Chapter 1. Contractual Dealings by Agents 1
A. Agents, Servants and Strangers
1. Some manifestation by the principal that the agent act (a) on his behalf and (b) subject to his control; and
2. Manifestation of consent by the agent so to act.
b. The fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.
1. Creation of an agency relationship ultimately turns on the parties' intentions as manifested by their agreements or actions
c. 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.
1. Ex: where agent acts on behalf of the principal, but not have the power to alter legal relationships: Translators.
2. Wife is bound by the contract signed by Husband because H has authority as agent for W to legally bind W.
d. Agency relationship always contemplates three parties
3. third party with whom the agent is to deal
a. Important to define the concept of “dealing” broadly rather than narrowly.
2. Creation of Agency Relationship
a. Fundamental elements
1. Some manifestation or indication by the principal to the agent that he consents to the agent's acting for his benefit; and
2. Consent by the agent to act for the principal.
3. Consent by the Principal
a. Some manifestation of the principal's consent must actually come to the attention of the agent; agent need not necessarily communicate consent to principal
1. Embarking on the purpose of the agency is sufficient indication of consent
b. The court must assure itself that the principal assented to the agency relationship.
4. Control by Principal
a. The control of principal must exercise over agent in order to evidence agency relationship is not so comprehensive.
b. Principal need not exercise physical control over actions of its agent in order for agency relationship to exist
c. Agent must be subject to principal's control over the results or ultimate objectives of the agency relationship
d. Often agent is left free from direct supervisory control as they further the interest of the principal
1. Control of the principal does not include control at every moment
e. See “servant”
5. Servant v. Agent (who is not a servant)
a. Qui facit per allium facit per se: He who acts for another acts for himself.
1. Thomas More, in Bolt's a Man for All Seasons: “I am no longer a great man” to servants = you are fired.
b. Agent: person who represents another in contractual negotiations or transactions akin thereto.
1. Principal is not liable for the incidental acts of negligence in the performance of duties committed by an agent who is not a servant.
a. A principal employing an agent to accomplish a result, but not having the right to control the details of his movements, is not responsible for incidental negligence while such agent is conducting the authorized transaction.
2. Persons who render service but retain control over the manner of doing it are not servants.
c. Servant: person who is employed to perform personal service for another in his affairs, and who, in respect to his physical movements in the performance of the service, is subject to the other's control or right of control.
d. Test: whether the employer has the right to control and direct the servant in the performance of his work and in the manner in which the work is to be done.
1. All masters are principals
2. All servants are agents
3. Only when level of control is sufficiently high does a principal become a master and an agent a servant.
6. Acting On Behalf Of
a. Agents who represent their principal in transactions with third parties act on the principal's account and behalf
b. Actions “on behalf of” do not necessarily entail that the principal benefits as a result.
c. Contract duties: parties to a contract contemplate benefit to be realized through the other party's performance, but does not create agency relationship unless the elements of agency are present.
1. Not all intermediaries are agents in any sense, and not all who are agents act on behalf of those who use the intermediary service provided.
2. If an intermediary lacks authority to negotiate on behalf of a party, characterizing the intermediary as agent may not carry much practical import because the scope of agency would be very narrow.
B. Formalities of Formation.
1. Equal dignities rule
a. The act creating the agency must be executed with the same formality as the law prescribes for the execution of the act for which the agency is created.
b. Common law: equal dignity only required for contracts under seal
c. Frequently required by statute as to such matters as deeds, contracts for the sale of land, or contracts within the statute of frauds
d. Vary state by state
2. Actions on behalf of corporate principals
a. Deeming that the acts of certain personas are in themselves acts of the corporation
1. Corporate board of directors act as the corporation
b. Authorized acts of certain officers are deemed to acts of the corporation
1. Need not be evidenced separately
2. Acknowledgement by officer that the act as act of corporation is prima facie evidence of approval by board of directors.
3. Military powers of attorney are exempt from any requirement of form, substance, formality, or recording requirements under state law
C. Firm’s Liability in Contract for Acts of Its Agents
a. Actual Authority
1. Manifestation of intent by principal that agent is authorized, such that
2. The agent actually believes (POV of agent)
3. Reasonably, that the agent is authorized.
b. Apparent Authority
1. Manifestation of intent by the principal to 3rd party that the agent is authorized, such that
2. The 3rd party actually believes (POV of 3rd party)
3. Reasonably, that agent is authorized.
1. Principal must have capacity to give legal consent, as well as capacity to do the act he or she is authorizing the agent to do
2. To be an agent, a person needs only the physical or mental capability to do the thing he or she has been appointed to do.
a. Almost anyone can serve as an agent.
2. General rule
a. A principal is bound by the authorized acts of the principal's agent in entering into contracts on the principal's behalf.
3. When agent exceeds authority
a. Principal is bound by his authorized acts so far only as they can be plainly separated from those which are unauthorized.
b. The principal is liable upon the contract as it was authorized to be made, provided that
1. The other party seasonably manifests his willingness to accept the contract as authorized; and
2. The principal has not changed position in reasonable reliance on the belief that no contract bound the principal and 3rd party.
4. Where an agent enters into an unauthorized contract without having the power to bind the principal
a. The principal is not bound by the contract as actually made by the agent, or as it would have been made if the agent had acted within his or her authority.
