Agency

(including duty to disclose all relevant information) are owed.

(While a gratuitous and compensated agent may owe the same duty of care, the measure of "reasonableness may vary because compensation is a proper circumstance to consider.)

Rights and Duties Between Principal and Agent

1. Agent's duties 2. Principal's remedies 3. Subagents

Formalities

1. Consent 2. Consideration not required 3. Writing

By Operation of law

1. Estoppel 2. Statute

Real Estate Brokers' Contracts

1. Nonexclusive Contracts 2. Exclusive Contracts

Agent's Remedies

A compensated agent has the usual contract remedies against the principal (but has a duty to mitigate damages). Also, an agent has a right to a possessory lien for any money due from the principal, including compensation owed for services.

Disclosed Principal

A disclosed principal (existence and identity know to the third party) is always liable on the contract, and the agent is not liable. Exceptions: An agent is liable if the parties to the contract intended the agent to be liable, and an agent may be liable to the third party under his implied warranty that a principal with contractual capacity exists, and that he, the agent, had authority to contract for the principal.

Capacity Principal must have contractual capacity

A principal must have contractual capacity. Thus, a minor's appointment of an agent is voidable, and incompetents and most unincorporated organizations cannot be principals. (However, in many jurisdictions, partnerships and other organized business entities can be principals and appoint agents.)

Subagents

A subagent is a person appointed by an agent to perform functions that the agent has consented to perform on behalf of the agent's principal.

Actual Authority

Actual authority is authority that the agent reasonably believes she possesses based on the principal's dealings with her. It may be express or implied.

Creation of Agency Relationship

Agency is consensual. Not all contractual formalities are necessary to create an agency relationship.

Creation of Agency

Agency referee to the legal relationship whereby an agent is authorized to represent a principal in business dealings with third parties.

Estoppel

An agency may be created through estoppel. Estoppel is virtually the same as apparent authority in that it requires third-party reliance on the principal's communication.

Liability of Agent

An agent has absolute liability to the principal for breaches by a subagent.

Disqualification of Agents

An agent may be disqualified for representing both parties or failing to have a required license.

Apparent Authority

Apparent authority arises from reasonable beliefs of third parties. If a principal directly or indirectly holds out another as possessing certain authority, thereby inducing reasonable reliance by others on that authority, the person so held out has apparent authority, even though as between himself and the principal such authority has not been granted.

Consent

Consent of both parties is required

Ratification

Effect of Ratification: An agency relationship is created by ratification when an "agent" purports to act on behalf of a "principal" without any authority at all, but the "principal" subsequently validates the act and becomes bound. Ratification gives the transaction retroactive effect unless the "principal" lacked contractual capacity at the time the "agent" entered into the unauthorized transaction (in which case the "principal" is deemed to have "adopted" the contract), or unless retroactivity would interfere with intervening third-party rights. Upon ratification, the "agent" is relieved of liability for breach duty to his principal and his implied warranty of authority.

Exclusive Contracts

Exclusive contracts enable the broker to get his commission if anyone produces a ready, willing, and able buyer.

Express

Express authority is that which is actually contained within the four corners of the agency agreement. It is effective even if it was granted mistakenly or because of misrepresentation.

Prerequisites of Ratification

For ratification to occur, the "principal" must know (or have reason to know) all material facts, accept the entire transaction, and have capacity (be competent and of legal age). Ratification is a unilateral act of the "principal" and requires no consideration.

What may be ratified an by whom

Generally, a "principal" may ratify anything unless: (i) performance was illegal at the time of ratification, (ii) the third party has withdrawn, or (iii) there has been a material change in circumstances. Under the Second Restatement, which is followed by most states, only a disclosed or unidentified "principal" may ratify (because the Second Restatement requires the the "agent" purport to be acting on behalf of the "principal." However, the modern view of the Third Restatement does not require the agent to purport to be acting on behalf of a "principal"; therefore, under the Third Restatement any "principal" may ratify. Note: A purported "agent" may not treat the contract as his own.)

Writing

Generally, no writing is required, but many states require a writing when the contract the agent is to enter with a third party is within certain provisions of the Statute of Frauds, most notably land transactions.

Duties

If appointed with proper authority, the subagent owes the principal the same duties as the agent. If the subagent is unauthorized, he owes no duties to the principal, but does owe duties to the agent.

Termination of Actual Authority

If you have determined that actual authority was created, you must then consider whether that authority has been terminated.

Implied

Implied authority is that which the agent reasonably believes she has as a result of the principal's actions. In includes authority: 1. Incidental to express authority; 2. Arising out of custom known to the agent; 3. Resulting from prior acquiescence by the principal; 4. To take emergency measures; 5. To delegate authority in cases of ministerial acts, where circumstances require, where performance is impossible without delegation, or where delegation is customary; 6. To pay for and accept delivery 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 authority to sell; and 8. To manage investments in accordance with the "prudent investor" standard.

