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AGENCY
Essay Approach
1. Has an Agency Relationship Been Formed?
o Has the Principal manifested his assent to another, the Agent, to act on his/her behalf and
subject to the Principals control?
o Has the Agent manifested his assent to act on the behalf of the Principal?
o Key: Does the Principal control the Agents actions and interactions with Third Parties?
2. What is the scope their relationship?
o What is it that the Principal wants done?
o What does the Agent believe his/her role to be?
o What is the scope of the authority?
o What type of authority has the Principal given to the Agent?
o Have there been any breaches of the relationship?
3. When does the authority terminate?
4. If there was an agency relationship, was there a breach of that relationship?
o Who is responsible / liable for the breach?
o What is the relief? Damages? How much? Who gets to receive?
I. Agency: true agency relationship is created when one party, Principal, manifests to another party, the
Agent, that the Agent shall act on the Principals behalf and subject to Principals control, and the Agent
Agent manifests assent
Agent has fiduciary duty to act loyally to Principal
Since no presumption of agency, look at:
1. Consent
2. Control ** KEY **
3. Manifestation
A. Do the parties have the capacity to be Principal/Agent and form an Agency relationship?
1. Who can be Principal? Anyone who can lawfully enter into a contract
a. Minors can be a Principal, though it is voidable in some circumstances.
b. Unincorporated entity cannot be Principals, but their members can be.
c. Corporations can be Principals.
2. Who can be an Agent? Any person can be appointed to be an Agent, including a minor,
corporation, etc.
a. How can an Agent be disqualified?
i. If acting as Agent for 2 Principals at same time [dual-representation]; or
ii. If Agent has self-interest that materially conflicts with Principals interest
CAVEAT: Can get rid of both of these problems if Principal knows about issue,
consents, and parties agree to enter/continue the relationship
B. How is the agency relationship created?
1. Look at the manifestations of both the Principal and the Agent to evidence an assent / intention to
enter into the relationship. [manifestations broader than just words or just written doc; can be
formed by the actions of the parties]
2. What authority has the Principal given to the Agent?
a. Actual authority: P directs A to act -- depends on 1) whether requisite formalities met
(consent manifested by both parties, no consideration needed, no writing needed); 2) type of
actual authority; and 3) whether authority has been terminated
i. Express Authority: 4 corners of agreement -- authority contained in the oral or written
instructions to the Agent
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Specific language / instructions of authority prevails over any other types of
instructions
Express authority granted mistakenly (i.e. P mistakenly tells A to buy Whiteacre
instead of Blackacre and A does) P still liable
ii. Implied Authority: Agents reasonable belief as to extent of the authority granted by P
Incidental to express authority (i.e. P liable for As acts in performing what P
authorized A to do by all reasonable means);
Custom / usage (but A must act knowing custom);
Acquiescence (Ps permission of As future actions based on past actions);
Emergency: Where no specific instructions given, A can use reasonable means
iii. Special Cases of Authority:
Implied Consent to Agents Delegation of Authority: In general, an agent cant
delegate, but a Principal can consent to an agents delegation of authority where
delegation is required by the circumstances, or where delegation is part of the custom,
or b/c of impossibility.
In Seller / Buyer Context:
o Authority to Purchase (A gets authority to pay and receive);
o Authority to Sell (A gets authority to warrant, collect payment but only if the
goods are in As possession and if payment is in cash, and authority to deliver).
b. Apparent Authority: P holds out A to TP as Ps A (sometimes just by Ps silence), and
TPs reasonable reliance on the nature of the relationship btwn P-A
i. For this, focus on Third Party reasonable reliance
ii. Exists until terminated by Principal
iii. ** Lingering apparent authority situation where an A-P has ended but a TP still
thinks its ongoing; for P to cancel potential liability based on TPs reasonable reliance, P
must affirmatively act to cancel/terminate authority (e.g. notify TP that theres no longer a
A-P relationship)
c. Inherent Authority: similarly authorized actions (based on As past actions)
i. Respondeat Superior - used to impute liability to Prinicipal for torts committed by Agent
when master-servant relationship and Agents conduct was within the course/scope of
employment
ii. Was there a master-servant relationship?
