Law of Agency

Question 1

General Principles

Question 2

Agency in Contract and Tort

Question 3

Rights, Duties and Liabilties

Question 4

Agency

Answer 4

Question 5

Assent

Answer 5

the principal and agent agree to create this agency relationship.

Question 6

Control

Answer 6

the principal has the right to control the ultimate objective of the agent’s work.

Question 7

Benefit

Answer 7

Benefit: agent is working for the benefit of the principal

Question 8

Restatement of the Law (Third) Agency §1.01 Agency Defined

Answer 8

Agency: fiduciary relationship arises when one person manifests assent to another person that the agent shall act on the principal’s behalf and subject to the principal’s control, the agent manifests assent or otherwise consents so to act

Question 9

Agency By Mutual Assent

Answer 9

Question 10

According to Restatement (Second) § 1

Answer 10

an agency relationship is one in which one person, the principal, appoints another person, the agent, to act on the principal’s behalf.

There are many types of situations where it is useful to have one person act on another’s behalf. In fact, much of the world’s business is conducted through agents. A business that hires employees to do its work can get more accomplished than a single person working alone.

Not all agency relationships are business relationships. For example, one person may appoint another to make medical decisions in case of the first person’s incapacity.

Restatement (Second) Section 1:

(1) Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control and consent by the other to so act.
(2) The one for whom action is to be taken is the principal.
(3) The one who is to act is the agent.

Question 11

Why form an Agency Relationship

Answer 11

The law of agency governs the relationships between individuals and/or organizations who accomplish their work by using the services of others. Thus, an agency relationship may involve: two individuals; two organizations; or an individual and an organization. In the eyes of the law, both individuals and organizations are considered legal persons.

Thus, in each agency relationship, one member of the agency relationship involves the legal person on whose behalf work is being done and the other part of the agency relationship is the legal person who is performing work on behalf of the first.

Agency law also provides the legal underpinnings for many of the relationships among participants in a business organization as, for example, a business and its employees and among partners in a partnership.

Question 12

In addition, not all agency relationships are recognized under the law because certain acts cannot be delegated as a matter of public policy.

In which of the following situations do you think it would be legally permissible to have an agent act on behalf of the principal? Select the best choice for each of the following situations:

Juanita owns a computer service business. Juanita hires Alberto to manage the business.

Answer 12

Permissible

Correct. This is the type of business situation in which agency relationships are commonly used.

Question 13

In which of the following situations do you think it would be legally permissible to have an agent act on behalf of the principal? Select the best choice for each of the following situations:

Q2). Risa wants to have Charles killed. Risa hires Leslie to kill Charles.

Answer 13

Not Permissible

Correct. The law will not sanction agency relationships that are against public policy. In this case, murder is against the law.

Question 14

In which of the following situations do you think it would be legally permissible to have an agent act on behalf of the principal? Select the best choice for each of the following situations:

Q3). XYZ Corporation hires Denzell as XYZ’s corporate attorney.

Answer 14

Permissible

Correct. This is the type of business activity in which agency relationships are commonly used

Question 15

In which of the following situations do you think it would be legally permissible to have an agent act on behalf of the principal? Select the best choice for each of the following situations:

John, a prisoner, wants to marry Betty in a church wedding. The prison does not have a chapel. John asks Harry to stand in for John at John’s wedding at a nearby church.

Answer 15

Permissible

In this situation the law will recognize the agency relationship. It is not considered to be against public policy for one person to represent another at a marriage ceremony. This may be an outgrowth of the idea of marriage as a contract. One party may appoint another to execute a contract on the first party’s behalf.

Question 16

In which of the following situations do you think it would be legally permissible to have an agent act on behalf of the principal? Select the best choice for each of the following situations:

Harriet, a U. S. citizen, is unable to get to the polls on election day. Harriet asks Joe to go to the polls to vote on Harriet’s behalf.

Answer 16

Not Permissible

Your answer is correct. Voting is a civil right that may be exercised only by the person holding the right. Public policy does not permit one person to vote for another. The use of absentee ballots enables people to vote when they cannot otherwise be present.

Question 17

In which of the following situations do you think it would be legally permissible to have an agent act on behalf of the principal? Select the best choice for each of the following situations:

Pierre wants to sell his house. Pierre agrees to pay Li a commission if Li will find a buyer for Pierre’s house.

Answer 17

Permissible

Your answer is correct. This is the type of commercial situation in which agency relationships are commonly found.

