Agency (MEE) Flashcards
Creation of an Agency Relationship
Three components of an agency relationship (ABC):
* Assent: Both parties manifest assent or otherwise consent to work with one another
* Benefit: Agent agrees to work on behalf and for the benefit of the principal
* Control: Agent’s actions are subject to principal’s control
Note: Consideration is NOT required to form an agency relationship. A writing is generally not necessary.
Types of Principals: Individual
Person’s status as P is established by person’s intent to delegate an act and control way in which act is performed by another
Types of Principals: Employer
P who employs an employee to perform services and has right to control the physical conduct of the employee’s performance
* Examples: P’s control over day-to- day activities, supplying tools of trade, structured pay period, specialized skill level, and P directs work to completion
Principals: Who Can Be One?
- Any person that has legal capacity can be a principal
- No legal capacity: Minors, anyone incapacitated by intoxication or illness, and unincorporated associations
Agents: Who Can Be One?
Any person or entity who has minimal capacity can be an agent. To have minimal capacity, an agent must be able to:
* Assent to the agency relationship
* Perform the tasks on behalf of and for the benefit of the principal; and
* Be subject to the principal’s control
Types of Agents: Employees
Employer has the right to control agent employee’s physical conduct of work
Types of Agents: Independent Contractor
Principal does not have control or have right to control independent contractor agent’s physical conduct of work. Characteristics of an independent contractor:
* Maintain a high level of independence;
* Free to work for other people
* Paid a fixed fee
* Typically owns his own tools
Types of Agents: Subagent
A person appointed by an agent to perform the functions that the agent has agreed to perform for the principal
Principal’s Contractual Liability
- Principal’s liability depends on whether the agent acted with authority
- Authority can be derived from: express actual authority, implied actual authority, or apparent authority, or ratification
Actual Authority
Based on P’s communications with A
Actual Authority: Delegation
Generally A is prohibited from delegating either express or implied authority to a third party without P’s express authorization
Actual Express Authority
Exists when P directly tells A that he has the authority to take certain actions, which can be created by specific detailed terms and instructions
* Intent: P’s manifestation must cause A to believe that A is doing what P wants (subjective) and A’s belief must be reasonable (objective)
* Dissent: P must give clear notice if P disagrees with A’s actions
Implied Actual Authority
- P creates implied actual authority by using words or other conduct to convey authority to A to take whatever actions are necessary to achieve P’s objectives
- Absent contrary express instructions, A has implied actual authority to act within accepted business custom or general trade usage within industry
Implied Actual Authority: Acquiescence
Implied by P’s acceptance of A’s acts or P’s failure to object to unauthorized actions of A that affirm A’s belief regarding P’s objectives and support A’s perceived authority to act in future
Apparent Authority
- Based on P’s manifestations to a third party
- If third party reasonably believes A has authority to act (based on P’s conduct), A will have power to bind P based on apparent authority
Apparent Authority: Bases for Reasonable Belief
- Past dealings between P and A
- Trade customs
- Relevant industry standards
- P’s written statements of authority
- Transactions that do not benefit P
- Extraordinary transactions fror P
Apparent Authority: Based on A’s position
By appointing A to a specific position (e.g., VP or GM), P makes a manifestation to public that A has customary level of authority of that position
Agency by Estoppel
P may be estopped from denying existence of agency relationship or an agent’s authority w/r/t a transaction entered into by A if he failed to take reasonable steps and use ordinary care to inform third party of the lack of authority, and the third party was justifiably induced to make a detrimental change in position
Ratification
A P can ratify (affirm) an act performed by an A, even if A did not have authority to act. Ratification requires that:
* P ratify entire contract;
* P and third party have legal capacity to contract;
* Ratification occurs before third party withdraws from contract; and
* P must know the material facts of transaction
Agent’s Contractual Liability: Disclosed Principal
- A doesn’t become a party to contract if he enters into it on behalf of P, and third party has notice of both the existence and identity of P
- Parties to contract: P, Third Party
Agent’s Contractual Liability: Partially-Disclosed Principal
- A becomes party to contract when third party only has notice of P’s existence, not P’s identity
- Parties to contract: P, A, Third Party
Agent’s Contractual Liability: Undisclosed P
- If A binds P to the contract, and third party has no notice of P’s existence, then both P and A are parties to the contract
- Parties to contract: P, A, Third Party
Undisclosed P: Third-Party Liability to Undisclosed P
Third party is liable to P unless P is excluded by contract terms or P’s existence was fraudulently concealed
Undisclosed P: Undisclosed P’s Liability to Third Party
Liable if third party detrimentally changes position because of A without actual authority, and P knew of A’s conduct and did not take reasonable steps to notify third party
