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Flashcards in Agency Deck (49)
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What is agency law?

  • It is concerned when the agency third pty relationship becomes binding on the principal
  • it is a fiduciary relationship of trust & confidence


Who can be a principal?

  • Manifested in many different ways, including:
    • individual - human person
    • business organization


What are the types of principals?

  1. Disclosed principals
  2. Partial disclosed principals (a.k.a. - unidentified principals)
  3. Undisclosed principals


NOTE - classification will determine who is liable on the K the agent makes

  • generally agents not bound personally on trans. with 3rd pty when acting for principal in the scope of the agency & clear that they are doing so


What factors help to distinguish between the types of principals?

  • does the 3rd pty know of the existence of the agency
  • does the 3rd pty know of the identity of the principal


What is a disclosed principal?

  • The 4rd pty knows the existence of the agency AND
  • The identity of the principal


Define partially disclosed (unidentified) principal)?

  • 3rd pty knows there is an agency AND
  • 3rd pty does not know the id of the principal


Define undisclosed principal?

  • 3rd pty does not know neither
    • there is an agency
    • the id of the principal


What are the types of agents?

  1. General agent
  2. Special aget


Define general agent

  • Authority to conduct a series of transactions on behalf of the principal


A is hired by P to manage his department store; A will have numerous responsibilities in connection with that position and is given the authority to execute all of them.


Define special agent

  • Limited grant of authority
    • usually one trans or a small series for a particular purpise
  • Auctioneer is a special agent


A home seller engages a real estate agent to sell his home but to perform no other tasks on his behalf; the agent is a special agent because his responsibility is to complete only one specific transaction.

A  real estate agent may create fiduciary duty and liability issues when the agent unwittingly becomes the agent of both the buyer and seller in a transaction.


Define subagent

  • an agent of the agent
    • Can also be agent of the principal if the principal told the agent to hire a subagent


What are the requirements for creating an agency

  1. Both ptys have to specifically assent (voluntary relationship)
  2. Agent must agree to act on behalf of the principal
    1. ​compensation not necessary
  3. Agent must act under the control of the principal
    1. more control principal exercises over agent work, the more likely the principal will be liable for the agent's torts (doctrine of respondot superior



Pierre, upset that he just lost a ton of money at the gambling tables, calls his financial advisor and complains that his retirement fund is losing money and promptly hangs up. The advisor then calls his trader and tells him to sell Pierre’s IBM stock and buy energy futures. In this situation, what is the relationship created between Pierre and the advisor? What is the relationship created between the advisor and the trader?

  • The advisor is an agent for Pierre
    • Pierre is bound what the advisor does
  • The trader is a subagent for the advisor
    • unless Pierre authorized the subagent


What are the different relationships between principals & agents?

  • Employer - Employee or Master-Servant
  • Independent contractor (non-employee)


Define employer


  • A principal who employs an agent
    • controls the agent OR
    • has the right to control the agents physical conduct
  • Tells the employee/servant
    • what to do
    • how to do it


Define employee


  • An agent employed by the employer/master to perform services in his affairs
    • physical conduct is controlled OR
    • subject to the right of control by the princioal


Note for emploer/emploee

  • more restricitive subset of agents
  • all master/servants are principal/agents
  • not all principal/agents are master/servants


Define independent contractor

  • can be an agent
  • Issue - Is he also an employee/servant
    • Look @ whether P has the right to control how A does what he does
      • Not an agent - can't bind prin in tort
        • thus vicarious liability comes in if emplyee/servant


What factors help determine whether an agent is a servant/employee vs an independent contractor?

  1. extent of control that the principal exerts on how the agent performs his work
  2. whether the agent is engaged in  a distinct occupation/business from that of the principal
    • more distinct, more likely to be independent contractor
  3. is the type of work the agent is doing is customarily done under the supervision of the principal
  4. the skill required in the agent's occupation
  5. who supplies the tools & the place of work
  6. the length of the time the agent is engaged by the principal
  7. whether the agent is paid by the job or by the hour
    • job = more master/servant; hour = more like independent contractor
  8. whether the principal or agent intend to create an employment relationship
  9. whether the principal is in the same business having the agent work


What are the duties of a principal to an agent?

  • Principal obligated for (absent an agreement):
    • compensation for the services rendered
      • even if no compensation, remedy under restitution law
    • principal must indemnify agent for any liability that results from his good faith performance of duties
    • reinburse aganet for expenses incurred during scope of agency


Example of duty of principal to agent


Employees of an accounting partnership were indicted for various activities that they were engaged in on behalf of partnership. They argued they were acting in good faith performance of their duties on behalf of partnership when they were engaged in the activities in question. The court determined that because they were conducting the performance of their duties in good faith, even though they were currently under criminal indictment for that, the employer could and would be responsible under law to indemnify them.



The Great Star Steam Ship Line’s ship, the S.S. Shining Star, was hit by a tidal wave in the Pacific Ocean, causing a number of shipping containers owned by Mega-Mart Stores to fall off and be lost at sea. Mega-Mart brought suit for the loss of the merchandise, and Great Star, in turn, sought indemnification from Pearlstone Investments, the owner of the ship. Was Great Star’s action proper?

  • Assuming Great Star is an agent of Pearlstone & assume they acted in good faith in securing the containers then they would have to be indemnified by Pearlstone


What are the duties of the agent to the principal?

  • fiduciary duty is only during the pendency of the agency
  • Duty of care (absent an agreement contrary):
    • perform the K & render services w/reasonable care
    • agent must indemnify principal for the loss cased by agent's wrongful behavior or failure to act w/reasonable care
  • Duty of loyalty: (common breaches are)
    • agent usurps (uses) the principal's property on behalf of the agent, rather than principal's own interest
    • if the agent goes into competition  with the principal


What are non-compete agreements between agent and principal?

  • Extension of the agent's duty not to compete with the principal
    • must be for a reasonable time
    • w/in a reasonable scope afte the relationship ends


What remedies does a principal have if the agent breaches his duties?

  • Breach of duty of loyalty
    • principal does not need to suffer a loss to recover
    • principal entitled to the profits of a disloyal agent
    • punitive damages may be award but only in rare cases
      • need malice or bad faith


What are the types of authority an agent can have?

  • Actual authority
  • Apparent aithority

Authority covers whether the principal is bound on Ks that the agent makes on his behalf


Define actual authority

    • Manisfestation from the principal to the agent  of the principal's request that the gaent act on behalf of the principal in a particualr way
      • Look at objective perspective of the agent


What are the types of actual authority?

  • Implied authority
    • to take action necessary or incidental to achieving the principal's objective
  • Express authority


What is the Equal Dignity Rule? for acutal authority

  • If the K the agent is entering into for the principal needs to be in writing for the SOF, the agency agreement must also be in writing


If the contracts the agent is entering into on behalf of the principal involve the sale of an interest in real property (which must be in writing under the Statute of Frauds), then the agent’s grant of authority to enter into these real estate contracts must also be in writing to be enforceable.


Define apparent authority

  • Arises based on the Principal's manifestation made to a 3rd pty
  • Used to expand an actual limitation of authority
  • Can be communicated to 3rd pty by appinting the agent to a particular position


Peter, the President of a corporation, appoints Adam to the position of General Manager, and says to Adam that while a General Manager normally can do X, Y, and Z, he can only do X and Y, not Z. In this situation, Adam has no actual authority to do Z. However, Adam will have apparent authority to do Z as long as the position communicates that authority to a third party and it is reasonable for the third party to think so under those circumstances.