent authority

(1) The termination of actual authority does not by itself end any apparent authority held by an agent.
(2) Apparent authority ends when it is no longer reasonable for the third party with whom an agent deals to believe that the agent continues to act with actual authority.

Question 24

Rest. 3rd Agency § 4.01

Answer 24

Ratification defined

(1) Ratification is the affirmance of a prior act done by another, whereby the act is given effect as if done by an agent acting with actual authority.

(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.

(3) Ratification does not occur unless
(a) the act is ratifiable as stated in § 4.03,
(b) the person ratifying has capacity as stated in § 4.04,
(c) the ratification is timely as stated in § 4.05, and
(d) the ratification encompasses the act in its entirety as stated in § 4.07.

Question 25

Rest. 3rd Agency § 4.02

Answer 25

Effect of ratification

(1) Subject to the exceptions stated in subsection (2), ratification retroactively creates the effects of actual authority.

(2) 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.

Question 26

Rest. 3rd Agency § 4.03

Answer 26

Act that may be ratified

A person may ratify an act if the actor acted or purported to act as an agent on the person’s behalf.

Question 27

Rest. 3rd Agency § 4.04

Answer 27

Capacity to ratify

(1) A person may ratify an act if
(a) the person existed at the time of the act, and
(b) the person had capacity as defined in § 3.04 at the time of ratifying the act.

(2) At a later time, a principal may avoid a ratification made earlier when the principal lacked capacity as defined in § 3.04.

Question 28

Rest. 3rd Agency § 4.05

Answer 28

Timing of ratification

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:

(1) any manifestation of intention to withdraw from the transaction made by the third party;
(2) any material change in circumstances that would make it inequitable to bind the third party, unless the third party chooses to be bound; and
(3) a specific time that determines whether a third party is deprived of a right or subjected to a liability.

Question 29

Rest. 3rd Agency § 4.06

Answer 29

Knowledge requisite to ratification

A person is not bound by a ratification made without knowledge of material facts involved in the original act when the person was unaware of such lack of knowledge.

Question 30

Rest. 3rd Agency § 4.07

Answer 30

No partial ratification

A ratification is not effective unless it encompasses the entirety of an act, contract, or other single transaction.

Question 31

Rest. 3rd Agency § 4.08

Answer 31

Estoppel to deny ratification

If a person makes a manifestation that the person has ratified another’s act and the manifestation, as reasonably understood by a third party, induces the third party to make a detrimental change in position, the person may be estopped to deny the ratification.

Question 32

Rest. 3rd Agency § 6.01

Answer 32

Agent for disclosed principal

When an agent acting with actual or apparent authority makes a contract on behalf of a disclosed principal,

(1) the principal and the third party are parties to the contract; and
(2) the agent is not a party to the contract unless the agent and third party agree otherwise.

Question 33

Rest. 3rd Agency § 6.02

Answer 33

Agent for unidentified principal

When an agent acting with actual or apparent authority makes a contract on behalf of an unidentified principal,

(1) the principal and the third party are parties to the contract; and
(2) the agent is a party to the contract unless the agent and the third party agree otherwise.

Question 34

Rest. 3rd Agency § 6.03

Answer 34

Agent for undisclosed principal

When an agent acting with actual authority makes a contract on behalf of an undisclosed principal,

(1) unless excluded by the contract, the principal is a party to the contract;
(2) the agent and the third party are parties to the contract; and
(3) the principal, if a party to the contract, and the third party have the same rights, liabilities, and defenses against each other as if the principal made the contract personally, subject to §§ 6.05–6.09.