FINAL REVIEW OUTLINE: AGENCY

I.

Agency Relationship
A. Creation of an agency relationship
1.

Power to bindmay be expressed orally or in writing, implied by the principals (Ps)

conduct, or misinterpreted by a third party

2.

Existence of a relationship

P manifests assent to an agent (A)

A acts on Ps behalf

As actions are subject to Ps control, and

A manifests assent or otherwise consents

B. Principal
1.

Ps controlP has the right to control the result or the ultimate objectives of As work

2.

Types of Ps

Individuala persons status as P is established by the persons intent to delegate an

act and control the way in which the act is performed by another

EmployerP who employs an employee to perform services and has the right to
control the physical conduct of the employees performance (Ps control over day-today activities, supplying tools of trade, structured pay period, specialized skill level, and
P directs work to completion)

Entrepreneurs, corporations, and partnerships

C. Agent
1.

Consensual nature of relationshipA must have minimal capacity, and must manifest
assent and consent to act on Ps behalf and to be subject to Ps control

2.

Types of As

Individual

Employeepaid hourly or for long time periods, the work is integral to that of P, and
the tasks are completed under Ps direction

Independent contractornot subject to Ps control regarding the physical conduct

of As performance

Gratuitous agentdoes not prevent the creation of an agency relationship, but does
prevent an enforceable contract

Trusteesubject to the control of the settlor or beneficiary

Subagenta person appointed by A to perform the functions that A has agreed to

perform for P

D. Formation of an agency relationship

1.

Capacity

Pmust consent to enter into the relationship and the transaction to which A purports
to bind P

II.

Ajust needs physical/mental capability to do whatever he has been appointed to do

(minors/incompetents can be As but minors cannot form contracts, and unincorporated
associations cannot be As)

2.

Consentboth P and A must consent, but A can manifest assent by performing acts on
behalf of P

3.

Considerationnot necessary

4.

Writinggenerally not necessary

Liability of Principal and Agent to Third Parties

A. Contractual liability of the P
Actual authority

1.

Express actual authorityoral or written words; clear, direct and definite language;
or specific, detailed terms and instructions

o IntentPs manifestation must cause A to believe that A is doing what P wants

(subjective standard) and As belief must be reasonable (objective standard)
o DissentP must give clear notice if P disagrees with As actions

Implied actual authorityallows A to take whatever actions are properly necessary

to achieve Ps objectives, based on As reasonable understanding of the manifestations
and objectives of P
o Customabsent contrary instructions, A has implied authority to act within
accepted business customs or general trade usage within an industry
o Acquiescenceimplied by Ps acceptance of As acts or Ps failure to object to
unauthorized actions of A that affirm As belief regarding Ps objectives and support
As perceived authority to act in future
o Delegategenerally A is prohibited from delegating either express or implied
authority to a third party without Ps express authorization

2.

Apparent authority

Ps behaviorderives from the reasonable reliance of a third party on that partys

perception of the level of authority granted to A by Ps behavior (over a period of time)

Third partys reasonable belief based upon:

o Past dealings between P and A
o Trade customs
o Relevant industry standards
o Ps written statements of authority
o Transactions that do not benefit P
o Extraordinary transactions for P
As positionby appointing A to a specific position (e.g., VP or GM), P makes a
manifestation to the public that A has the customary level of authority of that position

3.

Termination of authority

Revocation/renunciationeffective as soon as either party gives notice to the other

party (unless As power is coupled with an interest in the subject matter of the power)

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Agency agreementP and A mutually agree to terminate As authority, or the

occurrence of specified circumstances in agreement

Change of circumstancesshould cause A to reasonably believe that P no longer

consents to A acting on Ps behalf (e.g., change in law, insolvency, dramatic change in
business conditions, destruction of subject matter, disaster)

Passage of timea reasonable period of time

Ps death or suspension of powersnot automatic; modern trend is As actual

authority terminates upon notice

Ps loss of capacitymodern trend is As actual authority terminates upon notice

As death or suspension of powersautomatically terminates As actual authority

Statutorily mandated termination or As breach of fiduciary duty

4.

Estoppelapplies when a third party is justifiably induced to make a detrimental change

in position because that third party believed the transaction was entered into for P and P
failed to take reasonable steps and use ordinary care

5.

