Agency Law Flashcards
What are the basics of Agency law?
Agency Law deals with someone’s ability to bind you to a contract with a third party
o A contract is NOT required and an Agency agreement is not based on Contract Law
Exception – If duties cannot be performed within a year, a signed writing is required
o Both parties must consent to the relationship and intend for an Agency relationship to exist
o Agent owes Principal fiduciary duty
o Principal doesn’t owe Agent fiduciary duty
What is Actual Authority related to agency law?
o Actual Authority is what is expressly granted or is implied by the duties you expect the Agent to perform and is necessary to carry them out
What is implied authority?
When authority is expressly granted, it is implied that the agent has the authority to carry out the duties
Example – Authority to pay bills and manage employees if the duty is to run a store
Does not include authority to sell or alter the business
What is Apparent (Ostensible) Authority?
o Apparent Authority is based on the third party’s perspective – they believe that the Agent has the authority to enter into a contract based on
- Prior dealings with the Agent – In the past, they had the authority to buy 10,000 widgets, so it is believed that they still have the authority to do so
- Agent has been given a title that would lead the third party to believe that they can enter into contract. Example – Football player calls a man His Agent – Football teams then believe he has the power to negotiate a contract for the Football player
- The Principal hires the Agent to carry out duties that normally carry with them the rights to enter into contracts – Using the Football player example, Agents are usually hired to negotiate contracts, so a Football team could legitimately believe that an Agent had the authority to do so
What is the difference between Actual vs. Apparent Authority?
o Actual – Football player hires Agent to execute contracts for him
o Apparent – Football player hires a guy to manage some of his affairs, calls him his Agent, tells
Football teams that he’s his Agent, but doesn’t intend for him to execute contracts for him
o In both cases, the Agent can bind the Football player to contracts though both Actual and
Apparent Authority
o Actual Authority – You have been granted it
o Apparent Authority – Third Parties legitimately believe that you have it
o Both are binding to Principal (Football player)
o Remember – if an agent exceeds their authority and the third party doesn’t know this
o If it’s reasonable for them to believe that the agent has the authority to execute a contract (third party has worked with agent before on similar deals)
The Principal is bound to the contract due to Apparent Authority
If the Third Party has to sue in order to force the Principal to perform, the Third Party will win
How do you terminate an Agency relationship?
o Both Agent and Principal agree to terminate
o Principal fires Agent
o Agent fires Principal
o Agent breaches their contract by doing something like violating their obligation to act as a fiduciary to
Principal
How do you terminate Apparent Authority?
o Let the public know
o Let the people or entities with whom the Agent
previously interacted know
o In cases of death, or Principal is otherwise not
competent to contract, ALL authority is revoked
Agency Coupled with an Interest
o Agent acquires an ownership interest in the Agency
o Can only be terminated early (before the interest expiration date) by the Agent
o Unless the Agency has a specific time limit spelled out in a contract, the Agent’s authority is irrevocable by the Principal
* Basically, the Agent is working for the Principal and gets an interest in the Agency in lieu of payment
* The Principal can’t just fire the agent at any time in this scenario unless there is a contract that specifies when it ends
* The Agent, on the other hand, can leave at any time without being liable o An example of an agency Coupled with an Interest is a lender holding the liquidation rights of certain property in case the borrow defaults
Why is responsible when an EE insures a 3rd party while acting within the scope of their duties?
Both Employee and Employer are liable
Delivery truck is speeding and plows into a car on the way to dropping off some boxes
Both truck driver and employer can be sued
Delivery truck driver decides to take the truck to the casino 30 miles down the highway on a Friday night after work and plows into a car
Only truck driver is liable
Who is liable for Agents acting outside of their authority?
Agents are liable for torts (civil wrongs) committed whether they had authority or not
What is an exception to agent liability?
Principal ratifies the contract which relieves Agent of liability
In order to ratify, Principal must:
Know all of the facts
What must Principal do?
- Principal must ratify before third party cancels agreement
- If Principal keeps the benefits of the contract, ratification is implied
- Contract must be 100% ratified or there is no contract
Liability when acting for an Undisclosed Principal
o Agent liable to third party even if acting within authority
o Third party can sue both Principal and Agent if
Principal becomes disclosed
o Agent can then sue Principal
What is POWER OF ATTORNEY?
Must be in writing Must be signed by person granting the POA o Agent doesn’t need to sign o General POA Agent authorized to handle all affairs o Special POA Agent authorized to handle only specific affairs o Ends upon death of Principal