Question 18

Who Are the Parties to an Agency Relationship?

Answer 18

Restatement (Second) of Agency Section 1:

(1) Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control and consent by the other to so act.
(2) The one for whom action is to be taken is the principal.
(3) The one who is to act is the agent.

Question 19

1. Juanita is the sole owner of a computer service business. Juanita hires Alberto to manage the business.

Is she a Principal or Agent

Answer 19

Principal

Question 20

Denzell is a lawyer specializing in the law of business organizations. His clients include XYZ Corporation.

What Denzell and XYZ: Principal or Agent

Answer 20

Denzell = Agent
XYZ= Principal

Question 21

Agency by Mutual Assent

Answer 21

An agency relationship arises by mutual assent if an agent and a principal manifest assent, or agreement, that the agent will act for the principal’s benefit and subject to the principal’s control. The agent must agree to act for the principal and subject to her control, and the principal must agree that the agent will so act. No particular formalities are required; the needed manifestations may arise from a writing, orally, or even by conduct lending a reasonable inference that the parties have agreed to enter an agency relationship. [See Restatement (Third) of Agency § 1.01.]

Question 22

Respondent
Superior

Answer 22

For Purposes of
this section.

An Employee is an agent whose
principal controls or has the right
to control the manner and means
of the agents’s performance of
work, and

Question 23

Capactiy to Be a Principal

Answer 23

To be a principal in an agency relationship, a person must have the requisite capacity. Being a principal requires the legal capacity to acquire binding rights and incur binding obligations. In other words, to be a principal, one must generally have the capacity to enter into a binding contract. For that reason, unemancipated minors and incapacitated parties may not be principals. [See Restatement (Third) of Agency §§ 1.04(5), 3.04.]

Question 24

Agent’s Power to Bind the Principal

Answer 24

In the law of agency, authority is an agent’s ability to affect the principal’s legal relationships with third parties or otherwise take actions that have legal consequences for the principal. For instance, agents commonly enter into contracts that bind their principals. Generally, any action the agent takes with some type of authority will bind the principal. Authority may be actual or apparent. [See Restatement (Third) of Agency §§ 2.01, 2.02, with comments.]

Question 25

Express Authority [Actual Authority]

Answer 25

An agent has express authority to act if the principal specifically states, orally or in
writing, that the agent may take discrete action or engage in a discrete undertaking on the principal’s behalf. [See express authority, Black’s Law Dictionary (10th ed. 2014).]

Question 26

Implied Authority (Actual Authority)

Answer 26

Implied authority is authority not expressly granted, but reasonably inferred from the principal’s conduct. Implied authority may arise if a reasonable person in the principal’s position could foresee that, based on the principal’s own conduct, the agent will believe she has authority to act. (Actual authority arises if the principal intentionally or negligently causes the agent to believe she has authority.) Implied authority may include incidental authority, i.e., authority to do things reasonably necessary to carry out any express authority. For instance, if a principal expressly authorizes an agent to secure a loan, this implies authority to execute any documents necessary to complete the transaction. [See Restatement (Third) of Torts § 2.01, with comments; implied authority, incidental authority, Black’s Law Dictionary (10th ed. 2014).]

Question 27

Termination of Actual Authority

Answer 27

Generrally, actual authority. may be terminated by:
* death of the principal or agent;
* loss of capacity by the principal;
* either party’s or both parties’ revoking the agency relationship;
* the occurrence of circumstances that should reasonably cause the agent to conclude that the principal would no longer manifest assent, such as a specified event or fixed period of time; or
* any circumstances specified by statute.

However, actual authority may be irrevocable by the principal if related to:
(1) a power given as security,
(2) an irrevocable proxy to vote securities (usually corporate stock), or
(3) an ownership interest that is irrevocable under statutory law. [See Restatement
(Third) of Agency §§ 3.06, 3.10.]

Question 28

Inherent Authority

Answer 28

Unlike actual or apparent authority, inherent authority does not arise from the principal ’s manifestations to either the agent or a third party. Rather, inherent authority is authority that may be reasonably inferred from the very nature of the particular agency relationship or the position the agent holds. Specific types of agents are customarily understood to have authority to engage in specific kinds of transactions for their principals. Unless the relevant third party has reason to know otherwise, an agent’s conduct within the scope of inherent authority will bind the principal, even if it contravenes the principal ’s explicit instructions to the agent. [See Restatement (Second) of Agency § 8A, with comments.]