D. Firm’s Rights under Contracts Entered Into by its Agents
1. Where 3rd party has no notice that the agent is acting for a principal (undisclosed principal)
a. General rule
1. And the agent is acting within the scope of agency, the 3rd party can enforce rights against the principal directly once the identity is revealed (and vice versa)
2. Principal can enforce rights against 3rd parties their agent entered into transactions with directly upon revealing the identity.
3. Principal steps into the shoes of the agent when enforcing rights, and is subject to setoffs and defenses that would have been good as against the agent.
b. Where the principal is excluded by the form or terms of the contract
1. 3rd party is not liable on the contract to the undisclosed principal.
c. Where the face of the contract does not disclose either the principal's identity or agency relationship
1. Principal may enforce rights, and may introduce parole evidence to prove the right to do so.
2. Even if the contract provides that it may not be assigned; not conclusive, but only evidence of intent to exclude an undisclosed principal.
d. Where agent makes representations that the agent is not acting for a principal
1. 3rd party may avoid contract, if principal or agent had notice that the 3rd party would not have dealt with the principal.
2. Where identity of the principal is material to 3rd party's willingness to enter into a transact, failure to disclose existence may be such misleading conduct as to grant rescission or other equitable relief.
2. Where 3rd party knows they are dealing with an agent, and they do not have notice of the identity of the principal (partial disclosed or unidentified)
a. Same rules apply as for undisclosed principal.
3. Where 3rd party has notice both that the agent is acting for a principal and the principals identity (disclosed)
Chapter 2. Actual Authority of Agents 39
A. Introduction. 39
1. Actual Authority: the power of the agent to affect the legal relations of the principal by acts done in accordance with the principal's manifestations of consent to him
B. Express Actual Authority 39
1. Interpretation grants of authority
a. An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principal's manifestations to the agent, that the principal wishes the agent so to act.
2. Powers of Attorney: A written document by which one party, principal, appoints another as agent (attorney in fact) and confers upon the latter the authority to perform certain specified acts or kinds of acts on behalf of the principal; creates principal-agent relationship
a. Strictly construed as a general rule
the extent that it is reasonable for the 3rd party dealing with the agent to believe that the agent is authorized.
2. Holding out: when principal holds out another as possessing certain authority, inducing others reasonably to believe that authority exists, the agent has apparent authority to act even though as between himself and the principal,, such authority has not been granted.
a. Holding out may be voluntary or by inaction
1. Principal may directly communicate authority to 3rd party or knowingly permit agent to exercise such authority
3. Principal has by voluntary act placed an agent in such a situation that a person of ordinary prudence, conversant with business usages and the nature of the particular business, is justified in presuming that such agent has authority to perform a particular act on behalf of his principal, the principal is stopped, as against such innocent 3rd party, from denying the agent's authority to perform the act.
a. Express statements/Intentionally caused
1. 3rd party to believe that the agent is authorized or conduct creates such a belief on the party of 3rd party
2. By letter or word of mouth, authorized statements of agent, documents or indicia of authority given by principal to agent
b. Principal appointing agent to a position
1. Which carries with it generally recognized duties
2. Apparent authority to do the things ordinarily entrusted to one occupying such a position
c. Acquiescence of the principal in prior acts of agent
1. Establish reputation of having authority to act
2. 3rd parties who are aware of what a continuously employed agent has done are normally entitled to believe that he will continue to have such authority for at least a limited period in the future.
3. Apparent authority continues until 3rd party has been notified or learns facts which should lead him to believe that the agent is no longer authorized.
4. Source of Authority
a. An agent's power to bind the principal by unauthorized actions is based on the principal's manifestations to 3rd parties
b. 3rd parties have correlative duty to act reasonably in interpreting the principal's conduct
c. Cannot be based solely on agent's conduct.
5. Tortious conduct of an agent
a. General rule:
1. Principal may be held liable for the tortious conduct of an agent if the conduct was within the scope of employment
2. Scope of employment: if employee is doing what is necessarily incidental to the work that has been assigned to him or which is customarily within the business in which the employee is engaged.
b. Principal is subject to liability for loss caused to another by the other's reliance on tortious representations of a servant or agent if the representation is:
2. Apparently authorized, or
3. Within the power of the agent to make for the principal.
c. When representations are incidental to a transaction
1. Unless 3rd person had no notice that the agent had no authority to make representations, principal is liable for representations by agent that are incidental to transaction, and which principal might reasonably expect.
2. Disclosed or partially disclosed (unidentified) principal
a. Attributable to principal as if the principal made the representation directly when the agent had actual or apparent authority to conduct the transaction unless 3rd party knew or had reason to know that the representation was untrue or that the agent acted without actual authority in making it.
3. Undisclosed Principal
a. Representation made by agent is attributed to principal if the agent had actual authority to make the representation or true representations about the same matter unless the 3rd party knew or had reason to know that the representation was untrue.
d. When agent is not a servant (employee)/is a servant (employee) but acts outside scope of employment/when principal does not benefit from agent's conduct
1. Principal can be subject to liability for agent's representations when agent's conduct in making misrepresentations constitutes a tort and agent acts with apparent authority in making the misrepresentations.