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Flashcards in Ch 8: Agency Deck (21):

What are the requirements to create an agency?

  • Consent of both parties; and
  • Capacity of the principal (i.e. not a minor and not incompetent)

Note: Consideration is not required and a writing is necessary only if the agent is to purchase land on behalf of the principal or if the agency cannot be performed within one year. MYLEGS

Note also that the agent need not have contractual capacity (a minor can serve as an agent, and the agent may be mentally incompetent).


What are the duties of the agent to the principal?

  • Loyalty
    • act solely in principal's interest, no kickbacks
  • Obedience
    • agent must obey all reasonable directions of principal
  • Reasonable care
    • duty not to be negligent
  • Duty to account
    • account to the principal for all property and money received and paid out 
    • agent cannot commingle the principal's property with the agent's property
  • Subagent
    • if an agent is authorized to hire a subagent, the subagent owers a duty of care to both the agent and the principal


What are the principal's remedies if the agent breaches the duties she owes to her principal?

  1. tort damages
  2. contract damages
  3. recovery of secret profits (construtive trust)
  4. withhold compensation


What are the duties of principal to the agent?


  • Compensation
  • Reimbursement


What types of agency relations cannot be unilaterally terminated by the principal?

A principal may not unilaterally terminate an agency coupled with an interest. Only the agent can terminate an agency coupled with interest.

  • this arises where the agent has an interest in the subject matter of the agency


Agency power can arise through:

Power and right:

  1. a grant of actual authority

Power, but no right:

  1. apparent authority or estoppel, or
  2. ratification


What is the difference between actual authority and apparent authority?

  • actual authority arises from the agent's reasonable belief taht he has the pwoer to bind the principal, not the 3rd parties' belief
  • apparent authority arises from the 3rd parties' reasonable belief that the agent has the power to bind the principal


Define actual (real) authority.

Actual authority is that which an agent reasonably thinks he possesses based on communications from the principal.

An agent with actual authority has the power and the right to bind his principal.

Actual authority can either be express or limited.


What are the 2 types of actual authority?

  1. Implied authority 
    • from position, past acts, circumstances
  2. Express authority
    • authority specifically granted by the principal
    • agent needs express authority to borrow money on the principal's behalf


List the terminations by operation of law of an agency with actual authority.

  • death of A or P
  • incapacity of P
  • discharge in bankruptcy of P
  • failure to acquire a necessary license
  • destruction of the subject matter of the agency
    • P hires A to purchase a car, but the car is destroyed before it can be purchased
  • subsequent illegality
    • P hires A to purchase an antique machine gun, but before the gun can be purchased, congress passed a law prohibiting private ownership of machine guns


Define apparent authority.

  • Apparent authority is that which a 3rd party believes an agent possesses as a result of the principal's communications with the third party


  • because the principal was negligent and so will be estopped from denying that the agent had authority.


If a principal tells a purchasing agent not to spend more than $500 on each purchase, but tells the agent not to disclose this ceiling amount to 3rd parties, has the principal effectively limited the agent's apparent authority?

No. Secret limiting instructions are sufficient to limit actual authority, but do not limit apparent authority because apparent authority is based on the 3rd party's reasonable belief in the agent's authority. An instruction of which the 3rd party is unaware can have no effect on the 3rd party's beliefs.


Would the manager of a retail business generally have implied authority to:

  • hire employees?
  • purchase merchandise?
  • sell the store's trade fixtures?

  • A manager generally has implied authority to hire and fire employees.
  • Whether the manager would have implied authority to buy merchandise depends on the nature of the business and the customs of the industry.
  • A manager generally has no implied authority to sell his store's trade fixtures because the manager's apparent authority is limited to running the business, not dissolving it.


What is the difference between a general agent and a special agent?

  • A general agent is one who is authorized to engage in a series of transactions involving a continuity of service.
  • A special agent is one who is authorized only to engage in a single transaction or a single type of transaction.


Is notice required to terminate apparent authority?

  • when a principal terminates an agent's actual authority, the agent will continute to have apparent authority to perform until the principal notifies third parties
  • actual notice: must be given to terminate apparent authority to old cusstomers
  • constructive notice: must be given to terminate apparent authority to new customers
    • party should have known, as a reasonable person would have, even if they have no actual knowledge of it.


Is notice required for termination of apparent authority by operation of law?

  • No, no notice is required if the relationship is terminated by operation of law
  • death of the principal or agent
  • incapcity of the principal
  • the principal receives a discharge in bankruptcy


Under what conditions may a principal ratify an unauthorized transaction?

The agent must have indicated that he was acting on behalf of the principal.

The principal also must:

  • Know all the material facts surrounding the transaction, and
  • Accept the entire transaction

In addition, the 3rd party must not have already revoked.


Describe the differences between a disclosed, partially disclosed, and undisclosed principal.

  • A disclosed principal is one whose existence and identity are disclosed to the 3rd party with whom an agent deals.
  • A partially disclosed principal is one whose existence is disclosed, but whose identity is not disclosed.
  • An undisclosed principal is one whose existence and identity are not disclosed to the 3rd party with whom the agent deals.


Who is liable to 3rd parties in the case of an undisclosed or partially disclosed principal?

Both the agent and the principal are liable if the principal is undisclosed or partially disclosed.

Only the principal is liable if the principal is fully disclosed.


What elements are necessary to establish a principal's liability under respondeat superior?

  • An employer-employee relationship
  • Act committed within the scope of employment


*Generally, an agent is not liable for the torts committed by his agent. Exception: Respondeat superior - an employer can be liable for an employee's torts committed within the scope of employment.


What is an employer's liability for independent contractors?

The general rule is that an employer is not liable for torts committed by independent contractors, but there are certain situations in which the employer can be held liable for torts of independent contractors:

  • ultrahazardous activities
  • authorized misrepresenation