FORMATION OF THE AGENCY RELATIONSHIP

Question 1

INTRODUCTION

Answer 1

• Agency: fiduciary relationship that arises when one person (“principal” appoints another “agent”) to act on principal’s behalf & agent consents to act.
• Agent must also act subject to principal’s control. .

Question 2

Consent

Answer 2

• Consent of both principal & agent is necessary
• Consent may be established expressly (written/oral statements) or by implication from parties’ conduct.

Question 3

On Behalf of

Answer 3

• This requirement is generally understood to mean that agent must be acting primarily for benefit of principal, rather than for benefit of agent/some other party.

Question 4

Control

Answer 4

• Agent must act subject to principal’s control, but degree of control exercised by principal doesn’t have to be significant.
• The requisite level of control may be found when principal has specified the task that agent should perform, even if principal hasn’t prescribed details of how task should be accomplished.

Question 5

CREATION OF AGENCY RELATIONSHIP

Answer 5

• Agency is consensual.
• Not all K formalities are necessary to create an agency relationship.

Question 6

Capacity
a. Principal Must Have Contractual Capacity

Answer 6

• Principal must have contractual capacity.
• Thus, a minor’s appointment of an agent is voidable, & incompetents & most unincorporated orgs cannot be principals.
• (However, in many jurisdictions, partnerships & other organized business entities can be principals & appoint agents.)

Question 7

Agent Needs Only Minimal Capacity

Answer 7

• While a principal needs contractual capacity, an agent doesn’t.
• So a person may be an agent even though they
  have no contractual capacity.
• (Exception: If agent has literally no mental capacity, they cannot act for principal.)

Question 8

Disqualification of Agents

Answer 8

• An agent may be disqualified for representing both parties/failing to have a required license.

Question 9

Tip

Answer 9

Notice the different capacity requirements: A
principal must have contractual capacity, but an
agent need not. Thus, a minor can be an agent but
not a principal.

Question 10

Formalities
a. Consent

Answer 10

Remember, consent of both parties is required.

Question 11

Writing

Answer 11

• Generally, agency law does not require appointment of agent to be in writing.
• However, SOFs may require one.
• Many states require agency agreements to be in writing when agent is to enter into certain Ks w/in SOFs (mostly land transactions), or when agency agreement itself would fall w/in SOFs.
• This is called the “equal dignities” rule.

Question 12

Consideration Not Required

Answer 12

• No consideration is necessary for creation of agency relationship.

Question 13

Tip

Answer 13

Remember that no consideration is required to establish an agency relationship; that is, one may agree to serve as an agent gratuitously & be saddled w/ duties of an agent.

Question 14

Modes of Creating Agency Relationship

Answer 14

• Agency relationship may be created by an act of parties/by operation of law.

Question 15

By Act of Parties

Answer 15

• Parties may create an agency by agreement between principal & agent (actual authority).
• Parties may also be bound in an agency relationship through holding out by principal (authority), or ratification

Question 16

By Operation of Law

Answer 16

Estoppel
- Agency may be created through estoppel.
- Estoppel is virtually same as apparent authority in that it requires 3rd-party reliance on principal’s communication.

Statute
- Statutes creating agencies are usually designed to accomplish a limited purpose (ex. statute appointing secretary of state as out-of-state motorist’s agent for service of process for damages arising from driving in-state