How to Ace FYLSE/Agency Outline

Agency is a part of the new subject, Business Associations, added to California General Bar Examination in 2007. Agency is closely related to corporations and partnerships and incorporates the rules of contracts and torts and there is likely a cross-over question with these subjects if an Agency question do appear.

An agency is a legal relationship between a person or entity who agrees to act as agent to a principal, whom designates the agent to act on his or her behalf. If an "agency-principal" relationship is found to exist, certain rights, liabilities and obligations flow from that relationship. For example, a principal may be held liable for a contract entered into by her agent, and may be required to perform the contract even though he or she did not sign the contract.

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 agent acts with express authority when the principal has granted the agent the power to bind them.

Agent’s Duties

Fiduciary duties of loyalty
Obedience to reasonable directions (An agent must obey all reasonable directions)
Reasonable care under the circumstances
Disclose all relevant information
Duty to conduct within the scope of authority (actual, apparent, ratification)

Principal’s Duties

Duties imposed by their contract
Reasonable compensation
Reimbursement for expenses

Termination of Actual Authority

Lapse of a specific or reasonable time
The happening of a specified event
A change in circumstances
Agent's breach
Either party's unilateral termination
Operation of law (e.g. death or loss of capacity if either party)

Death terminates an agency unless the agency is irrevocable ⇒apparent authority

Actual Authority

Actual authority is what the agent reasonably believes he possesses based on the principal's dealing with him.

Apparent Authority

Apparent authority is that authority third party reasonably believes an agent possesses based on the principle's holding out the agent as having such authority.
To terminate an agent's apparent authority, the principal must personally notify third parties he knew had dealing with the agent and must publish notice for all others.
Unusual circumstances surrounding an agent's actions, or extraordinary transactions entered into by the agent, may create a duty on the third-party to inquire into the agent's authority to act.
A principal will be liable to a third-party even for an agent's misrepresentations, if the agent had any type of authority to make the representation.

Principal's Liability

A principal can be held liable on a contract entered into by an agent if the agent had actual or apparent authority to enter into the contract, or if the principal ratifies the contract.

References

Conrad, Knauss, Siegel, Agency, Associations, Employment and Partnerships Foundation ISBN 978-0882775982
Conviser, Gilbert Law Summaries: Agency & LLCs Gilbert ISBN 978-0314194329