Agency Law: Formation

Question 1

How to Create an Agency Relationship

Answer 1

An agency relationship exists where:
1. One person (a “principal”) manifests assent to another person (an “agent”),

2. That the agent shall act on principal’s behalf and subject to principal’s control, and
3. The agent manifests assent or otherwise consents so to act.

(Restatement of Agency Law 3rd § 1.01)

Question 2

Mutual Assent

Answer 2

Parties must assent that the agent will act on behalf, and subject to the control, of the principal.
(no intent required, does not matter if they are aware of the legal consequences)

Generally, no writing is required, but how the parties characterize the relationship is not dispositive in determining whether an agency relationship exists.

Each party must have objectively manifested assent to the agency relationship, whether by words or conduct.

Question 3

Control

Answer 3

Control is evidenced by a consensual relationship in which the principal has the power and right to direct the agent as to the goal of the relationship.

A “principal need not exercise physical control over the actions of its agent” so long as the principal may direct “the result or ultimate objectives of the agent relationship.

Question 4

Agency for Suppliers Transferring Property

Answer 4

One who contracts to acquire property from a third person and convey it to another is their agent ONLY IF it is agreed that he is to act primarily for the benefit of the other and not for himself.

Factors indicating that one is a supplier, rather than an agent, are: (1) That he is to receive a fixed price for the property irrespective of price paid by him.

Question 5

Controlling Creditor

Answer 5

A creditor only becomes a principal when they assume de facto control over the conduct of the debtor

Question 6

Two Exceptions to the Agency Relationship

Answer 6

Lending Money Exception:
Creditor only becomes a principal at that point at which it assumes de facto control over the conduct of the debtor (E.g., if you lend someone money, you can tell them “don’t go to Vegas and gamble”)
De facto control: as long as you are not managing day-to-day operations

Supplier Exception:
One who contracts to acquire property from a third person and convey it to another is the agent of the other only if it is agreed that he is to act primarily for the benefit of the other and not for himself. To determine if supplier or agent, ask: are they going to receive a fixed price for the property irrespective of price paid by him