BAR EXAM: SC AGENCY

SC: Agency 2023
INTRODUCTION

I. Agency is the fiduciary relationship that results when two persons consent that one (the agent) will
act on behalf of and under the control of the other (the principal). Accordingly, the three essential
elements of agency are:
a. Consent,
b. Control, and
c. “on behalf of” – exclusivity in the subject matter of the relationship
II. Agency may be terminated at any time, by either the Agent or Principal, regardless of any attempt
to contract is away
a. Example: employment contract for 2 years; employer always has the power to terminate, but
may not have the right (liable for breach of contract)
III. Objectives of Agency Law:
a. To minimize the inevitable divergence of interest between principal and agent; and
b. To avoid disadvantaging third parties who deal with agents rather than directly with the
principal.

FORMATION

I. Intent:
a. Mutual manifestation of intent by the parties is usually sufficient (no contract is required)
i. May be manifested orally, in writing, or implied from the conduct of the parties.
ii. No intent required to create an agency relationship
iii. Only need the intent to do those acts, which in law, create agency.
b. Existence of an agency relationship is a question of fact.
II. Capacity of Parties to Create an Agency Relationship
a. Principal: any person who can give a legally binding consent.
i. Agency with an infant principal are immediately voidable
ii. Persons who have been adjudicated to lack capacity cannot be principals.
b. Agent: anyone can act as an agent, but their liability is co-extensive with their capacity.
i. Therefore, a person who lacks the capacity to comprehend the nature of a fiduciary
relationship cannot be held personally liable for a breach of that duty.

AGENCY RELATIONSHIP: DUTIES BETWEEN THE PARTIES

I. Agent’s Duties to the Principal
a. Agents are fiduciaries and owe to principals duties of care and loyalty (and good faith)
i. Duty of Care: breached by negligence
1. Remedy: monetary
ii. Duty of Loyalty: breached by self-dealing
1. Remedy: equitable remedies (injunctions, accounting, and constructive trusts)
b. Specific Duties:
i. Duty to disclose all facts material to agency;
ii. Exclusivity in the subject matter of the agency
1. No secret profits (if agent does, they will be held in constructive trust and
compelled to account to the principal for the profits)
iii. Exercise of reasonable care
1. If agent is hired for special capabilities, the agent is to exercise such capabilities.
c. Principal’s Duties to Agent
i. Duty to disclose any risks the agent may encounter.
ii. Principal is liable to the agent for any injury caused by principal’s negligence
1. Subject to defenses: fellow servant rule, assumption of risk, contributory
negligence, and workers’ compensation statutes.
iii. Duty to reimburse for expenses incurred by agent on principal’s behalf.
iv. Duty to indemnify agent for liability incurred in the performance of the agency
1. Must be within the scope of agent’s authority or power.
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v. Specific Duties:
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, SC: Agency 2023
1. Duty to furnish opportunity for work;
2. Duty to keep and render accounts;
3. Duty of good conduct;
4. Duty to pay compensation;
5. Duty not to interfere with commission income.

CATEGORIES OF AGENTS

I. Categories of Agents
a. The manner in which an agent can bind a principal is dependent on the nature of the agency. At
any given time, an agent must fit into one of three categories. The category of the agency is
strongly linked to the amount of control exercised by the principal over the agent.
i. Servants: principal has right of direct control
1. May bind principal in tort under respondeat superior
2. May not bind principal in contract (generally)
ii. Agents (servant or not): principal has some control
1. May bind principal in contract if within the scope of agency
iii. Independent Contractors: very little control (no physical control)
1. May not bind principal in tort or contract
b. Agent’s Relationship to Principal:
i. General Agent: an agent who conduct a series of similar transactions involving a
continuity of service.
1. Third party is not under a duty to inquire into the scope of agent’s authority.
2. Agent can bind principal to agreements made within the nature of the general
agency even if outside of Agent’s actual authority.
ii. Special Agent: an agent authorized to conduct a single transaction
1. Third party does have a duty to ascertain scope of agency.
2. Agent cannot bind principal outside scope of their actual or apparent authority.
c. Relationship Between Agents
i. Co-Agents: two or more agents acting for the same principal
1. No right or obligations run between co-agents.
2. Each co-agent’s duties and authority flow directly to principal.
ii. Subagents: when an agent is authorized to delegate duty to another agent.
1. To bind the principal, subagent’s act must be within agent’s power to delegate
authority and within the authority in fact delegated by the agent.
iii. Agent’s Agent: when an agent is not authorized to delegate duty to another agent, but
does so anyway.
1. Principal is not liable for acts of the agent’s agent.
2. The agent is the principal for the agent’s agent.
II. Classifications of Principals:
a. Disclosed Principal: third party has notice of (1) existence of agency, and (2) identity of
principal.
i. Principal is bound to the contract
ii. Third party is bound to the principal
iii. Agent is not liable on the contract
b. Partially Disclosed Principal: third party knows he is dealing with an agent, but does not know
principal’s identity
i. Principal is bound to the contract;
ii. Third party is bound to the principal; and
iii. Agent is secondarily liable to the third party.
c. Undisclosed Principal: third party has no notice of Agent’s statute nor of the existence of a
principal.
i. Principal is bound to the contract;
ii. Third party is bound to principal
iii. Agent is secondarily liable to third party.
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