AGENCY OUTLINE1
1. INTRODUCTION. Agency is a consensual contractual
relationship between the Principal or master and the agent or
servant. An agent may be an employee. Partners are agents
of each other and the Partnership. Corporate officers and
Directors are agents of the corporation. Issues usually involve
whether the Agent can bind the Principal in contract and tort.
2. CREATION OF RELATIONSHIP
a. Principal must have contractual capacity. Minors cannot
be principals except for necessaries.
b. Agent need only have minimal capacity, thus a minor can
be an agent.
c. Agents cannot represent both parties in a transactions nor
may the agent act secretly on his own account.
d. There are few formalities. No consideration is necessary.
No writing is required. Relationship may be created by
express agreement, which gives the agent actual
authority to bind the principal; the principal may hold a
person out as his agent to a third party, creating apparent
authority; or the principal may agree to be bound after the
fact, which is called ratification.
3. AGENT MAY BIND PRINCIPAL IN CONTRACT
a. If the agent had actual authority the principal will be
bound to the contract with a third party even if the
principal and the agency relationship is unknown to the
third party. The agent cannot be held liable for breach of
the principal if the agent acted within the scope of his
authority.
b. Express authority is that conferred by the agreement,
whether written or oral.
c. Implied authority is that the agent reasonably believes he
has as a result of principal’s actions. It can be implied
from a grant of express authority, be implied from custom
and usage, it can be implied by the principal’s
acquiescence to series of unauthorized acts, because of
emergency.
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d. Termination of actual authority
i. Lapse of specified time, or if no time specified a
reasonable time.
ii. By happening of a specified event.
iii. By change of circumstances, such as destruction of
the subject matter of the agency, change in
business conditions, change in laws, insolvency of
principal or agent, unilateral act by either party.
iv. An agency is revocable at the will of either party
unless it is coupled with an interest or is given as
security.
e. Apparent authority. Where the principal holds out another
as possessing authority, inducing a third party to
reasonably believe authority exists. Based on the
reasonable belief of the third party.
f. Lingering apparent authority is when the agent had actual
authority, that authority is terminated, and a third party
has a history of dealing with the agent while she had
apparent authority. Agent has actual authority until
principal notifies third party. Death or incapacity of the
principal terminates all authority without notice to agent or
third party.
g. Ratification occurs when the agent had no authority,
actual or apparent, but the principal approves of the
agent’s actions after the fact. Principal will be bound to
the contract. The agent will be relieved of liability for
acting outside the scope of his authority. Principal must
know all the facts, must accept the entire transaction,
have capacity. The ratification may be expressed or be
implied by acceptance of the benefits of the contract or
silence by principal. Ratification can only be done by a
disclosed principal.
4. LIABILITIES OF PARTIES
a. If agent had authority principal is bound.
b. If principal is disclosed agent is usually not bound unless
i. Parties intended agent be bound
ii. Only principal may enforce contract.
c. A partially disclosed principal is one whose existence but
not identity is known. An undisclosed principal whose
existence is unknown to third parties.
i. Both agent and principal are bound if principal is
partially disclosed.
ii. Both agent and principal are bound if principal is
undisclosed.
iii. If principal is disclosed only principal, not agent, can
enforce the contract.
iv. If principal is partially disclosed or undisclosed
principal or agent may enforce contract.
v. Principal may not enforce contract if agent, by
affirmative misrepresentation, has fraudulent
concealed the identity of the principal.
5. DUTIES OF AGENT TO PRINCIPAL.
a. Duty of loyalty. Fiduciary duty of agent to principal is
undivided loyalty. Self-dealing or taking secret profits or
representing two principals with adverse interests is a
breach.
b. Duty of obedience. An agent must obey all reasonable
directions of principal.
c. Duty of reasonable care. Includes duty to notify principal
of information relating to the agency. Knowledge is
imputed to principal.
d. Principal has remedies:
i. Damages for breach of contract, damages in tort.
ii. Action for secret profits.
iii. Accounting. An action in equity.
iv. Withhold compensation for intentional tort or
intentional breach of fiduciary duty.
6. DUTIES OF SUBAGENT TO PRINCIPAL AND AGENT.
a. Powers of agent may include appointment of subagent.
Subagent owes same duties to principal as agent.
b. Agent also liable to principal for subagent’s breach of
duties.
c. If subagent was not authorized subagent has no liability to
principal.
7. DUTIES OF PRINCIPAL TO AGENT
a. Compensation. No duty to compensate subagent.
b. Reimbursement to agent and subagent.
c. Duty to cooperate.
d. Agent’s remedies
i. Breach
ii. Agent’s lien
8. TORT LIABILITY OF PRINCIPAL
a. Based on respondeat superior. Must be a
employer/employee relationship and servant must be
acting within scope of employment. Liability is joint and
several. Master-employer may also be directly liable for
negligent hiring, training and supervision.
b. Scope of employment. Act must be within the duties of
the servant. Three tests: whether conduct was of the
same general nature as that for which the employee was
hired; whether the conduct was substantially removed
from authorized time and space limits of the employment;
whether the conduct was actuated by purpose to serve
master.
c. Small deviations are detours and fall within scope of
employment. Major deviations are frolics which are
outside scope of employment. Employee may return to
the master’s business after frolic.
d. Serious criminal acts are usually outside the scope of
employment.
e. Intentional torts are usually outside scope of employment
unless it furthers the purposes of the principal.
f. Principal not responsible for torts of independent
contractor.
i. Most important factor is right to control the servant.
ii. Agent has distinct business
iii. Where great skill is required of agent more likely IC
iv. If agent uses own tools and facilities
v. If agent is paid on a per job basis.
vi. But principal is liable for torts of IC if it is a
nondelegable duty. Or of it is an inherently
dangerous activity such as blowing things up.
g. Principal liable for torts of authorized subagent.