R7-M1 Agency

Question 1

what rights will a 3rd party be entitled to after validly contract with an agent representing an undisclosed principal?

Answer 1

• the 3rd party has the right to choose who will be reliable for liability
• both principal and agent can be held liable:
  + agent: because principal’s ID is unknown
  + principal: if agent had actual authority

Question 2

what are requisites for creation agency relationship?

Answer 2

• only principal must be competent
• writing is generally not required. However, written agency agreement is required if the agent is to buy or sell an interest in land for the principal
• consideration for compensation is not required but implied

Question 3

what is power vs. right to terminate relationship

Answer 3

• either party generally has the power to terminate the relationship at any time
• the parties don’t necessarily have the right to terminate at any time
• exception: if agency coupled with interest, principal has no power or right to terminate. ex: P borrows $20K from A and promised to pay A within a year and appoint A as his agent to sell P’s house if P failed to pay. A’s agency is coupled with an interest, so P does not have the power or right to terminate A at any time.

Question 4

what authorities agent’s power to contractually bind principal has to 3rd parties?

Answer 4

1. actual authority (power and right)
2. apparent authority or estoppel (power but no right)
3. ratification (power but no right)

Question 5

what is characteristics of actual authority?

Answer 5

• can be either express (oral or written instructions) or implied (the agent could reasonably necessary/believe to carry out the agency (ex: managers (agents) were hired to manage, hire employees, buy merchandise…for the store)
• Termination:
  + agents quits or gets fired
  + accomplished objectives
  + ***automatic termination: no notice is required
  1. death of either principal or agent
  2. incapacity of principal
  3. discharge in bankruptcy of principal
  4. failure to acquire a necessary license
  5. destruction of the subject matter (agent was hired to buy an antique car but it’s no longer available)
  6. subsequent illegality (agent was hired to buy/sell something but then due to political change, the thing has become illegal to buy/sell)

Question 6

what is characteristics of apparent authority?

Answer 6

• situations in which agent might not have actual authority, but agent will have the power (but not the right) to bind the principal because the principal’s conduct has caused the 3rd parties to reasonably believe that the agent had authority
• Not affected by “secret” limiting instructions: a principal who issues secret instructions to the agent will limit the agent’s ACTUAL authority but NOT the agent’s APPARENT authority
• Termination: give NOTICE to 3rd parties/potential 3rd parties
• Estoppel tp deny existence of agency: principal will be bound if principal does not do anything to stop a person from acting wrongfully on principal’s behalf with 3rd parties

Question 7

what is characteristics of ratification?

Answer 7

• principal to choose to become bound by a previously unauthorized act of his or her agent
• the agent must have indicated that agent was acting on behalf of the principal and the 3rd party believes that is true)
• all material facts must be disclosed to principal
• principal need NOT notify the 3rd party of the ratification
• can be either express or implied by accepting the benefits of the contract when there is an opportunity to reject them
• acts that are not ratified if acts are illegal or 3rd party withdraws prior to ratification

Question 8

what is tort liability?

Answer 8

• wrongful act:
  + unintentional = negligence
  + intentional = fraud
• *generally principal is not liable. Only the agent is liable. Exception for employers if employee’s torts committed within the scope of the employment

Question 9

what are duties of agent to principal? LORA

Answer 9

1. Loyalty (no self dealing, no competing): must act solely in principal’s interest. the agents breach this duty when they has interests adverse to the principal (ex: agent obtains kickbacks from 3rd parties)
2. Obedience: must obey all reasonable directions of the principal
3. Reasonable care: not to be negligent
4. Account: agents cannot commingle principal’s property with agent’s property

Question 10

what are duties of principal to agent?

Answer 10

1. compensation
2. reimbursement/indemnification
3. remedies of the agent

Question 11

whom the subagent (assistant) owe a fiduciary duty to?

Answer 11

both agent and principal

Question 12

what are principal’s remedies if agents breach duties they owe to the principal?

Answer 12

principal can recover damages from agent:
- tort damages
- contract damages
- recovery of secret profits (kickback) by imposing a constructive trust on the profit
- withhold compensation