Doesnt come into play if A was an independent contractor!
iii. Was Agents conduct within the scope of employment?
o Was As conduct of same general nature as or incident to that which A was to
perform?
o Was As conduct substantially removed from the authorized time and space limits
given by employer?
o Was As conduct done to serve the employers purpose or needs? If Y, then
Principal liable
o Frolic vs. Detour
Frolic: major deviation outside scope of employment, so Principal not liable
Detour: small or minor deviation from employers directions so Principal
liable
d. Ratification **: Principals retroactive authorization of As previously unauthorized
acts
i. Agent engages in unauthorized conduct, Principal later finds out and acknowledges and
accepts the Agents actions
ii. Only P can authorize. Also, if A and TP made a K, TP cant have known that A wasnt
authorized to enter into the K by the P at the time it was entered into.
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iii. A is relieved of liability.
iv. How does ratification happen?
o P must know the material facts of the transaction that P is affirming / ratifying;
o P must ratify / accept the entire transaction;
o P must have capacity;
o Need no consideration;
o P can ratify by EXPRESS or IMPLIED affirmance implied by: (1) P accepting
benefits, (2) P remaining silent when should speak; (3) P brings lawsuit asserting
rights based on the transaction
Relieves A of breach
v. When is a ratification invalid?
Performance illegal
Material change before ratification
TP knew, at the time TP and A entered into transaction, that A wasnt authorized by P
to enter into K
e. Agency relationship can be established by operation of law (i.e. law appoints someone to
do a task)
i. Courts can use Estoppel to say that an agency relationship exists [By estoppel: 3
rd
party
reasonable reliance test]
ii. By statute (e.g. if you get a drivers license, you are consenting to the secretary of state
being your agent)
C. When is Authority Terminated?
1. Death or incompetence of Agent
2. Lapse of time: where no time specified in agreement, use reasonable time
3. Materially Changed circumstances
a. Terminated when a material change of circumstances such that A should realize that P
wouldnt want A to exercise her authority ** (e.g. destruction of the subject matter of
authority; drastic change in business conditions; change in relevant laws; insolvency of A or
P)
4. ** When A breaches his/her fiduciary of loyalty to P
5. ** Unilateral Act by EITHER Agent or Principal
a. ** CAVEAT: Some Agency relationships are irrevocable (e.g. creditor-debtor) where no
unilateral termination allowed
D. Dispute Scenarios (Assuming Valid K) & Resulting Duties:
a. TP v. Principal or Agent:
i. If Disclosed Principal P is liable to T; A not liable
1. Disclosed P = If P known to T
ii. If Partially Disclosed / Undisclosed Pprincipal:
1. If TP didnt know ID/existence: BOTH Principal and Agent are liable to TP.
a. T must elect whom to pursue (not both)
iii. Principal only can hold TP liable on the K
1. Except where Principal identity fraudulently concealed from TP
b. Principal v. Agent: by PA agreement
Principal v. Agent Agent vs. Principal
Agents Duties:
1. Duty of LoyaltyA must disclose relevant
info if A has interests adverse to Ps interests
(e.g. self-dealing or obtaining secret profits)
Principals Duties:
1. Compensation: must pay A if agreed to
2. Reimbursement of all of As reasonable costs in
performing authorized acts
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2. Duty of ObedienceA acts per Ps wishes
3. Duty of Reasonable CareBased on As
skills, knowledge, experience, custom
Re: Sub-Agents:
- A sub-agent appointed with proper authority
owes to Principal the same duties that Agent
owes to Principal!
- An Agent is ALWAYS liable for breaches of
Sub-A
- A Sub-Agent is liable to the Agent for Sub-
As breaches of any duties to the Principal
3. Perform any duties imposed on P by K
Principals Remedies Against Agent:
1. Action for Damages (Contract or Tort)
2. Action for Secret Profit (disloyal self-dealing)
3. Accounting (in equity)
4. Withholding As compensation (can be done in
addition to any other remedies)
Agents Remedies Against Principal:
1. Sue for Breach of Contract (Note: A has duty to
mitigate damages)
2. Agents Lien (possessory lien against Ps
property held by A, until any money due is paid;
e.g. atty has lien on clients papers)