Elements to Agency Relationship
- Consent of both parties: Principal consents & Agent consents (1.01)
a. Express consent (exception, Statute of Fraud)
b. Implied consent (by facts and conduct of the parties) - Agent acts (primarily) on behalf of the Principal
- Agent is subject to the Principal’s control (factual and circumstantial
assessment) - No consideration is needed
- No formalities are needed (expect: Statute of Frauds)
- Legal capacity of P (no legal capacity requested for A) (3.04; 3.05)
- Fiduciary relationship (duty of care and loyalty, Rest. 3d Agency 8)
What is statute of frauds?
- MYLEGS
- Contracts in consideration of marriage. This provision covers prenuptial agreements.
- Contracts that cannot be performed within one year. However, contracts of indefinite duration do not fall under the statute of frauds regardless of how long the performance actually takes.
- Contracts for the transfer of an interest in land. This applies not only to a contract to sell land but also to any other contract in which land or an interest in it is disposed, such as the grant of a mortgage or an easement.
- Contracts by the executor of a will to pay a debt of the estate with his own money.
- Contracts for the sale of goods totaling $500.00 or more.
- Contracts in which one party becomes a surety (acts as guarantor) for another party’s debt or other obligation.
What does agency relationship trigger?
(1) fiduciary duties (duty of care and duty of loyalty),
(2) liability of Principal to Third Parties in Torts and Contracts
How do you define control in agency relationship?
Interference with internal affairs; right to supervise the manners in which the agents operate; control follows risk and return
- A lender is liable if its control affects the borrower’s management decisions….
beyond those necessary merely to protect the lender’s investment.
The existence of an agency relationship may be proved by X
that shows a course of dealing between the two parties. Factors include…
circumstantial evidence
- Right of first refusal = maybe
- Contractual restrictions = yes
- Check and audits = maybe yes
- Forms = maybe yes
- Power to discontinue = maybe
What is actual authority?
Actual authority exists to the extent that the principal expressly or implicitly authorizes the agent to take actions with legal consequences for the principal.
What is express actual authority?
An agent has express authority if the principal specifically states, orally or in writing, that the agent may take action on the principal’s behalf.
What is implied actual authority?
An agent has implied authority when the agent reasonable infers it can act based on the principal’s conduct and circumstances.
What is apparent authority? What is test?
Principal’s manifestations and actions make a third party reasonably believe that the agent has authority to act on the principal’s behalf.
Test:
(1) did the principal vest with agent the appearance of authority, and
(2) did the third party reasonably believe that the principal gave the agent authority?
When does apparent authority usually kick in?
Secret limiting instruction to A, cannot be contested to the III party who relied.
Lingering authority: authority terminated, but not notified to the III party and the A continues to act on behalf of the P
What is inherent authority? Test?
Inherent authority is authority that may be reasonably inferred from the nature of the particular agency relationship. Inherent authority exists for the protection of the persons harmed by dealing or dealing with a servant or other agent.
Undisclosed principal is liable to a third party for the agency’s actions if (1) it is established as the real principal, and (2) the actions of the agent can be brought back to ordinary doctrines of agency authority, notwithstanding limitations of authorities between A and P.
What is ratification? Test?
Ratification causes the agent’s act to be treated as if the principal had authorized it at the outset.
Test:
(1) principal has knowledge of all material facts regarding the contract;
(2) principal manifests asset to the transaction or principal accepts the benefits; and
(3) ratification must follow the very same contractual term of the contract to be ratified.
What is test for estoppel?
(1) Acts, facts, or omissions by the principal, either intentional or negligent, which create an appearance of authority in the purported agent;
(2) the third party reasonably and in good faith acted in reliance on such appearance of authority;
(3) third party changes her position in reliance on such appearance of authority.
What are fiduciary obligations of agent?
- Duty of care: Duty to act with the care, competence, and diligence normally exercised by agents in similar circumstances.
- Duty of loyalty: Agent cannot put her own interest (or those of third parties) ahead of the principal
- No secret profits
- No conflict of interest and self-dealing
- No usurping business opportunities from principal
- No grabbing and leaving
Test for Tort Liability of Principal and Agent
(1) the existence of employment (agency) relationship
- Master-Servant Relationship: A master-servant relationship exists if the principal may dictate not only the end result of the agent’s work, but also the manner and means to accomplish the result. The principal has sufficient control over day-to-day operations.
- Independent Contractor: A principal is not vicariously liable to an independent contractor. The most important factor in distinguishing an independent contractor is the degree of control.
(2) Tort was committed within the scope of employment. Foreseeability Test (Ira S. Bushey):
- Was the conduct of the same general nature as, or incident to, that which the employee was employed (or authorized) to perform? The conduct must related to the employment, meaning the employee conduct is not so unusual or startling that is seems unfair to pass the loss on the employer.
- Was the conduct substantially removed from the authorized time and space limits of the employment? Was the agent on a frolic and detour?
- Mere Detour A mere detour is a minor deviation from the principal’s business, including the time and place designated for work, during a course of conduct that is otherwise substantially devoted to serving the principal. Conduct during a mere detour is generally within the scope of employment.
- Frolic A frolic occurs if the agent’s actions depart substantially from the principal’s business. An agent on a frolic is no longer acting with any significant motive to serve the employer.
(3) Was the conduct motivated at least in part by a purpose to serve the employer?
What are elements for partnership?
Partnership is an (1) association of (2) two or more persons to carry as (3) co-owners a business (4) for profit.