Agent's Duties

In addition to any express contractual duties that the agent owes the principal, fiduciary duties of loyalty, obedience to lawful instructions, and reasonable care under the circumstances (including duty to disclose all relevant information) are owed.

Inherent Authority (Inherent Agency Power)

Inherent authority is derived sole form the agency relationship and results in the principal being bound even though the agent had no actual or apparent authority to perform the particular act. This occurs because courts wish to protect innocent third parties rather than a principal who gave some actual authority to the agent. Examples of inherent authority include:

Irrevocable Agencies

Neither an agency coupled with an interest nor a power given as security may be unilaterally terminated by the principal if the agency was given to protect the agent's (or a third party's) rights and it is supported by consideration. Neither will such agencies be terminated by operation of law.

Consideration Not Required

No consideration is necessary

Nonexclusive Contracts

Nonexclusive contracts generally entitle the agent to compensation upon his production of a ready, willing, and able buyer, even though the sale is not consummated.

Lingering Apparent Authority

Notice may be necessary: Where an agent's actual authority has terminated, he will have apparent authority to act on the principal's behalf as to all third parties with whom the principal knows he dealt unless and until the third parties receive either actual or constructive notice of the termination.

Agent Capacity Tip

Notice the different capacity requirements: A principal must have contractual capacity but an agent need not. Thus, a minor can be an agent but not a principal.

Agent needs only minimal capacity

One may be an agent even though he has no contractual capacity. (Exception: If the agent has literally no mental capacity, he cannot act for the principal.)

By Act of Parties

Parties may create an agency by agreement between the principal and agent (i.e., actual authority), holding out by the principal (i.e., apparent authority), or ratification.

Methods of Ratifying

Ratification may be express or implied through the conduct of the "principal." Such conduct would include acceptance of the transaction's benefits, silence if there is a duty to disaffirm, and suing on the transaction.

Statute

Statutes creating agencies are usually designed to accomplish a limited purpose (e.g., statute appointing secretary of state as out-of-state motorist's agent for service of process for damages arising from driving in-state).

How Termination may occur

Termination of actual authority occurs by: 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 matter 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 party's unilateral termination (although such termination may constitute a breach of contract); or 6. Operation of law (e.g., death or loss of capacity of either party except where a durable power of attorney - written authority that says it will not terminal on the principal's disability- is present).

Modes of Creating Agency Relationship

The agency relationship may be created by an act of the parties or by operation of law.

Third Party vs. Agent

The agent's liability depends on whether the principal was disclosed.

Death or Incompetency

The majority view is that death or incompetency of the principal does not automatically terminate the agent's apparent authority.

Principal's Duties

The principal owes the agent al of the duties imposed by their contract, reasonable compensation, and reimbursement for expenses. The principal also generally should cooperate with the agent and not unreasonably interfere withe the agent's performance.

Improper Disposition of Goods

The principal will be held liable for the disposition of her 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.

Principal's Remedies

The principal's remedies against the agent include contract actions (against compensated agents), tort actions, actions for secret profits, equitable actions for an accounting, and withholding of compensation for intentional torts or intentional breaches of fiduciary duty.

When Agent Exceeds Actual Authority

There are situations where the agent exceeds his authority, yet the principal is still bound.

Liabilities of the Parties

Third Party vs. Principal The principal will be liable to the third party on a contract entered into by her agent if the agent had valid authority to act.

Respondent Superior

Under the doctrine of respondent superior, the principal is held liable for the torts of her employee committed within the scope of employment.

Types of Apparent Authority

When Agent has no actual authority: There are certain situations in which, at the time the agent acts, he has no actual authority, yet the principal may be bound.

Actual and Apparent Authority

When deciding whether a principal will be bound on an agent's contract, it should first be determined whether the agent had actual authority. If she did not, look to see whether apparent authority was present.

Conduct similar to that authorized

Where an agent exceeds his actual authority (i.e., violates orders), but the conduct is similar to acts authorized, the principal will be held liable.

Writing Manifesting Authority

Where an agent's actual authority has been terminated but third parties rely on a written authority of the agent, the agent's apparent authority is not considered to be terminated.

Position

Where the agent is in a position that customarily carries with it certain responsibilities, the principal is liable for the agent's acts that come within these customary responsibilities. (A general agent has considerably broader apparent authority here than a special agent, who is engaged in specific transactions rather than a continuity of service.)

Imposters

Where the principal negligently permits an imposter to be in a position to appear to have agency authority, the principal will be held liable for the impostor's actions undertaken with such authority.

Prior Act

Where the principal previously permitted the agent to exceed his authority and knows that the third party is aware of this, the principal is bound by the agent's unauthorized act.

The principal may recover

the actual profits or properties held by the agent whether or not the agent's profits has cased the principal any loss.