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43 Cards in this Set

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What is an agency?
Agency refers to the legal relationship whereby an agent is authorized to represent a principal in business dealings with third parties
Does an agent need to have contractual capacity?
No, an agent needs only minimal capacity (just cannot have a total lack of mental capacity)
Does a principal need to have contractual capacity?
Yes, a principal is required to have contractual capacity

Ex: Minor's appointment of agent is voidable
Can minors act as agents and/or principals?
A minor can be an agent but not a principal
When can an agent be disqualified?
when representing both parties or failing to have a required license
What formalities are necessary to create an agency relationship?
Consent of both parties

A writing if subject matter is within the Statute of Frauds

Consideration is NOT required!!
Can someone agree to serve as an agent gratuitously?
Yes, because no consideration is required for agent to be held liable in an agency relationship
How may an agency relationship be created?
by an act of the parties

OR

by operation of law
In what ways may parties create an agency by acts?
by agreement between the principal and agent - ACTUAL AUTHORITY

holding out by the principal - APPARENT AUTHORITY

RATIFICATION
In what ways may an agency be created by operation of law?
ESTOPPEL (similar to apparent authority in that it requires third party reliance on principal's communication)
OR
STATUTE (usually designed to accomplish a limited purpose)
What is actual authority?
Authority that the agent reasonably believes she possesses based on the principal's dealings with her

Look to the interaction b/w the Principal and Agent
What is apparent authority?
Arises from the reasonable beliefs of a third party

Look at the interaction between the principal and the third party
What are some situations where the principal may be bound by apparent authority even though the agent has no actual authority?
(1) Imposters (prinicipal negligently permitted imposter to be in position having authority)
(2) Lingering Apparent Authority
(a) Notice may be necessary (even though terminated, an agent has apparent authority where 3rd parties with whom the principal knows the agent has dealt with in the past until they get actual or constructive notice of termination of agency)
(b) Writing manifesting authority (3rd parties rely on a written authority of agency)
What are the two types of actual authority?
Express

Implied
What is express actual authority?
that which is actually contained within the four conrers of the agency agreement;

it is effective even if it was granted mistakenly or because of misrepresenation
What is implied actual authority?
that which the agent reasonably belives she has as a result of the principal's actions;
What does implied actual authority include?
authority:
(1) incidental to express authority
(2) arising out of custom known to the agent
(3) resulting from prior aquiescence by the principal
(4) to take emergency measures
(5) to delegat authority in cases of ministerial acts, where circumstances require, where perfromance is impossible without delegation or where delegation is customary
(6) to pay for an accept delibery of goods where there is authority to purchase
(7) to give general warranties as to fitness and quality and grant customary covenants in land sales, collect payment, and deliver where there is authoirty to sell
(8) to manage investments in accordance with the prudent investor standard
In what ways can actual authority terminate?
(1) lapse of a specified or reasonable time
(2) the happening of a specified event
(3) a change in circumstances, including destruction of the subject amtter of the authority, insolvency of the agent or principal and a change in the law or business conditions
(4) agent's breach of fiduciary duty
(5) either pary's unliateral termination
(6) operation of law (death or loss of capacity of either party unless there is durable power of atty)
When is an agency irrevocable?
when coupled with an interest or power given as security if the agency was given to protect the agent's or thid party's rights and it is supported by consideration
What happens to authority when a principal dies?
Death or incompetency of principal terminates ALL AUTHORITY of agent without notice to either agent or third parties

There is a limited exception for banks honoring transactions for a customer's account until it learns of the customer's death or incompetency and has a reasonable time to act
What are situations where the principal is bound even though the agent exceeded his authority?
1) Prior act - principal previously permitted agent to exceed his authority

2) Position - a position that customarily carries certain responsibilities
What is inherent authority?
results in principal being bound even though agent had no actual authority to perform the particular act

policy is courts wanting to protect innocent third parties
What is the effect of ratification?
Retroactive effect unless the principal lacked contractual capacity at the time agent entered into the unauthorized transaction or it would interfere with intevening third party rights

