Agency Relationships in Business

Apparent Authority

"Apparent authority is the power held by an agent or other actor to affect a principal's legal relations with third parties when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal's manifestations." Restatement (Third) §2.03 Authority that arises when a principal, by either words or actions, causes a third party to believe that an agent has authority to act, even though the agent has no express or implied authority to act with regard to the particular matter at hand.

Contractual Liability

A disclosed or partially disclosed principal is liable to a third party for a contract made by an agent who is acting within the scope of his or her authority.

Independent Contractor

A person 1. who works for, and receives payment from, an employer, 2. but whose working conditions and methods are not controlled by the employer, and 3. for whose acts and omissions the employer is not liable.

Employee

A person 1. who works for, and receives payment from, an employer, 2. whose working conditions and methods are controlled by the employer, and 3. for whose acts and omissions occurring in the scope of employment the employer is liable.

Fiduciary

A person who undertakes to act on behalf of another and primarily for the other's benefit in matters connection with the undertaking.

Disclosed Principal

A principal whose identity is known to the third party at the time the agent makes a contract for the principal with the third party.

Partially Disclosed Principal

A principal whose identity is not known to the third party, but the third party does know that the agent is representing some principal at the time the agent makes a contract with the third party.

Agency by Ratification

A principal's express or implied affirmation of a previously unauthorized act by a purported agent. The confirmation or adoption of an act that has already been performed. Confirmation of an action which was not pre-approved and may not have been authorized.

Power of Attorney

A written authorization of agency

Agent's Authority (Power)

Actual Expressed Implied Apparent From ratification

Expressed Actual Authority

Authority declared (given) in clear, direct, and definite terms. Can be orally or in writing.

Implied Actual Authority

Authority that is -inferred as being reasonably necessary to exercise the agent's express authority, -conferred by custom, or -inferred from the position the agent occupies.

Termination of Actual Authority

Automatically terminated by "operation of law" by 1. Death of either the principal or agent; 2. Incapacity of the principal; 3. Discharge in bankruptcy of the principal; 4.Failure to acquire a necessary license.

Principal's Duty to Agent

Compensation: Must pay the agent, in a timely manner, for services rendered. Reimbursement: Must reimburse the agent for necessary expenses incurred in the reasonable performance of his or her duties. Indemnification: Subject to the terms of the agency agreement, the principal must compensate, or indemnify, the agent for liabilities arising from the agent's lawful and authorized acts on the principal's behalf. Cooperation: Must cooperate with the agent and assist the agent in performing his or her duties. Safe Working Conditions: Must provide its agents and employees with safe working premises, equipment, and conditions, and inspect working conditions and warn agents and employees of unsafe areas.

Employee or Independent Contractor - Court Considerations

Courts consider the following: -how much direction and control the employer exercises over the details of the person's work, -whether the person is engaged in an occupation or business distinct from that of the employer, -whether the work the person performs is usually done under the employer's direction or without employer supervision, -who supplies tools used by the person, -the duration of the person's employment, -how the person is paid for his work, and -the degree of skill required of the worker.

Equal Dignity Rule

If the contract being executed by an agent on the principal's behalf must be in writing, most states require that the agent's authority must also be in writing; otherwise, the contract executed by the agent is voidable at the principal's option.

Agent's Duty to Principal

Performance: An agent implicitly agrees to use reasonable diligence and skill (except for a specialist, who is held to a higher degree of skill) in performing the task in its entirety. Notification: Must notify the principal of all matters that come to the agent's attention concerning the subject matter of the agency. Loyalty: Must act solely for the benefit of the principal, and not in their own interest or a third party. Obedience: Must follow all lawful and clearly stated instructions of the principal. Accounting: Unless otherwise agreed, an agent must keep and make available to the principal an account of all property and money received and paid out on the principal's behalf, including gifts received from third persons.

Actual Authority

The authority the agent reasonably believes he has because of the principal's communications to the agent. Gives the agent to power and right to bind the principal. Can be either express or implied

Undisclosed Principal

When neither the fact of agency nor the identity of the principal is disclosed by an agent to the third party at the time a contract is made, the agent is presumed to be acting on their own behalf, and will be liable as a party to the contract.

Special Agents

is one who has authority to act only in a specifically designated instance or in a specifically designated set of transactions.

General Agents

possesses the authority to carry out a broad range of transactions in the name and on behalf of the principal.

Agency

A relationship between two parties in which one party (the agent) agrees to represent or act for the other party (the principal). A legal relationship in which one person or entity (the principal) appoints another person or entity (the agent) to act on his behalf.

Restatement (third) of Agency §1.01

Agency is the fiduciary relationship that arises when one person (a "principal") manifests assent to another person (an "agent") that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents so to act.

Authority

Authority is a form of "power" "The common-law definition requires that an agent hold power, a concept that encompasses authority but is broader in scope and connotation.... An agent who has actual authority holds power as a result of a voluntary conferral by the principal.... An agent also has power to affect the principal's legal relations through the operation of apparent authority.... Additionally, a person may be estopped to deny the existence of an agency relationship.... Separately, a person may, through ratification, create the consequences of actual authority with respect to an actor's prior act." Restatement (Third) of Agency § 1.01, Comment.

Forming an Agency Relationship

Agency relationships are normally consensual. Can be created for any legal purpose. principal must have capacity, i.e., not a minor and not under incompetent. Agent does not have to have capacity. Writing is generally not required. However, see Equal Dignity Rule Generally all that is needed is consent and a principal with capacity. A writing is necessary only if the agent will enter into land sales contracts. The principal must have capacity. A minor can be an agent. Steps into the shoes of the principal.