(2) Creation of Actual Agency

How is an actual agency relationship created?

An actual agency is created whenever two parties agree that the agent will represent the principal in dealing with third parties.

What two manifestations are required to create an agency relationship?

The principal must manifest that the agent may act on the principal's account, and the agent must consent to do so.

Under what standard is manifestation of consent judged?

Manifestation of consent is judged by an objective standard.

Is objective consent by both principal and agent required?

Yes. A principal's and agent's objective consent to the agency relationship is required.

How is the principal's assent to an agency relationship determined?

Objectively—by whether the principal's manifestation allowing the agent to act reaches the agent.

How may an agent demonstrate consent to an agency relationship?

The agent must actually accept the relationship and understand that the principal is to be in control.

Must the agent's consent be communicated back to the principal?

No. The agent's consent to act does not have to reach the principal.

How is the agent's consent evaluated?

By the agent's subsequent conduct after the principal's assent has reached the agent, not by the agent's subjective beliefs.

Testable Issue: Does an agreement stating there is "no agency relationship" prevent an agency from existing?

No. If the parties actually satisfy the elements of consent, acting on behalf of, and control, the disclaimer is only one factor and is not determinative.

When must a contractual agency comply with contract law?

Whenever the agency relationship is created by contract.

What is a power of attorney?

A formal written appointment of an agent.

What authority does a general power of attorney grant?

It authorizes the agent to perform any act the principal can legally accomplish.

What authority does a special or limited power of attorney grant?

It authorizes the agent to perform only specifically designated duties.

What is a durable power of attorney?

A power of attorney that continues despite the principal's incapacity because the principal consented in advance to the agent acting during incapacity.

What fiduciary duty does every true agent owe the principal?

The agent must forego personal interests and act primarily on behalf of the principal.

Must an agent act for the benefit of another or merely confer a benefit?

The agent must act on behalf of another, not merely confer a benefit as a favor.

What does it mean that an agent acts "on behalf of" the principal?

The agent must subordinate personal interests and act primarily for the purposes of the principal.

What right of control does a principal possess over an agent?

The principal has the right to control the conduct of the agent regarding matters entrusted to the agent.

Does the principal control every detail of the agent's work?

No. The principal generally controls the objectives of the agency, not necessarily the means used to accomplish them.

Despite the principal's limited control over methods, what must every agent do?

Follow all explicit instructions from the principal because of the agent's fiduciary duty.

Does "control" require the principal to physically direct the agent's every action?

No. Control does not require physical control of the agent's actions.

Is a writing generally required to create an agency relationship?

No. Agency law has no formal writing requirement.

How may authority to act as an agent be created?

By writing, orally, or by the principal's conduct causing the agent reasonably to believe authority has been granted.

Testable Issue: Can an informal agreement create an agency relationship?

Yes. Any informal agreement may create an agency if the circumstances objectively demonstrate mutual consent.

What is the Equal Dignity Rule?

When the Statute of Frauds applies to a contract executed by an agent, the agent's authority to bind the principal must also be in writing.

What is the consequence of violating the Equal Dignity Rule?

If the agent's authority is not in writing and the underlying contract falls within the Statute of Frauds, the contract is unenforceable against the principal.

Example: When does the Equal Dignity Rule commonly apply?

When an agent is authorized to execute a contract for the sale of land.

Testable Issue: What major exception exists to the Equal Dignity Rule?

Many states exempt corporate officers and general partners from the Equal Dignity Rule.

For what purposes may a principal appoint an agent?

For any lawful purpose unless public policy, the nature of the act, or a contract requires personal performance.

How may an agency relationship be created by statute?

By statutory authority, such as a statutory power of attorney or mandatory appointment of an agent for service of process.

Is capacity required to create an agency relationship?

Yes. Capacity is required, and the principal must possess greater capacity than the agent.

What level of capacity must a principal possess?

The principal must have the legal capacity to contract.

Can incompetents, minors, or unincorporated associations serve as principals?

No.

Can a person lacking capacity to be a principal nevertheless serve as an agent?

Yes. Any person may be an agent even if they lack capacity to be a principal.

Is consideration required to create an agency relationship?

No. A true agency does not require consideration.

What is a gratuitous agent?

An uncompensated agent.

When must an agent possess a professional license?

When state law requires a license for that particular type of agency, such as attorneys or real estate brokers.