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Agency, Types of Principals
Disclosed principal
the 3rd party…
Agency
Actual Authority
Express
- can be created through:
- oral or written words,
- clear, direct, & definite language
- specific detailed terms and instructions
- Rule: Actual authority is created by a principal's manifestation to an agent that, as reasonably understood by the agent, expresses the principal's assent that the agent take action on the principal's behalf
- A principal's manifestation must reach the agent to create actual authority
Implied
- allows an agent to take whatever actions (designated or implied in P's manifestations) are necessary, usual, proper to achieve P's objectives
Common Sources of Implied Actual Authority
- business customs
- agent has implied authority to act within accepted business customs or general trade usage within the industry
- position:
- a P may manifest assent to the actions of his agent by placing the agent in a position that customarily has certain authority (ex: VP, treasurer)
- acquiescence
- P accepts the agent's acts as they occur or
- P fails to object to the unauthorized actions of the agent
Termination of Authority
- Agent's actual authority can be terminated by:
- P's revocation
- P's [mutual] agreement with the agent
- change of circumstances
- passage of time
Termination of Agency Agreement
- the P and A can mutually agree to terminate the agreement that formed their agency relationship
Apparent Authority
- results when the principal causes a 3rd party to reasonably believe that the agent has authority to act
- Rule: an agent acts with apparent authority when a 3rd party [with who the agent acts] reasonably believes the actor [the agent] has authority to act on behalf of the principal
- the reasonable belief is traceable to P's manifestations
- look for: what is the principal communicating to the 3rd party about the agent's actions?
- apparent authority continues until the 3rd party has notice of the termination of the agent's authority
Reasonable Belief Factors
- past dealings between the P and A of which the 3rd party is aware
- trade customs regarding how a similar transaction is normally accomplished
- relevant industry standards
- P's written statements of authority
- transactions that don't benefit the P
- extraordinary or novel transactions for the P
Ratification
- Rule: Ratification occurs when a principal affirms a prior act that was done or purported to be done on the principal's behalf.
- a principal can ratify an act performed by another person, whether or not the person is the actual agent of the P
- P's affirmation can be express or implied
For ratification to occur, there must be:
- principal must ratify the entire act, contract, or transaction
- principal must have legal capacity to ratify the transaction when it occurs; 3rd party must have legal capacity to engage in the transaction
- P's ratification must be timely
- P must have knowledge of the material facts involved in the original act
Creation of Agency Relationship
- Rule: An agency relationship is created when:
- P manifests assent to an A
- A manifests assent or otherwise consents
- A acts on P's behalf
- A's actions are subject to the P's control
Contractual Liability of P
- P is subject to liability by 3rd party on a contract the agent enters into on P's behalf if the agent has the power to bind the P to the contract
Contractual Liability of A
- enters a contract on behalf of disclosed principal: the A does not become a party to the K, unless the agent and 3rd party agree otherwise
- enters a contract on behalf of partially disclosed principal: the A becomes a party to the K, unless the agent and 3rd party agree otherwise
- enters a contract on behalf of undisclosed principal: agent is a party to the K and is liable to the 3rd party on the contract
- liability of third party - a 3rd party is liable to an undisclosed principal on a K made by an agent on behalf of the principal
- liability of principal - an undisclosed principal can be liable to a 3rd party if:
"General Rule"
The agent binds a P to a contract entered into between the agent and 3rd party if the agent acts with:
- actual authority
- apparent authority
Types of Agents
- individual
- has contractual capacity and is not a minor
- has intent to delegate an act and control how it is performed by another
- employee
- an agent who is subject to the principal's control re physical conduct of the employee's performance
- independent contractor
- an agent who is not an employee
- not subject to P's control regarding the physical conduct of the agent's performance
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Formation of Agency Relationship
- Capacity: to be a principal and be bound by an agent's actions, a person must have capacity both to consent AND to enter into the transaction to which the A purports to bind the P
- ex: minors can serve as an agent - but no capacity to form a K
- incompetents: does not have legal capacity to be a P, but can be an agent
- unincorporated assoc.: lack capacity to form agency relationships
- Consent
- Both the P and A must consent to the agency relationship
- verbal consent isn't required; performing acts for the P indicates assent
- Consideration
- Parties may create an agency relationship without consideration
- Writing Requirement
- Generally not necessary to create an agency relationship
- Equal-dignities rule: operates to protect the principal against 3rd party actions
Indemnification
- Rule: an agent has the right to indemnification for losses incurred when the agent transacted lawful business with actual authority
- an agent has the right to be reimbursed by the principal for expenses incurred by the agent regarding the agency relationship
- an agent does not have the right to be indemnified for losses resulting from an agent's own negligence, illegal acts, or wrongful conduct
Duties between Principal and Agent
Rights and Duties of P
- Rule: a principal has the legal right to require an agent to act or refrain from acting on his behalf. A has a corresponding duty to act or refrain from acting on behalf of the principal.
- Rights of principals:
- control of the agent
- agent's duty of care
- agent's duty of loyalty and obedience
Rights and Duties of A
- Rule: Generally, an agent has a right to be compensated, allowed to work w/o reference, reimbursed for loss, provided with safe work environement, and indemnified for working on behalf of a P.
- Rights of agents:
- right to receive compensation
- right to indemnification & reimbursement
right to have P not interefere
with agent's work
** Duties of agent:**
duty of loyalty
duty of care
Types of Principals
- Disclosed principal
- the 3rd party has notice of both the existence and identity of the principal
- unless Agent & 3rd party agree otherwise, the A does not become a party to the K
- Partially disclosed principal
- the 3rd party has notice of the principal's existence but not the principal's identity
- unless Agent and 3rd party agree otherwise, the A becomes a party to the K
- Undisclosed principal
- the 3rd party has no notice of the principal's existence
- Agent is a party to the K and is liable to the 3rd party on the contract
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