Question 29

Actual Authority

Answer 29

Actual authority exists to the extent that the principal expressly or implicitly authorizes the agent to take actions with legal consequences for the principal . When the agent takes the action, she must reasonably believe, based on the principal’s words or conduct, that the principal has authorized her to do so. Some states require a writing signed by the principal to prove that the agent has actual authority to enter into a binding transaction, at least in certain contexts. For instance, California law requires a written instrument to authorize an agent to enter into a contract that is itself required by law to be in writing. [See Restatement (Third) of Agency §§ 2.01-02, 3.02; actual authority, Black’s Law
Dictionary (10th ed. 2014); e.g., Cal. Civ. Code § 2309.]

Question 30

Apparent Authority

Answer 30

Apparent authority exists if, based on the principal’s conduct and manifestations, a third
party could reasonably believe that the agent has actual authority. The agent’s conduct,
manifestations, and beliefs are generally irrelevant; the third party’s reasonable beliefs, traceable to the principal’s actions, are controlling. However, for this purpose, the agent’s
actions may be deemed traceable to the principal if the principal has expressly or
implicitly authorized them, or if the principal fails to use reasonable care to prevent or
correct the agent’s misrepresentations about her own authority. Also, a third party may
draw reasonable inferences based on prior patterns of interaction with (or between) the
principal and agent. Finally, a principal may confer apparent authority by placing an agent
in a position customarily carrying specific responsibilities or by designating an agent as
the sole point of contact with a third party. [See Restatement (Third) of Agency § 3.03,
with comments.]

Question 31

Ratification

Answer 31

Ratification occurs if one person manifests assent that another person’s actions will bind
her, provided the other person was acting or purporting to act on her behalf or as her
agent. If the principal ratifies an act without full knowledge of all material facts and
without knowing that she is unaware of any material facts, then the ratification is
ineffective. [Restatement (Third) of Agency §§ 4.01, 4.03, 4.06, with comments.]

• (1) Ratification is the affirmation of a prior act done by another, whereby the act is given effects as if done by an agent with actual authority.
• (2) A person ratifies an act.
  -(a) manifesting assent that the act shall effect the person’s legal relations ot
  -(b) conduc t that justifies a reasonable assumption that the personso consents

Question 32

Effect of Ratification

Answer 32

Effective ratification means that the principal will be bound by the ratified act, just as
if the agent or purported agent had acted with actual authority. Ratification confers
authority retroactively. [Restatement (Third) of Agency § 4.02.]

Question 33

Manifesting Assent (Ratification)

Answer 33

To ratify an act, the principal must manifest assent, or consent, to be bound by the
act. This, in turn, requires conduct that would justify a reasonable person’s concluding
that the principal consents to be bound. A principal may expressly ratify an act, or she
may do so implicitly by her conduct. For instance, a principal may ratify a transaction
by knowingly accepting its benefits. The manifestation of assent need not be
communicated to any person in particular, including the agent or any third party.
[Restatement (Third) of Agency § 4.01, with comments.]

Question 34

Agency by Estoppel

Answer 34

A concept closely related to apparent authority is agency by estoppel. Under this
doctrine, a purported principal may be bound by a purported agent’s acts (even without
actual or apparent authority) if, due to the purported principal’s failure to exercise
reasonable care, a third party (1) reasonably believes that the purported agent is acting
with actual authority and (2) foreseeably, reasonably, and detrimentally changes position in
reliance on the authority. This often occurs if the purported principal (1) negligently or
intentionally induces the belief, or (2) fails to use reasonable care to correct the belief
upon receiving notice of it. [Restatement (Third) of Agency § 2.05, with comments.]

Relationship to Apparent Authority
Conceptually, agency by estoppel is very similar to apparent authority. The key
distinction between the two is that apparent authority requires the third party’s belief
to be traceable to the purported principal’s actions. Agency by estoppel, by contrast,
does not. Agency by estoppel may arise if the purported principal merely negligently
fails to correct a third party’s misapprehension, even if she does not actually
contribute to it. [Restatement (Third) of Agency § 2.05, with comments.]

Question 35

Fiduciary Obligations

Answer 35

Agents must fulfill a variety of fiduciary obligations and other responsibilities in acting on
behalf of principals, and principals have certain duties to fulfill in dealing with agents.