Agent is relieved of liability for breach of implied warranty of authority
What are two examples of inherent authority?
(1) Respondeat superior

(2) Conduct is similar to acts authorized
When will a principal be held liable for the imporper disposition of goods by an agent possessing them?
if the agent was given some indicia of ownership or if the goods disposed of were sold by an agent who is a dealer in the particular goods
When is an agency relationship created by ratification?
when agent puports to act on behalf of a principal without any authority at all but the principal subsequently validates the act and becomes bound
What are the prerequisites of ratification?
(1) The principal must know or have reason to know all material facts,

2) accept the entire transaction, AND

3) have capacity (be competent and of legal age)

NOTE: Ratification is a unilateral act of the principal and requires no consideration
What are some methods of ratifying?
Express or implied through the principal's conduct

INCLUDES: Accepting the benefits of the transaction, and silence where there is a duty to disaffirm, and suing on the transaction
What acts may be ratified?
principal may ratify anything she may legally do, unless perfomance was illegal at the time of ratification, the third party has witdrawn, or there has been a material change in circumstances
Who may ratify?
only a dislosed or partially disclosed principal

-Agent may NOT treat the contract as his own
What is the liability to 3rd parties of a principal?
If the agent has authority to act, then the Principal is bound
What is the liaiblity of an agent to a third party?
If disclosed principal, then the principal is always liable on the contract and the agent is generally NOT liable. EXCEPTION: K intended agentto be liable, implied warranty that a principal with contractual capacity exists and agent had authority to contract for principal

Where partially disclosed and undisclosed principal, both principal and agent liable. 3rd party may sue both, and upon objection must elect a party to hold liable. 3rd party may sue the agent, and if he doesn't know the principal's identity, he can later sue the principal when identity discovered if the judgment not satisfied.
What is a 3rd party's liability to a principal or agent?
If disclosed principal, then only the principal may enforce the K.

If partially disclosed and undisclosed principal, then either the principal or the agent may enforce the K

NOTE: If agent enforces the K, the principal is entitled to all of the rights and benefits thereunder
When is a principal not allowed to enforce a K?
(1) There has been an affirmative fraudulent misrepresentation of the principal's identity or

2) if there is an unforeseen increased burden to the 3rd party due to the fact that performatnce is due to the principal and not the agent.
What determines whether a party is an employee or a independent contractor?
Look to the extent of control

With an employee, the principal exercises control over the job to be performed

With an independent contractor, the principal has no right to control the manner and method in which the job is performed
When is a principal liable for employee's actions?
When the act is within the scope of employment (who, what, when, where, why)
When is the principal liable for independent contractor's actions?
Activity involved was

1) inherently dangerous
2) duty nondelegable
3) principal was negligent in selecting the indep. contractor
What is the doctrine of respondeat superior?
it imputes joint and several liability to the employer-principal for torts committed by the employee-agent within the scope of the employee's employment
How do an employee's defenses affect recovery from an employer?
personal defenses of employee not going to liabilty do not bar recovery from the employer

also, employer may be liable for her own negligence in hiring or retaining employee or in supervising or entrusting an employee with specific responsibilities
What factors should be considered in determining the right to control?
(1) characterization by the parties
(2) whether the business is distinct
(3) customs of the locality regarding supervision of work
(4) degree of skill required on the job
(5) whose tools or facilities are used
(6) what the period of employment is
(7) what the basis of compensation is
(8) what the understanding of the parties is
(9) whether the person was hired to further the principal's business
Can an employer ratify an employee's torts?
Yes, as long as all prerequisites for ratification are met including the requirement that employer have knowledge of all material facts
Are intentional torts considered within the scope of employment?
Not unless a natural incident of the employee;s duties (where force is authorized), where the employee is promoting the employer's business or where the nature of the work gives rise to hostilities
When is a principal liable for an agent's misrepresentation?
if the agent had actual, apparent, or inherent authority to make statements concerning the subject matter involved