Agency Flashcards
What is agency?
Agency is a fiduciary relationship, where a person or entity (the agent) acts on behalf of another (the principal).
An agency relationship exists if there is…
(1) Assent – a formal or informal agreement;
(2) Benefit – the conduct primarily benefits the principal; AND
(3) Control – the principal has the right to control the agent (control doesn’t need to be significant).
*The characterization of the relationship by the parties is irrelevant.
How does an agency relationship terminate?
An agency relationship terminates by (DIME):
(c) Death of principal or agent (by operation of law);
(d) Incapacity of the principal or agent (by operation of law) – except if a durable power of attorney exists.
(a) A manifestation by either party that the relationship is terminated;
(b) Expiration of a specified term of authority;
Express Actual Authority
A principal is bound to a contract entered into by its agent if the agent had actual authority. Express actual authority exists when the agent is expressly given authority to act on behalf of the principal.
Implied Actual Authority
A principal is bound to a contract entered into by its agent if the agent had actual authority. Implied authority is present when the principal’s conduct leads the agent to believe it has authority.
Implied authority typically occurs when either:
(a) the agent believes he is entitled to act because the action is necessary to carry out his express authorized duties;
(b) the agent has acted similarly in prior dealings between the principal and agent;
(c) it is customary for agents in that position to act in that way; or
(d) there is an emergency circumstance.
An agent has actual authority to act in accordance with his reasonable understanding of his authority, even if the principal later establishes that the agent was mistaken.
Silence or prior acquiescence by the principal may give rise to the agent’s reasonable belief that he has authority to perform similar acts in the future.
Apparent Authority
A principal is bound to contracts entered into by his agent if the agent has actual or apparent authority.
Apparent Authority exists when:
(1) 3P reasonably believes agent has authority to act on behalf of principal; AND
(2) That belief is traceable from principal’s manifestations (principal holds the agent out as having authority)
Apparent Authority
A principal holds the agent out as having authority when he:
(a) gives a position or title indicating authority;
(b) previously held the agent out as having auth and did not publish a revocation; OR
(c) cloaked the agent with the appearance of authority.
Apparent authority continues until the principal communicates termination to third-parties.
When is apparent authority NOT applicable?
Apparent authority is NOT APPLICABLE if the third-party has actual knowledge that the agent did not have authority.
Additionally, a third-party has a duty to make further inquiry when the situation suggests that it may be unreasonable to believe that the agent has authority.
Apparent Authority
Unidentified/Partially Disclosed Principal
Apparent authority MAY exist when the principal is partially disclosed or unidentified (when the third-party knows the agent is acting on behalf of a principal but does not know the identity of the principal).
Apparent Authority
Undisclosed Principal
Apparent authority CANNOT exist when there is an undisclosed principal (when the third-party does not know an agent is acting on behalf of a principal).
Ratification
(was on Feb 22’ - not likely tested again)
A principal’s ratification of an agent’s conduct will make the principal liable for those contracts entered into by an agent without authority.
Ratification occurs when the principal:
(1) has knowledge of all material facts or contract terms and has capacity; AND
(2) thereafter manifests assent (approves) of the same through words or conduct
Despite ratification by the principal, an agent also remains liable for any acts or contracts entered into if the principal was not disclosed to the third party
Agent’s Contractual Liability
Generally, an agent has NO contractual liability to a thirdparty for a contract entered into with that party if he: (1) fully discloses the principal he is acting on behalf of (he provides the name of the principal to the third-party); AND (2) the agent had (a) actual authority or (b) apparent authority (even if no actual authority present).
Conversely, an agent will be liable on the contract if both elements above are not met. • An authorized agent will be liable to the third-party on a contract when the principal is undisclosed (when the third-party does not know the agent is acting on behalf of a principal).
Moreover, an undisclosed principal’s ratification DOES NOT eliminate the agent’s liability to the third-party on the contract.
Unless otherwise agreed, an authorized agent will be liable to the third-party on a contract when the principal is partially disclosed or unidentified (when the third-party knows the agent is acting on behalf of a principal but does not know the identity of the principal).
Where an agent is liable on a contract AND his conduct was authorized, he may seek indemnification from the principal on any payments he made to the third-party.
