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Agency Under New York Law

Michael Decker
Michael Decker

What is agency and how is it different from a Power of Attorney?

Agency Under New York Law means that someone is conferring on another authority to engage in certain actions on their behalf. A power of attorney is a written authorization that can be used for evidentiary purposes before a court to demonstrate the authority of the agent to act on another’s behalf. To distinguish this from an agency relationship, the latter can come about in various ways (through actual, apparent, or inherent authority, ratification or by operation of law).

What is contract liability?

Contract liability in agency refers to a legal relationship whereby one party (known as an agent) has authority to represent another (known as a principal) in business dealings involving third parties. Naturally, a principal will only be liable for contracts the agent entered into on his behalf if the agent did so with authority. With the exception of acts that, by their nature, by public policy or by contract, require personal performance on behalf of the principal, a principal may appoint an agent to handle all and any acts.

Agency Under New York Law

What must be done for an agency relationship to exist?

For such a relationship to exist there must be capacity. This is what is known as a condition precedent to its creation, without which it cannot exist. The principal must have contractual capacity. One with contractual capacity himself may be a principal and enter into a contractual relationship through an agent.

However, there are certain exceptions to this rule. As a rule, a minor may not bind himself absolutely in contracts. This means that, should he appoint an agent, both the agent’s actions and the appointment itself are voidable and the minor can disaffirm them. The same holds true in respect of incompetents and unincorporated non-profits, such as clubs and churches.

Who can be an agent?

Anyone can be an agent. When it comes to being an agent, there is no need for contractual capacity. This means that the absence of this would not act as a bar to a minor or incompetent being appointed as an agent (although a minimal mental capacity would generally be required).

Who is disqualified from being an agent?

There are three situations which would disqualify a person from serving as an agent. As a rule, an agent may not represent both parties. However, this would be permissible if both parties were advised of the fact and agreed to the dual representation. Self-dealing would also act as a disqualifying factor. An agent may not covertly act for his own self-interest. So too, an agent would be disqualified from acting in this capacity if he were doing so without a license, such as is required for brokers and insurance agents. Practically speaking, the unlicensed agent would be prevented from recovering commissions for his work.

What are the formal requirements to become an agent?

Consent is critical for an agency relationship to exist and it must be manifested by both the principal and the agent. Unilateral consent would not suffice. Consideration need not enter the picture for there to be an agency. Generally speaking, there is no need for the creation of an agency to be evidenced by writing and it can be done orally. This holds true even in a case that the Statute of Frauds mandates that the agreement being entered into by the agent on the principal’s behalf be in writing. An exception to this rule is found in real property transactions. If a party is relying on a written contract of sale of a realty interest exceeding one year, then it must be demonstrated that the agent’s signatory authority was in writing or that the signing was ratified by the principal.

Agency through an act of the parties

One way an agency relationship may be formed is by an act of the parties. There are four modes by which this can occur. The first involves what is known as actual authority. The principal may appoint an agent to act on his behalf by communication to the agent, either orally or in writing. Another mode involves what is known as apparent authority. In this mode, the principal may authorize an agent to act on his behalf by communication to a third party. There is also inherent authority, in which the principal actually authorizes the agent to act. However, this mode of authorization carries the risk that the principal may be found liable for acts carried out by the agent in violation of his orders. Finally, an agency can be formed through ratification. Essentially, this involves an affirmation of a previously unauthorized act, in which the principal affirms the actions carried out by one purporting to act on his behalf.

Agency by operation of law

An agency may also be formed by operation of law. This can be done in two ways. The first mode of creation is through estoppel, in which the principal may be estopped from denying the existence of the agency. It should be noted that both in respect of estoppel and of apparent authority, the existence of an agency hinges on a third party having relied on a communication from the principal. There is little to distinguish between these two. Yet, these two modes serve different purposes. The former comes to remedy unjust enrichment, whereas the latter gives rise to a contract, with all its attendant rights and obligations.

Statute serves as the second mode for creating an agency by operation of law, although this is usually designed to serve a limited purpose. An example would involve a resident of one state (for the sake of clarity, we will term this “State Y”) being involved in an automobile accident while driving in another (which will be termed “State X”). State X may have a nonresident motorist statute which provides that driving a vehicle on State X’s highways amounts to appointing the secretary of state as agent of the nonresident driver for purposes of service of process in any actions involving the operation of a motor vehicle. In such case, the secretary of state for State X will be deemed the nonresident’s agent for this purpose.

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