What is an agency relationship?
Voluntary, fiduciary relationship between a principal and an agent.
Principal authorizes Agent to act on Principal’s behalf.
Gratuitous Agency
Principal doesn’t compensate Agent for his work on Principal’s behalf
Contractual Agency (examples)
(1) Employer-employee, or (2) employer-independent contractor
Employer-employee relationship
Employer has the right to control what Employee does and how Employee does it
Employer-independent-contractor relationship
Employer has the right to control only what Agent does, but not how the independent contractors does it
(I.e., the independent contractor controls the means of accomplishing the end )
Factors to determine the employer’s right to control:
- Whether the work is typically performed by specialists without supervision
- Who supplies Agent with tools and a place to perform the work
- Length and exclusivity of the employment relationship
- Whether Agent was paid by the job (more likely to be an independent contractor) or at regular intervals (more likely to be an employee)
- Whether the work is part of Employer’s regular business
Requirements for creating an agency relationship?
- Principal must manifest an intent to grant authority to Agent to act (1) on Principal’s behalf and (2) subject to Principal’s control
- Principal’s requisite capacity = Contractual capacity (capacity to enter transactions, control one’s business affairs)
- Agent must consent to Principal’s grant of authority (i.e., act on Principal’s behalf and subject to her control)
- Agent’s requisite capacity to consent = Minimum mental capacity
Principal and Agent can manifest intent and consent expressly (written or spoken words) or impliedly (by conduct)
Agency by Ratification
Post hoc creation of an agency relationship
Requirements for Agency by Ratification
At the time of ratification, Principal must:
- have requisite contractual capacity to authorize Agent’s actions
- Principal must have had capacity only at the time of ratification, not at the time of the purported agent’s act that is being ratified
- have knowledge of all material facts concerning the transaction, and
- manifest assent (by words or conduct) that the purported agent’s unauthorized transaction is now binding on the principal
Duties owed by Agent to Principal
- Duty of Care
- Duty of Loyalty
- Duty to account for money or property received on Principal’s behalf
- Duty to keep Principal’s assets separate from Agent’s assets
- Duty of Candor
Duty of Care
Agent must:
- follow Principal’s instructions,
- perform duties with reasonable care, and
- indemnify Principal for loss caused by Agent’s failure to act with reasonable care
Duty of Loyalty
Agent must:
- prefer Principal’s interests over Agent’s interest or the interests of others,
- avoid self-dealing, and
- neither compete with Principal nor usurp business opportunities belonging to Principal
Duty of Candor
Fully disclose all relevant facts of which Principal would reasonably want to know
Duties owed by Principal to Agent
- Duty of Compensation
- Duty of Reimbursement
Duty of Compensation
Pay Agent the reasonable value of services rendered (unless agreed otherwise)
Duty of Reimbursement
Reimburse Agent for all reasonable expenses incurred in the scope of the agency relationship
When does an Agent’s acts have the power to bind the Principal?
An agent has the power to bind a principal when they act with actual or apparent authority.
Actual Authority
Actual authority exists when a principal makes a manifestation that causes the agent to reasonably believe that the agent is authorized to act on the principal’s behalf.
Actual authoirty can be either express or implied.
- Express = Authorization by Principal’s oral or written words
- Implied = Authority to conduct transaction reasonably necessary to carry out Agent’s express authority
Apparent Authority
Apparent authority exists when a third party reasonably relies on manifestations by the principal concerning the agent’s authority to act on his behalf.
Undisclosed Principal
A principal is undisclosed if the third party has no knowledge of the principal’s existence.
An agent who enters into a contract on behalf of an undisclosed principal becomes party to that contract.
Partially Disclosed Principal
A principal is partially disclosed if the third party knows of the principal’s existence but not identity.
Unless the agent and third party agree otherwise, an agent who enters into a contract on the behalf of a partially disclosed principal becomes liable on the contract.
Requirements to Ratify Contract
Principal ratifies an unauthorized transaction entered into by Agent if Principal has knowledge of all material facts and:
- manifests assent to the transaction, or
- performs some conduct indicating Principal consents to the transaction
Scope of Employment
(1) Tasks authorized by Employer
- Factors—The extent to which the conduct:
- is the kind of work Employee was hired to perform
- occurred within the time and space authorized by Employer
- was intended to serve Employer’s interests
(2) acts incidental to the conduct authorized
* Acts that ordinarily accompany the authorized conduct and serve Employer’s interest
Principal’s Contractual Liability to Third Parties
- Agent acts with Actual Authority
- Principal is liable on contracts when Agent acts with actual authority (express or implied)
- If Principal is undisclosed, P is liable if, after the transaction, the third party discovers Principal’s identity
- Agent acts with Apparent Authourity
- A party is bound as a principal if that party’s words, acts, or failures to act cause the third party to reasonably but mistakenly believe the putative agent was authorized to act
- NOTE: Apparent authority is created by Principal’s conduct, not Agent’s conduct
- apparent authority can’t be applied when Principal is undisclosed