Question 36

Agent’s Duties to Principal [Fiduciary Obligations]

Answer 36

Agent’s Duties to Principal
An agent’s general fiduciary obligation is to act for the principal’s benefit, placing the
principal’s interests above her own, in all matters concerning the agency relationship. Out
of this general obligation arise a number of specific requirements, each grouped under
one of three overarching headings:
* a duty of loyalty,
* a duty of obedience, and
* a duty of care.
[See Restatement (Third) of Agency §§ 8.01, 8.08, with comments.]

Question 37

Duty of Loyalty

Answer 37

An agent must be loyal to the principal in anything touching the subject of the agency relationship. The essence of that duty (and of the fiduciary relationship itself) is that if the agent’s and principal’s interests ever conflict, and the conflict implic ates the agency, then the agent must subordinate her own interests to the principal’s. [See Restatement (Third) of Agency § 8.01, with comments.]

Question 38

Agent for Multiple Principals

Answer 38

An agent who acts for more than one principal in a transaction has a duty to deal
fairly and act in good faith with each principal. The agent must disclose to each
principal (1) the fact that the agent is also acting for the other principal(s) and (2)
all other material facts that, to a reasonable person in the agent’s position, would
affect the principals’ judgment, provided the agent knows, should know, or has
reason to know of them. If an agent’s duty of confidentiality to one principal
prevents full disclosure to another, then the agent must not continue to act for the
other. [See Restatement (Third) of Agency § 8.06, cmt. d(2).]

Question 39

Agent’s Duty of Obedience

Answer 39

The duty of obedience requires the agent to:
* act solely within the scope of the agent’s actual authority,
* comply with the principal’s lawful instructions in all acts or transactions on the
principal’s behalf, and
* abide the terms of any contract with the principal.
If the agent acts beyond the scope of actual authority, she may be liable for any
resulting harm to the principal—even if the harm to the principal would have been
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greater if the agent had acted within her actual authority. [See Restatement (Third) of
Agency §§ 8.07, 8.09 cmt. b.]

Question 40

Agent’s Duty of Obedience

Answer 40

The duty of obedience requires the agent to:
* act solely within the scope of the agent’s actual authority,
* comply with the principal’s lawful instructions in all acts or transactions on the
principal’s behalf, and
* abide the terms of any contract with the principal.
If the agent acts beyond the scope of actual authority, she may be liable for any
resulting harm to the principal—even if the harm to the principal would have been
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greater if the agent had acted within her actual authority. [See Restatement (Third) of
Agency §§ 8.07, 8.09 cmt. b.]

Question 41

Agent’s General Duty of Care

Answer 41

The duty of care requires that the agent act as diligently, carefully, and competently as a normal, reasonable agent in similar circumstances. If the agent has (or falsely claims to have) special skills, competence, or expertise, then the agent must perform at the level of a normal, reasonable agent with those special characteristics. The principal
and agent may generally vary this duty by agreement. [See Restatement (Third) of
Agency § 8.08, with comments.]

Question 42

[Agent’s General Duty of Care]

Good Conduct

Answer 42

The duty of good conduct requires the agent to act reasonably within the scope of
the agency relationship and refrain from taking any action that is likely to damage
the principal’s enterprise. This means the agent must do nothing reasonably likely
to bring the principal into disrepute by virtue of the principal’s association with the
agent. This duty extends to conduct that does not necessarily arise in the course
of the agency but is somehow connected to the principal or her enterprise. [See
Restatement (Third) of Agency § 8.10 cmt. b.]

Question 43

[Agent’s General Duty of Care]

Agent’s Duty to Provide Information

Answer 43

The duty to provide information requires the agent to use reasonable efforts to
inform the principal of any facts of which the agent knows, has reason to know, or
should know if: (1) the principal would want to know the facts, or (2) the facts are
material to the agent’s duties. This duty generally encompasses information that a
similarly situated agent would normally provide, except insofar as the principal has
indicated that she wants more or less information. However, the agent must not
provide information if it would violate a superior duty owed to a third party, such
as an attorney’s duty of confidentiality to a client. [See Restatement (Third) of
Agency § 8.11 cmts. b, c.]

Question 44

[Agent’s General Duty of Care]

Agent’s Duties in Caring for the Principal’s Property

Answer 44

In dealing with the principal’s property, the agent must not (1) act to give the
impression that the principal’s property belongs to the agent or (2) commingle the
principal’s property with anyone else’s, especially the agent’s (e.g., by depositing
the principal’s money in a bank account that also contains the agent’s own money) .The agent must take reasonable steps to safeguard the principal’s property and
must account to the principal for any money or other property that the agent
might receive or expend on the principal’s behalf. [See Restatement (Third) of
Agency § 8.12.]

