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Flashcards in Agency Deck (11)
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Creation of Agency

Definition: Legal relationship whereby an agent is authorized to represent a principal in business dealing with third parties.


  1. Capacity
    1. Principal must have contractual capacity
    2. Agent only need minimal capacity
    3. Disqualification -  cannot represent both parties.  Failure to have a license (non-attorney cannot be agent of attorney in court)
  2. Formalities
    1. Agent and principal consent
    2. Consideration not required
    3. writing not necessary unless it is a statute of frauds matter
  3. Mode of Creation
    1. Act of the parties
    2. Operation of Law (secretary of state allowed to accept service for driver when accident occurs in different state)
    3. Estoppel or by statute


Agency Liability on Contract

Principal -

Bound if valid authority existed.  Valid authority can be actual, apparent or by ratification

Agent -

Bound unless principal's existence and identity are disclosed (also can be liable for breach of implied warranty of authority)

Third Party -

Bound to principal if valid authority existed.  

Bound to agent if principal partially disclosed or undisclosed AND Agent enforces contract

(if agent enforces contract, then principal is entitled to the benefits of the contract.)


Duties and Remedies of Principal and Agent

Principal's Duties:

  1. Compensation
  2. Cooperation
  3. Indemnity/reimbursement
  4. Express Contractual Duties

Agent Remedies:

  1. Contractual Remedies
  2. Possessory Lien on purchased items

Agent Duties:

  1. Reasonable care
  2. loyalty
  3. obedience
  4. express contractual duties

Principal remedies:

  1. Contract remedies
  2. Tort
  3. Constructive Trust
  4. Action for Secret Profits
  5. Withhold compensation


Actual Authority

  1. Express - contained within 4 corners of agency agreement (effective even when given by mistake or agent misrepresentation)
  2. Implied - Agent reasonably believes it has authority because of principal's actions
    1. Incidental to express authority
    2. arising out of custom
    3. resulting from prior acquiescence
    4. to take care of emergences
    5. delegate ministerial acts
    6. pay for and accept delivery of goods where authority to purchase goods exists
    7. give warranties when authority to sell exists
    8. manage investments as a prudent investor


Apparent Authority

Definition:  Principal "holds out" another as possessing certain authority, thereby inducing reasonable reliance by others on that authority.


  1. Agent has no actual authority
    1. imposter (principal negligently permits imposter to be in position of authority
    2. Lingering -
      1. actual agent terminated, but no notice given to 3rd party
      2. Terminated Agent carries written authority
      3. Death/Incompetency - automatic termiation, no notice required
  2. Actual Agent Exceeds Actual Authority
    1. Prior act justifies 3rd party reliance
    2. Position of agent customarily carries such authority
  3. Inherent Authority
    1. Respondeat Superior
    2. Conduct similar to that authorized

OTHER NOTES:  Principal liable to 3rd party for disposition of goods by agent when agent had indicia of ownership


Termination of Actual Authority

  1. Lapse of specified time
  2. happening of a specific event (as specified)
  3. change in circumstances regarding subject matter
  4. agent's breach of fiduciary duty
  5. either party's unilateral termination
    1. such termination may lead to breach of contract
  6. operation of law (i.e. death/loss of capacity, except when there is a durable power of attorney)

Some agencies irrevocable such as an agency coupled with an interest in the subject matter.  i.e., agent given the power to sell land and the proceeds from the sale of land will satisfy a debt owed to the agent.)


Ratification of Agency Relationship

  1. Effect - Ratification gives transaction retroactive effect unless:
    1. Principal lacked capacity at time agent entered into unauthorized transaction
    2. retroactivity would interfere with intervening third party rights
    3. where capacity is an issue, the principal can adopt the contact once he has capacity.  in that case, the contact is effective on the date of adoption
  2. Prerequisites
    1. Principal must have ALL material facts
    2. P must accept ENTIRE transaction
    3. P must have capacity
    4. No additional consideration is required from P
  3. Methods of Raification
    1. Express
    2. Implied
      1. acceptance of the benefits of contract
      2. silence when P has a duty to disaffirm
      3. P sues 3rd party to enforce contact


What can be ratified

and who can do it


  • Anything Principal could have legally done 
  • exceptions:
    • performance illegal
    • withdrawal by 3rd party
    • material change of circumstances

Who can ratify

  • Majority rule - only principal can ratify
  • no ratification by undisclosed principal
  • agent cannot take contract on as his own


Employee or 

Independant Contractor

If principal has RIGHT TO CONTROL agent, the manner and method in which a job is performed, then agent is employee

Factors to consider:

  1. employment contract, the contract's definition
  2. whether agent's busienss is distint and separate from principal's
  3. customs regarding relationship
  4. degree of skill required 
  5. whose tools or faciliities were used
  6. period of employment.  long term employment more likely to be employee
  7. basis of compensation (bid, or hourly)
  8. understanding of parties
  9. whether person was hired to further a business purpose


Scope of Employment


  1. Same general nature as job
  2. Was there a detour (large deviation from task), or just a frolic (small deviation from assigned task)
  3. Motivation to serve employer
    1. injuries to passengers, principal not liable unless express authorization for agent to carry passengers
    2. unauthorized instrumentalities creating greater risk, employer not liable
    3. Trips with two purposes can still create P liability, if ANY substantial purpose is for P 
  4. Intentional Torts - generally not liable, unless agent is a bouncer or security guard, etc
  5. Ratification can make the principal liable.  however, remember that the principal must have knowledge of ALL the facts to ratify the contract. 


Agent Liability in Tort

Respondeat Superior

Respondeat Superior: imputes joint and several liability to employer/principal for torts committed by employee/agent within the scope of employee's employment.

Liability Chart:

Employee: Was the act within scope of employment?

  • If yes, then principal is liable
  • If no, then principal is not liable

Independant Contractor: Was either the activity involved inherenty dangerous, the duty non-delegable, or the principal negligent in hiring? 

  • If yes, then principal liable
  • if no, then the principal is not liable