LC Agency'07supV3

I.
What is an agency relationship and

how is it formed?
A. Defined
An agency is a
relationship between a
principal who authorizes
or appoints an agent to
act on his behalf.
B. How Formed
An agency relationship
may be formed by an
express or implied agreement (no writing is required) if
both the principal and agent consent to the agency
relationship. An agency may also be created "by
estoppel" or by apparent authority; a principal who
holds another person out to be her agent will be legally
precluded from claiming that there is no agency
relationship.
C. Agent w/ Actual Authority
An agent acts with express authority when the principal
has granted the agent the power to bind him. The agent
acts with implied authority when the agent reasonably
believes that she has the power to bind the principal,
based on the principals acts. The agent may rely on
custom or actions by the principal that reasonably leads
the agent to think that she has the authority to act. The
agent may not delegate her authority to another without
the consent of the principal, unless the acts are
ministerial in nature.
D. Agent w/ Apparent Authority
An agent has apparent authority to act when the
principal leads others to believe the agent is acting with
the principals authority. A party who reasonably relies
on the agents apparent authority can hold the principal
liable for contracts entered into by the agent.
E. Agent w/ Inherent Authority
A principal may be bound by an agent without actual
authority if the agent had some authority to act and the
act performed slightly exceeds the authority given. Also,
an agent who acts without authority binds her principal
when the principal later ratifies her act if:
(1) the principal is aware of the transaction;
(2) the principal accepts the benefits of the transaction or
otherwise affirms the transaction.
II. What are the rights and liabilities of
principals and agents?
A. Duties of Agent to the Principal:
duty to perform responsibilities under contract
duty of loyalty
duty of obedience (must obey all reasonable
instructions)
duty of reasonable care (applying community standard
of care)
duty to notify the principal of any important matters
concerning the agency; such knowledge of the agent is
imputed to the principal unless the agent is acting in
her own interest or is working against the principal.
NOTE: A sub-agent (one appointed by the agent) is also
liable to the principal unless appointed without authority
from the principal.
B. Principals Remedies for Breach of Agents
Duty
damages for breach of contract for failure to perform
tort liability for intentional or negligent performance
recovery of profits (where agent breaches duty &
secretly profits)
action for accounting to seek a return of funds
may refuse to pay agent any owed amounts or
withhold compensation
C. Duties of Principal to Agent:
duty to honor terms of contract
duty to compensate agent and reimburse for expenses
incurred in carrying out authorized duties
duty to cooperate and not interfere with agents
performance
D. Agents Remedies for Principals Breach
- agent may sue for damages for breach of contract but
owes duty to mitigate any damages
- agent may make a claim or lien against principals
property unless K provides otherwise.
Supplemental 1
A AGENC GENCY L Y LAW CHAR AW CHART T
I. What is an agency relationship and how is it formed?
II. What are the rights and liabilities of principals and agents?
III. What occurs upon termination of the agency relationship?
Bar Exam Survival Kit "Law Charts" by Jeff Adachi. 2007 Survival Series Publishing Co. All rights reserved. www.survival-series.com
Law Charts: Agency
Part II
2 Supplemental
E. Enforcement of Contracts Entered into
with Third Parties:
a principal is liable for a contract entered into with a
third party if the agent acts with principals authority
an agent is liable to third party if: 1) the agent makes
an implied warranty that she has the authority to enter
the contract and does not (limited to actual damages); 2)
all of the parties intend that agent be treated as a party
to the contract; 3) the principals identity is undisclosed
or is unknown.
a principal may sue the third party to enforce the
contract unless the agent fraudulently concealed the
principals identity.
NOTE: Both a principal and agent may be sued by third
party, who must elect which party to hold liable before
judgment is issued.
III. What occurs upon termination of
the agency relationship?
A. TERMINATION OF AGENCY RELATIONSHIP
An agency relationship ends when the agent is no longer
authorized to act as the principals agent:
either principal or agent may terminate the agency
relationship at will
destruction of the subject matter of the agency
major change in business conditions or laws
bankruptcy, incapacity or death of principal or agent
dissolution of corporation or partnership
breach of agents fiduciary duty
occurrence of event that ends agency relationship
expulsion by vote of other partners or court order
partners bankruptcy
death or incapacity
appointment of a receiver
termination of business entity that is a partner
Bar Exam Survival Kit "Law Charts" by Jeff Adachi. 2007 Survival Series Publishing Co. All rights reserved. www.survival-series.com
Law Charts: Agency
Part II

LC Agency'07supV3

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I.

What is an agency relationship and

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