Question 45

Principal’s Duites to Agent

Answer 45

Generally, a principal owes duties of good faith and indemnity to an agent. Additionally, a principal must obey the express and implied terms of a contract with an agent. If the contract does not address compensation, but the parties intended that the agent be compensated, then a court will imply a contractual term requiring reasonable
compensation—that is, compensation reflecting the fair value of the agent’s services. [See Restatement (Third) of Agency §§ 8.13 cmt. d, 8.14, 8.15.]

Question 46

Principal’s Duty of Good Faith

Answer 46

The duty of good faith requires the principal to deal with the agent fairly and to avoid doing anything that might reasonably foreseeably harm the agent without fault on the agent’s part, particularly anything likely to harm the agent’s business reputation or Business Associations | 46 reasonable self-respect. (This duty does not limit the principal’s right to terminate the agency.) The principal must also provide the agent with information regarding any risks of physical harm or pecuniary loss that the principal knows or should know are present in the agent’s work if the principal knows or should know that the risks are unknown to the agent. [See Restatement (Third) of Agency § 8.15, with comments.]

Question 47

Indemnity

Answer 47

The duty to indemnify requires the principal to compensate the agent for hurt, loss, or
damage if:
* indemnification is required by the terms of a contract between the agent and the
principal;
* the agent makes a payment while acting under actual authority;
* the agent makes a payment that benefits the principal, unless the agent makes the
payment officiously, subjecting the principal to a forced exchange; or
* the agent suffers a loss that the principal should make good in the interest of
fairness, considering the nature of the agency relationship.
[See Restatement (Third) of Agency § 8.14 (2006); Restatement (Second) of Unjust
Enrichment § 2(4) cmt. e; Foote & Davies, Inc. v. Arnold Craven, Inc., 324 S.E.2d 889
(N.C. Ct. App. 1985).]

Question 48

Liabilties of Principal and Agent in Contract and Tort

Answer 48

Under the law of agency, a principal and, sometimes, an agent may be liable for contracts into which the agent enters. In addition, the principal may be liable for the agent’s torts committed within the scope of the agency.

Question 49

Contract Liability of Principal and Agent

Answer 49

An agent, along with the principal, may be liable to third parties for any contracts the agent enters on the principal’s behalf, depending on whether the principal is disclosed, unidentified, or undisclosed. The principal may also ratify an unauthorized contract.

Question 50

Contract Liability of Principal and Agent

[Disclosed Principal]

Answer 50

A principal is disclosed if a third party dealing with an agent knows or has reason to know of (1) the agency relationship and (2) the principal’s identity. A principal is
disclosed if the third party can reasonably infer the principal’s identity based on anyavailable information, even if the principal’s identity is not overtly disclosed. If an agent enters a contract with actual or apparent authority, then the disclosed principal is liable, but the agent is not personally liable unless she agrees to be. [See Restatement (Third) of Agency §§ 1.04(2)(a), 6.01.]

Question 51

Contract Liability of Principal and Agent

[Unidentified Principal]

Answer 51

A principal is unidentified if a third party dealing with an agent knows or has reason to know that the agent is acting on a principal’s behalf but does not know the principal’s identity. For this reason, an unidentified principal is sometimes called a partially disclosed principal. Both an unidentified principal and, unless the third party agrees otherwise, her agent are liable on a contract within the scope of the agent’s actual or apparent authority. The third party is liable to both, as both are deemed parties to the contract. [See Restatement (Third) of Agency §§ 1.04(2)(c), 6.02.]

Question 52

Contract Liability of Principal and Agent

[Undisclosed Principal]

Answer 52

Both a principal and an agent are liable for a contract within the scope of the agent ’s actual authority if the third party does not have notice of the fact that the agent is acting for a principal (let alone the principal’s identity), meaning the third party believes that the agent is acting on her own behalf. The third party is also liable to both the agent and the principal, as both are deemed parties to the contract. Apparent authority cannot exist in this context, because apparent authority assumes a manifestation from Business Associations | 34 a principal to a third party that the agent may act on the principal’s behalf. The principal may not be able to enforce the contract under some circumstances, e.g., if the lack of notice is fraudulent. [See Chem. Bank v. Affiliated FM Ins. Co., 169 F.3d 121 (2d Cir.1999); Restatement (Third) of Agency §§ 1.04(2)(b), 6.03.]

Question 53

Contracts Voidable by Third Party