RatificationP must ratify the entire act/transaction, P must have legal capacity,
ratification must be timely, and P must have knowledge of the material facts involved in
the original act

B. Ps liability to third parties in tort for As conduct

1.

Ps vicarious liability for As torts

Respondeat superior
o P is vicariously liable to a third party harmed by A who is an employee and who
committed an act within the scope of employment
o Scope of employment (S/E)

An employee is within S/E when either performing work assigned by the

employer or engaging in a course of conduct subject to the employers control

Intentional tortsmay fall within S/E when conduct is within the space and
time limits of employment, the employee was motivated to act for the
employers benefit, and the act was of the kind that the employee was hired to
perform

Work-related travelcommuting is not within S/E but travel to perform

work is within S/E

Frolic and detour

Frolicthe employees personal errand involving a significant deviation
from performing work is outside S/E
Detourtravel for a personal errand may be within S/E if it is merely a
detour

2.

As apparent authorityif a third party reasonably believes that A acted with actual
authority and it is traceable to Ps manifestation, then P is vicariously liable for As tort
(e.g., misrepresentation, defamation, conversion) even if As conduct isnt beneficial to
P

Ps direct liability to third parties

A has actual authority or Ps ratificationP authorizes the conduct or intended its

consequences, or P affirms a prior act that was done or purportedly done on Ps behalf

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Negligence in selecting, supervising, or controlling A

Non-delegable dutieswhen a responsibility is so important to the community that

a person should not be permitted to transfer it to another person (e.g., inherently
dangerous activities such as using explosives)

C. As liability
1.

Contract liability

As liability as a party to a contract

o Disclosed PA doesnt become a party to the contract if he enters into it on behalf
of P, and the third party has notice of both the existence and identity of P
o Partially-disclosed PA becomes party to contract when the third party only has
notice of Ps existence (not Ps identity)
o Undisclosed P:

If A binds P to the contract, and the third party has no notice of Ps existence,
then both P and A are parties to the contract

Third-party liability to undisclosed Pliable unless P is excluded by the

contract terms or Ps existence was fraudulently concealed

Undisclosed Ps liability to third partyliable if the third party

detrimentally changes position because of A without actual authority, and P
knew of As conduct and did not take reasonable steps to notify the third party

o As implied warranty of authorityif A lacks power to bind P, then a breach has

occurred
o Fraudulent concealmentP or A must have notice that the third party would not
have dealt with P
2.

Tort liabilityA is liable to the third party for negligent and intentional conduct, but is not
liable for Ps torts

III. Rights and Duties of Parties to an Agency Relationship

A. Rights and duties of P
Rights of P (A can be liable in tort and contract)

1.

2.

Control of Aright to control As acts on Ps behalf

As duty of careA must follow Ps instructions and perform duties, tasks, and
transactions with reasonable care, diligence, and judgment

As duty of loyalty/obedienceA should avoid acts in As self-interest in agency

matters and refrain from secretly profiting from transactions on behalf of P

Notice/accountingP is entitled to notice of all relevant issues, and an accounting

of property or funds used on behalf of P

Duties of P to A

Deal fairly and in good faith per the contract termsprovide A with information
concerning risks of physical or financial harm/loss that P knows but A does not; duty to
not injure As business reputation

Compensationif P expressly or impliedly agreed to pay A

Duty not to interferewith As completion of agency work

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3.

Duty to indemnifyagainst pecuniary loss suffered in connection with agency

relationship and within scope of As actual authority (but not for As negligence or
illegal or wrongful conduct)

Ps remedies for breach by Ainjunction, breach of contract action, tort action,

rescission, restitution, accounting, termination of agency relationship, forfeiture of
compensation, or disgorgement

B. Rights and duties of A

1.

Rights of Acompensation, not have P interfere, indemnification/reimbursement, safe

work environment, and contract or tort remedies

2.

Duties of A to P

Duty of loyaltyto act solely for the benefit of P (whether A is compensated or

gratuitous), including not dealing with P as an adverse party without Ps knowledge,
not acquiring a material benefit in actions on Ps behalf, not usurping business
opportunities or competing with P, and not using Ps confidential information

Performance-based dutiescontractual duties, duty of care/diligence normally

exercised by A in similar circumstances, duty of obedience, duty to provide relevant
information and accounting, and no commingling of accounts

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