Agency Relationships

Question 1

Creation of Agency

Answer 1

• Agency is the fiduciary relationship that exists between an Agent and Principal where the A acts on the P’s behalf and is subject to the P’s control.
• An Agency relationship is created when:
  
  • (1) The parties voluntarily consent (express or implied) to enter into an agency relationship; AND
  • (1) The A is subject to the P’s control (e.g., supervision is insufficient)

Question 2

Termination of Agency

Answer 2

The agency relationship may be terminated by (1) the parties or (2) by operation of law.

The agency relationship may be terminated by the parties if:

1. the A or P manifests to the other the desire to cease the agency relationship (termination is effective when the other party receives notice of the termination);
2. the express terms of the agency expire (e.g., P expressly hires A for 6 months); OR
3. the purpose of the agency relationship has been fulfilled.

The agency relationship may be terminated by operation of law if:

1. the A or P dies (some jurisdictions require that the party receive notice of the other’s death);
2. The A or P loses capacity (some jurisdictions require that the party receive notice of the other’s incapacity); OR
3. The A materially breached a fiduciary duty owed to the P.

Question 3

What are the Agent’s Fiduciary Duties to the Principal?

Answer 3

An agent owes the following fiduciary duties to the principal:

1. The duty to act with reasonable care and skill;
2. The duty to act loyally for the principal’s sole benefit (i.e., an agent cannot place his own interests above the interests of the principal); AND
3. The duty to act obediently within the principal’s control (i.e., to act within the agent’s actual authority and to follow the principal’s instructions

• The P has a claim against the A when the A breaches and fiduciary owed.
• Conversely, an A has NO liability to the P when the A fulfills his fiduciary obligations and he acts within the scope of this authority.

Question 4

What are the 3 type of Agency Relationships?

Answer 4

There are three types of agency relationships.

1. A universal agent has broad authority to act on behalf of the principal, and is authorized to perform ALL acts the principal is allowed to perform.
2. A general agent normally has authority to conduct a series of transactions over a period of time for a particular purpose, business, or operation (i.e. a manager of a restaurant).
3. A special agent has limited authority to conduct: (a) a specific act/transaction; OR (b) certain actions over a specified period of time.