Creation of Agency Basics

Question 1

Definition of Agency Relationship

Answer 1

Agency is a fiduciary relationship arising when:
a. A principal manifests assent to another person (agent) that the agent shall act on the principal’s behalf and subject to the principal’s control; and
b. The agent manifests assent or otherwise consents to act.

Question 2

Elements of Agency Relationship

Answer 2

Mutual Assent, Control, Acting on Behalf of the Principal.

Question 3

Definition of Control

Answer 3

principal must have the right to direct the agent’s actions toward a specific goal.

Question 4

Definition of Mutual Assent

Answer 4

parties agree that the agent will act on behalf of the principal and subject to the principal’s control.
- Court looks at OUTWARD MANIFESTATION from the viewpoint of a reasonable observer

Question 5

Key Cases Illustrating Agency Principles

Answer 5

Gorton v. Doty (teacher loaning car to football coach) & Gay Jenson Farms v. Cargill (Cargill financed grain operations)

Question 6

Gorton v. Doty

Answer 6

Facts: A teacher loaned her car to a football coach to transport students to a game, with the condition that the coach must drive. - An accident occurred, and a student sued the teacher, claiming the coach was her agent.
Issue: Whether an agency relationship existed between the teacher and the coach.
Holding: The court found an agency relationship existed because the teacher gave control over the car to the coach, acting on her behalf.
Rule: An agency relationship exists when one person consents to act on behalf of another and is subject to their control, even if the parties do not intend to form an agency.

Question 7

Gay Jenson Farms v. Cargill

Answer 7

Facts: Cargill financed Warren’s grain operations and exercised significant control over its business decisions. - Farmers sued Cargill, claiming it was liable as a principal for Warren’s debts.
Issue: Whether Cargill’s control over Warren established an agency relationship.
Holding: The court found that Cargill’s extensive control over Warren’s operations made it a principal, liable for Warren’s contracts.
Rule: A creditor who assumes control of their debtor’s business may become liable as a principal for the debtor’s actions if control extends beyond ordinary creditor protections.

Question 8

Agency by Circumstantial Evidence

Answer 8

even if parties do not expressly label relationship as agency, courts will imply one when conduct of the parties and course of dealings evidence control and acting on behalf of another.

Question 9

types of Principles

Answer 9

Disclosed, Unidentified, and Undisclosed

Question 10

Disclosed Principal

Answer 10

Existence and identity of P are known to third parties.
Apparent and Actual Authority.

Question 11

Unidentified Principal

Answer 11

existence of P is known, but identity is not disclosed.
Apparent and Actual Authority.

Question 12

Undisclosed Principal

Answer 12

Neither existence nor identity of P is disclosed to third parties.
Actual Authority.

Question 13

Principals Obligations to Agent

Answer 13

Duty Created by Contract, Duty to Indemnify, Duty to Fair Dealings and Good Faith

Question 14

Duty Created by Contract

Answer 14

P has duty to act in accordance with express and implied terms of any contract between P and A.

Question 15

Duty to Indemnify

Answer 15

P has duty to indemnify A when:
1. Agent makes payment within Agent’s actual authority.
2. Payment is beneficial to the P (unless Acts officiously).
3. A suffers a loss that fairly should be borne by P.

Question 16

P’s Duty to Deal Fairy and in Good Faith

Answer 16

including providing A with information about risks of physical harm or pecuniary loss that P knows or should know but A may not be aware of.

P must cooperate with A and not interfere unreasonably with A’s performance of duties.

Question 17

A’s Fiduciary Duties to P

Answer 17

Duty of Loyalty, Duty of Care, Duty of Performance

Question 18

Agent’s Duty of Loyalty to P

Answer 18

A may not put their own interest or interests of third party ahead of interest of P when A is acting within agency relationship.

• duty not to acquire material benefit form third party in connection with transaction conduct, or otherwise through A’s use of A’s position.
• duty to refrain from competing with P and from taking action on behalf of or otherwise assisting the P’s competitors.
• duty to (1) not use P’s property for A’s own purposes or those of third party; AND (2) not to use or communicate confidential information of P for A’s own purposes or those of third party.

Question 19

Agent’s Duty of Performance to P

Answer 19

Duty created by contract.

Duties of Care, Competence, and Diligence.

Duty to Act Only Within Scope of Actual Authority and to Comply with P’s Lawful Instructions.

Duty to Provide Information.

Duties Re. P’s Property: Segregation, Record-Keeping, and Accoutning

Question 20

Duties of Care, Competence, and Diligence.

Answer 20

Duty to act with care, competence, and diligence normally exercised by A’s in similar circumstances - subject to any agreement with P.

if agent claims to possess special skills or knowledge, A has duty to P to act with such care, competence, and diligence normally exercised by A with such skill/knowledge.

