Flashcards in Agency Deck (35)
T/F - On the bar exam, agency can be tested in both partnership essay questions and corporation essays, as well as some other areas.
What is an agency?
When a person, the agent, acts ON BEHALF OF and SUBJECT TO THE CONTROL of another person, the principle.
It is the fiduciary relationship in which:
1) One party is entrusted with the assets and wealth of another;
2) The agent is the fiduciary of the principle;
3) The agent has a special obligation or duty owed to the principle; and
4) The agency fiduciary relationship results from three elements.
What are the three elements required to have an agency (fiduciary relationship)?
1) Mutual Consent;
2) One person acting on behalf of another; AND
3) Subject to the other's control
THE PRINCIPAL MUST HAVE THE RIGHT TO CONTROL MERELY THE RESULT OR ULTIMATE OBJECTIVES OF THE AGENT'S WORK.
What is the difference between employees and independent contractors.
A servant (employee) is an agent with respect to whom the principal has the right to control the physical conduct.
An agent who is NOT a servant or an employee is an independent contractor.
The distinction between a servant (employee) and an independent contractor matters because a principal can be vicariously liable for the torts or other misconduct of a servant or employee, but generally is NOT vicariously liable for the torts or other misconduct of an independent contractor.
Do parties have to intend to form an agency relationship in order to form one?
No! An agency relationship can be formed UNINTENTIONALLY.
Does a person have to be compensated in order to be considered an agent?
No! An agent who does not receive compensation is a GRATUITOUS AGENT.
T/F - As a general rule, there must be a written agreement or written communication between the parties to create an agency relationship.
What is the Equal Dignity Rule?
A principle's authorization of an agent must be in WRITING WHEN a state statute requires that the principle's authorization be in writing.
Example: Paul asks Andrew to sell some goods on Paul's behalf. The goods are in an amount that subjects it to the Statute of Frauds. Thus, the underlying transaction (the agency creation) must be in writing.
What capacity is required by the principle?
To become a principle and be bound by an agent's actions, a principle must have capacity:
1) To consent to the agency relationship; AND
2) To enter into the transaction that the agent enters into on behalf of the principle.
A person can serve as an agent as long as they have ______________.
The PHYSICAL AND MENTAL CAPABILITY to do what they have been appointed to do.
Describe the contract liability of the principle?
If two persons form an agency relationship, the principle is subject to liability on contracts the agent enters into on the principle's behalf if the agent has POWER to bind the principle to the contract, OR if the principle RATIFIES the contract.
When does an agent have the power to bind the principle?
1) Agent has the actual authority, express or implied, to do so;
2) Agent has apparent authority; OR
3) The principle is estopped from denying the agent's authority.
What is actual authority?
Created by a MANIFESTATION of the principle that causes the AGENT to reasonably believe that the agent is authorized. The two types are EXPRESS and IMPLIED actual authority.
Common manifestations by the principle that create implied actual authority include: Putting the agent in a position that customarily has certain authority and the agent acquiesces in unauthorized conduct.
When does an agent's actual authority end?
Terminates as a result of any of the following:
1) Principle revokes the agent's authority;
2) Changed circumstances;
3) Death of the principle or agent; OR
4) Principle's loss of capacity.
T/F - A principle always has the power to revoke an agent's actual authority, but may not always have the right to do so.
Example: In a contract where the agent can sue for breach if the principle terminates the agency (the contract).
T/F - A principle always has the power to revoke an agent's actual authority UNLESS the agent's power is coupled with an interest in the subject matter of the power.
This is the case where someone gets a loan from a bank and grants a deed of trust to a bank and authorizes the bank to sell the property if need be.
T/F - An agent's authority terminates when, because of intervening events, the agent should realize the principle would no longer consent to action by the agent if the principle know of the intervening event.
Example - A principle authorizes an agent to purchase a house on the principle's behalf. The agent subsequently learns that the house has been largely destroyed by fire. The agent's authority is terminated.
How does death of the principle affect authority of the agent to act on his or her behalf?
As a general rule, the principle's death terminates the agent's authority at the MOMENT OF DEATH, REGARDLESS OF WHETHER THE AGENT HAS NOTICE OF THE PRINCIPLE'S DEATH.
HOWEVER, if the principle granted authority in a DURABLE POWER OF ATTORNEY, the agent's authority does NOT terminate UNTIL the agent has ACTUAL KNOWLEDGE OF THE PRINCIPLE'S DEATH.
FURTHER, a principle's death terminates an agent's actual authority UNLESS the agent's power is coupled with an interest in the subject matter of the power.
T/F - A principle's loss of capacity terminates an agent's actual authority.
UNLESS the principle grants the agent authority in a durable power of attorney.
What is a durable power of attorney?
One that expressly provides the agent has authority despite the principle's loss of capacity.
What is apparent authority?
Created by a MANIFESTATION OF THE PRINCIPLE THAT CAUSES A THIRD PARTY TO REASONABLY believe that the agent is authorized.
Can an agent create her own apparent authority?
Apparent authority is created by a manifestation of the principle, not a manifestation of the agent.
What is agency by estoppel?
A principle is estopped from denying an agent or other person's authority when:
1) A person purports to enter into a transaction with a third party on the principle's behalf;
2) The third party changes position because they believed the person was authorized; AND
3) EITHER: (a) the principle intentionally or carelessly caused the third party's belief, OR (b) the principle knew of the third party's belief and that the third party might change their position because of it, but failed to take reasonable steps to notify the third party of the facts.
What is agency by ratification?
Even if an agent acted with no power to bind the principle to a contract, the principle is subject to liability on the contract if the principle ratifies it. To ratify a contract, the principle MUST AFFIRM THE PRIOR ACT that was done or purported to be done on the principle's behalf.
A principle's affirmation of a prior act can be either EXPRESS OR IMPLIED.
What is vicarious liability? When can it be imposed?
The principle is legally responsible for the agent's conduct merely because of the existence of the agency relationship.
Can be imposed on the principle either through RESPONEAT SUPERIOR or APPARENT AUTHORITY.
What is respondeat superior?
Under this doctrine, a principle is vicariously liable for an agent's torts or other misconduct IF:
1) The agent is a servant, AND
2) Servant commits the tort or other misconduct while acting WITHIN THE SCOPE OF EMPLOYMENT.
What is considered "within the scope of employment?"
IF the conduct:
1) Is the kind the servant is employed to perform;
2) Occurs substantially within the authorized time and space limits;
3) Is actuated at least in part by a purpose to serve the principle; AND
4) Involves the use of force against another, any use of force is NOT unexpectable.
T/F - Driving to and from work is "within the scope of employment."
This is outside the time and space limits.
When is the principle directly (not vicariously) liable to a third person harmed by an agent's conduct?
1) The principle AUTHORIZES OR RATIFIES the agent's conduct; OR
2) The principle is negligent in selecting, supervising, OR otherwise controlling the agent.