AGENCY
1) Formation
An agency agreement consists of an agent acting for a principal. This generally requires: (1) Both
parties’ capacity to enter the agreement; (2) Both parties’ consent; (3) Agent acting on Principal’s
behalf; (4) Agent acting under Principal’s exclusive control. If the agreement is for the duration of
at least one year, it must be in writing under Statute of Frauds. However, agency agreements never
require consideration.
2) Duties
An agent owes fiduciary duties to the principal, as well as contractual duties. Fiduciary duties
require the agent to act with reasonable care as an ordinary prudent person would in like position
for the principal’s best interests, act with loyalty by avoiding engagements with competing ventures
and taking advantage of the agent’s position to gain personal benefits through the agency, and
acting with obedience by obeying the principal’s instructions carefully. If the agent breaches any of
these duties, the principal is entitled to contractual remedies like rescission of the agreement,
damages, accounting of any profits gained, withholding compensation for the agent.
A principal owes contractual duties to the agent such as fully cooperating with the agent and
compensating him for any expenses incurred in carrying out the principal’s instructions. If the
principal breaches such duties, the agent is entitled to contractual remedies like terminating the
agreement, claiming damages or asserting a lien over his compensation.
3) Liability (Contracts)
Generally, where an agent has entered a contract with a third party on the principal’s behalf, the
principal may be liable to the third party for the agent’s actions in two ways. Under contract theory,
a principal may be liable if the agent had authority to enter the contract, or his actions are ratified.
Firstly, the agent must have had actual authority. This means the principal must have expressly
authorised the agent to enter into said contract. Alternatively, the principal may have impliedly
given him authority where it is customary in nature to enter such contract, or the principal’s
previous dealings imply he had such power to enter the contract. In such case, the agent must have
had reasonable belief that he had power to do so based on the principal’s manifestations. If there is
no actual authority, the principal may be liable if the agent had apparent authority. Unlike actual
authority, the third party must have had reasonable belief that the agent had power to enter the
contract, based on the agent’s actions. For example, the agent may have pointed out he is working
for a principal, or he has business signs representing his relationship with the principal. Lastly,
where there is no authority at all, the principal may still be liable by ratifying the agent’s actions.
Most states require under the Second Restatement that the principal be unidentified, if disclosed.
Few states under the Third Restatement allow any principal to ratify his actions. Ratification means
that the principal fully accepted the entire transaction, knew or should have known of all the
material facts of the transaction, and had capacity to do so. Such acceptance does not have to be
express, in that it can implied by his application of those benefits, or remaining silent by failing to
enforce any lawsuits to prevent the transaction. Unlike tortious actions, the third party can only sue
the principal or the agent. If the agent had authority or his actions were ratified, the third party can
sue the principal.
1) Formation
An agency agreement consists of an agent acting for a principal. This generally requires: (1) Both
parties’ capacity to enter the agreement; (2) Both parties’ consent; (3) Agent acting on Principal’s
behalf; (4) Agent acting under Principal’s exclusive control. If the agreement is for the duration of
at least one year, it must be in writing under Statute of Frauds. However, agency agreements never
require consideration.
2) Duties
An agent owes fiduciary duties to the principal, as well as contractual duties. Fiduciary duties
require the agent to act with reasonable care as an ordinary prudent person would in like position
for the principal’s best interests, act with loyalty by avoiding engagements with competing ventures
and taking advantage of the agent’s position to gain personal benefits through the agency, and
acting with obedience by obeying the principal’s instructions carefully. If the agent breaches any of
these duties, the principal is entitled to contractual remedies like rescission of the agreement,
damages, accounting of any profits gained, withholding compensation for the agent.
A principal owes contractual duties to the agent such as fully cooperating with the agent and
compensating him for any expenses incurred in carrying out the principal’s instructions. If the
principal breaches such duties, the agent is entitled to contractual remedies like terminating the
agreement, claiming damages or asserting a lien over his compensation.
3) Liability (Contracts)
Generally, where an agent has entered a contract with a third party on the principal’s behalf, the
principal may be liable to the third party for the agent’s actions in two ways. Under contract theory,
a principal may be liable if the agent had authority to enter the contract, or his actions are ratified.
Firstly, the agent must have had actual authority. This means the principal must have expressly
authorised the agent to enter into said contract. Alternatively, the principal may have impliedly
given him authority where it is customary in nature to enter such contract, or the principal’s
previous dealings imply he had such power to enter the contract. In such case, the agent must have
had reasonable belief that he had power to do so based on the principal’s manifestations. If there is
no actual authority, the principal may be liable if the agent had apparent authority. Unlike actual
authority, the third party must have had reasonable belief that the agent had power to enter the
contract, based on the agent’s actions. For example, the agent may have pointed out he is working
for a principal, or he has business signs representing his relationship with the principal. Lastly,
where there is no authority at all, the principal may still be liable by ratifying the agent’s actions.
Most states require under the Second Restatement that the principal be unidentified, if disclosed.
Few states under the Third Restatement allow any principal to ratify his actions. Ratification means
that the principal fully accepted the entire transaction, knew or should have known of all the
material facts of the transaction, and had capacity to do so. Such acceptance does not have to be
express, in that it can implied by his application of those benefits, or remaining silent by failing to
enforce any lawsuits to prevent the transaction. Unlike tortious actions, the third party can only sue
the principal or the agent. If the agent had authority or his actions were ratified, the third party can
sue the principal.