Otherwise, standard is ordinary care; gross negligence for unpaid A’s.

Question 21

Agent’s Duty to Act Only Within Scope of Actual Authority and to Comply with P’s Lawful Instructions

Answer 21

Duty to take action only within scope of A’s actual authority.

Duty to comply with all lawful instructions receive from P and persons designated by P concerning A’s actions on behalf of P.

Question 22

Agent’s Duty of Good Conduct to P

Answer 22

Duty to act reasonably and to refrain from conduct that is likely to damage P’s enterprise.

Ex: Veggie Delight v. Cattle Call
- Wearing Veggie delight t-shirt while eating lunch at Cattle Call.

Question 23

Duty to Provide Information

Answer 23

Duty to use reasonable effort to provide P with facts that A knows, has reason to know, or should know when subject to any manifestation by P.

• A knows or has reason to know P would wish to have facts, or
• facts are material to A’s duties to P.

Question 24

Duties Re. P’s Property: Segregation, Record-Keeping, and Accounting

Answer 24

Duty not to deal with P’s property so that it appears to be A’s property.

Duty not to mingle P’s proeprty with anyone else’s property.

Duty to keep and render accounts to P of money or other property received or paid out of P’s account.

• ALL SUBJECT TO AGREEMENT.

Question 25

Actual Authority

Answer 25

at the time of taking action that has legal consequences for P,

A reasonably believes, in accordance with P’s manifestation to the agent, that P wishes the agent to act.

• reasonably person in A’s position in light of context.

Question 26

Creation of Actual Authority

Answer 26

P’s manifestation to an A that, as reasonably understood by the A, expresses P’s assent that A act on P’s behalf.

• what A reasonably understood.
• express or implied actual authority.

Question 27

Apparent Authority

Answer 27

third party reasonably believes A has authority to act on behalf of P and that belief is traceable to P’s manifestations.

• depends on third party’s reasonable beliefs.
• can bind P to A’s actions, even if not expressly or impliedly authorized.

Question 28

Creation of Apparent Authority

Answer 28

person’s manfiestation that another has authoirty to act with legal consequences of the person who makes the manifestation, when a third party reasonably believes the actor is authorized and belief is traceable to the manifestation.

• P does something ot indicate that A acts for them.
• Third party reasonably believes A acts for them.
• Belief is from something P did.

Question 29

Disclosed P

Answer 29

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

• The principal and the third party are parties to the contract; and
• The agent is not a party to the contract unless the agent and third party agree otherwise.

Question 30

Unidentified P

Answer 30

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

• The principal and the third party are parties to the contract; and
• The agent is a party to the contract unless the agent and the third party agree otherwise.

Third party knows the agent is acting for someone, but not who.

Question 31

Undisclosed P

Answer 31

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

• Unless excluded by the contract, the principal is a party to the contract;
• The agent and the third party are parties to the contract.

Agent is acting as if agent is acting on it’s own.

• Third party does not even know that there is a principal. Third party has contract with agent and (Secret) principal.

Question 32

Rule from Mill St. Curch of Christ v. Hogan

Answer 32

Implied authority is actual authority circumstnatially proven, which P actually intended the A to possess.

church hired Bill, bill hired his brother (who had worked previously for him and the church). Bill didn’t have express authority, but had implied due to church allowing him to hire someone.

Question 33

Rule from Ophthalmic Surgeons v. Paychex

Answer 33

P is liable for actions of its A taken within the scope of A’s apparent authority, even if actions exceed the scope of the agent’s actual authority.

employee who handled payroll kept paying herself more money without express authorization by her employer. Employer appointed her as the agent for working with paychex, a third party payroll provider, and paychex had reasonable belief that employee had authorization to do so.

Question 34

P ratifies act by:

Answer 34

Manifesting assent that act shall affect person’s legal relations, OR conduct that justifies a reasonable assumption that the person consents.

does not have to be made directly to third party or agent. (CANNOT think to themselves; has to be EXTERNAL MANIFESTATION).

RATIFICATION IS ALL OR NOTHING.

Question 35

Estoppel

Answer 35

P or purported P is “estopped” fro disclaiming contractual liability.
- person subject to liability to third party who justifiably is induced to make a detrimental change in position because transaction is believed to be on the person’s account if:
(1) person intentionally or careless caused such a belief, OR
(2) having notice of such belief and that it might induce others to change their positions, the person did not take reasonable steps to notify them of the facts.

Can prevent P or purported P from avoiding obligation by arguing that no authority existed at the time A or actor entered into a contract.

3rd party can hold P liable but does not give P any rights against 3rd party, unless P were to ratify the transaction.

remedy is typically damages.