Creation of Agency
Agency referee to the legal relationship whereby an agent is authorized to represent a principal in business dealings with third
... [Show More] parties.
Creation of Agency Relationship
Agency is consensual. Not all contractual formalities are necessary to create an agency relationship.
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.)
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.)
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.
Disqualification of Agents
An agent may be disqualified for representing both parties or failing to have a required license.
Formalities
1. Consent
2. Consideration not required
3. Writing
Consent
Consent of both parties is required
Consideration Not Required
No consideration is necessary
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.
Modes of Creating Agency Relationship
The agency relationship may be created by an act of the parties or by operation of law.
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.
By Operation of law
1. Estoppel
2. Statute
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.
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).
Rights and Duties Between Principal and Agent
1. Agent's duties
2. Principal's remedies
3. Subagents
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.
(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.) [Show Less]