Agency Basics

• Agency


  Relationship where principal gives authority to agent, who is subject to principal's control, and agent agrees
• How Agency is Formed


  1. Principal gives authority to agent

  2. Agent is subject to principal's control

  3. Agent agrees
• To Hold Principal Liable for agent's action


  • Third party must show agency existed
  • Third party must show agent acted with authority
• Types of Agency or Authority

  • Actual agency or authority (express or implied)
  • Apparent agency or authority (manifestation by principal, reasonable belief by third party)
  • Undisclosed principal (can be held liable if reasonable)
• Ratification


  Principal's affirmance after a prior act, giving effect as if there had been actual authority for the would-be agent
• Agency by Estoppel


  Principal acts in a way that leads to reasonable belief by third party, and third party acts in reliance
• When is agent liable to Third Party?


  • If agent acted within authority, agent is not liable
  • If agent didn't fully disclose principal, agent is liable
• Tort Liability in Agency


  • If master servant (employee) relationship, principal is liable if within scope of employment
  • Apparent agency is an alternative way to establish principal's tort liability
• Scope of Employment


  No liability of principal for agent's torts if agent acted beyond scope of employment
• Exceptions: When is person liable for independent contractor's torts?


  • If hiring person exercises substantial control over contractor
  • If hiring person was negligent in doing the hiring
  • If the activity of the contractor was inherently dangerous
• Agent Breaches Fiduciary Duty


  • Agent takes bribes
  • Agent has a conflict of interest
  • Agent benefits from employee status
• Departed Employee keeps information


  • Conduct governed by employment contract or fiduciary duty of agent
  • Balancing of employer's interest against employee's right to move on
  • Customer interest may affect analysis
• Agency is a relationship that is created when one party, the principal, either expressly or impliedly authorizes another party, the agent, to act on his or her behalf.
• Parties may only enter into an agency relationship if they possess the requisite capacity. The level of capacity necessary is different for a principal than an agent.
• Capacity required for a party to authorize an agent


  Akin to the general capacity required to enter into a contract
• The relevant time at which capacity is measured is not when the principal enters into the agency agreement but when the agent acts
• Party must be to act as a principal


  • Either an individual or a recognized legal entity, like a partnership or a corporation, capable of holding rights and undertaking obligations
  • An unincorporated non-commercial organization has no capacity to act as a principal (although the individual members could act as principals in their personal capacities)
• Individual must have reached the age of majority to act as a principal


  Minors are not legally capable of undertaking binding contractual obligations
• A contract entered into by a minor


  Is voidable by the minor (though the other party may be entitled to some reasonable compensation if there was no fraud or overreaching)
• In most states minors may not avoid contracts for "necessaries" like food, shelter, and clothing
• If a minor does appoint an agent

  The minor may disaffirm either the appointment or any action taken by the agent
• The minor may not avoid an agreement for "necessaries" undertaken by an agent
• Some states have created special rules for minors engaged in the entertainment industry, which create procedures for ensuring contracts cannot be disaffirmed
• Party may only act as a principal if that party has the required mental capacity to enter a contract


  The party must have the mental capability to understand the nature and consequences of entering the agreement
• A contract entered into by someone without mental capacity


  Is voidable either by that person when she regains capacity or by her personal representative (though there are a few states that hold such contracts void)
• An agency appointment and any act of an agent done on behalf of an incompetent principal


  May be disaffirmed or ratified by the principal when he or she regains competence or by the principal's personal representative
• Who has the capacity to serve as an agent?

  In contrast, generally anyone may act as an agent. Restatement (Third) of Agency § 3.05. Minors or individuals who are mentally incompetent to enter contracts on their own behalf may serve as agents. That said, some states require minimum mental capacity. Moreover, the agent’s lack of capacity may limit his or her obligations and liabilities to the principal or third parties.
• What is dual agency?

  an agent from representing both parties in a transaction. This is called dual agency. The parties may sometimes waive these restrictions, so long as they give informed consent (sometimes this must be evidenced by a signed writing).
• Many states require agents acting in certain activities, such as real estate, to be licensed. Only agents with the required licenses may act in those transactions. 
• Are all duties delegable to an agent?

  While an agent may generally be appointed to do anything that the principal could do, some duties are non-delegable. Those duties, either as a matter of contract or by operation of law, are personal to the principal and only the principal’s performance will satisfy them.
• Consent to form an agency relationship


  consent may be demonstrated orally, in writing, or by the parties’ conduct
• Apparent Agency


  An agent may be vested with apparent authority when the principal says or does something to communicate to a third party that the agent is authorized to act on his behalf.
• A de facto agency relationship may be created based on the doctrine of estoppel. 


  This doctrine prevents a principal from denying the existence or avoiding the consequences of an agency relationship, because the principal (1) “intentionally or carelessly” caused a third party to believe that a valid agency relationship existed or (2) failed to correct a third party’s reasonable belief that an agency relationship existed despite being aware that the party might detrimentally rely on that belief.
• An agency relationship may be created by operation of law. 


  Many states have statutes that create limited agency relationships to serve specific purposes. For example, a state may enact a nonresident motorist statute, which authorizes the secretary of state or some other official to act as the agent for any out-of-state driver for purposes of receiving service of process.
• Universal Agent


  a universal agent is just what it sounds like: an agent who is empowered to engage in any and all activities, of any type, on behalf of the principal. This type of agency is quite rare.
• General Agent


   a general agent is authorized to engage in a series of transactions or all transactions of a particular type, sometimes for a continuous, ongoing period.
• Special Agent

  a special agent is an agent authorized to engage in a single transaction or a time-limited series of transactions.
• Actual Authority

  Actual authority refers to the power that the principal specifically granted to the agent to act or that the agent reasonably believes was authorized by the principal. Restatement (Third) of Agency § 2.01. Actual authority may be express or implied.
• Express Authority

  Express authority refers to any power specifically granted by the principal to the agent, whether orally or in writing. This is construed according to a reasonable person standard.