Agency Law Bar Exam Guide

Agency Law: The Building Block of Business Associations

Agency law determines when one person's actions bind another. It is the foundation on which partnership, LLC, and corporate law are built. If you understand agency, every other business associations topic becomes clearer.

This guide is part of our Business Associations complete framework.

Creating an Agency Relationship

An agency relationship requires three elements:

Manifestation of assent by the principal that the agent act on the principal's behalf
Agent's consent to act
Principal's right to control the agent

No formalities are required -- agency can be created by conduct alone. No consideration is needed.

Exam Trap: "Friend agreed to help sell my car." This creates an agency relationship even without a written agreement or payment.

Types of Authority

Authority Type	Definition	Source	Example
Actual Express	Principal explicitly tells agent what to do	Principal's words to agent	"You are authorized to sell my car for at least $10,000"
Actual Implied	Authority reasonably inferred from express authority, customs, or circumstances	Principal's conduct toward agent	Authority to sell car implies authority to place ads
Apparent	Principal's conduct leads a third party to reasonably believe the agent has authority	Principal's conduct toward third party	Company gives employee a title of "VP of Sales" -- third party reasonably believes VP can negotiate deals
Inherent	Authority arising from the agency relationship itself (Restatement 2nd only)	Position/relationship	General agent of an undisclosed principal has power to bind
Ratification	Principal retroactively approves an unauthorized act	Principal's after-the-fact conduct	Agent buys a car without authority; principal learns of it and says "great deal, keep it"

Apparent Authority -- The Bar Exam Favorite

Apparent authority is the most tested authority type. The key elements:

The principal's conduct (not the agent's) created the appearance of authority
A third party reasonably relied on that appearance
The third party's reliance was reasonable

Exam Trap: An agent cannot create their own apparent authority. The appearance must come from the principal. "The agent told the third party 'I have authority'" is NOT apparent authority -- it is just the agent's claim.

Ratification Requirements

Principal must have knowledge of the material facts
Principal must accept the entire transaction (cannot ratify part and reject part)
Principal must have had capacity at the time of the original act
Ratification relates back to the time of the original act

Liability in Agency Relationships

Contract Liability

Principal Status	Principal Liable?	Agent Liable?
Disclosed (third party knows identity)	Yes, if agent had authority	No (generally)
Partially disclosed (third party knows of principal but not identity)	Yes, if agent had authority	Yes (third party can elect)
Undisclosed (third party does not know of principal)	Yes, if agent had authority	Yes (third party can elect upon discovery)

Tort Liability: Respondeat Superior

A principal (employer) is vicariously liable for torts committed by an agent (employee) acting within the scope of employment.

Scope of employment factors:

Was the conduct of the kind the employee was hired to perform?
Did it occur substantially within the authorized time and space limits?
Was it motivated, at least in part, by a purpose to serve the employer?

Frolic vs. Detour:

Detour: Minor deviation from employer's business -- still within scope (employer liable)
Frolic: Substantial departure from employer's business -- outside scope (employer NOT liable)

Independent Contractors

Generally, a principal is NOT vicariously liable for torts of an independent contractor. Exceptions:

Non-delegable duties (inherently dangerous activities)
Negligent selection of the contractor
Apparent agency (hospital/doctor cases)

Agent's Duties to Principal

Duty of loyalty: No self-dealing, no competing, no using principal's property for own benefit
Duty of obedience: Follow reasonable instructions
Duty of care: Act with reasonable care
Duty to account: Keep track of money and property

Practice Questions

Question 1

"Company hired Sales Rep and gave her business cards with the title 'Regional Sales Director.' Sales Rep negotiated a $50,000 supply contract with Vendor without Company's authorization. Company refuses to honor the contract."

Analysis: Apparent authority. Company's conduct (providing business cards with an authoritative title) created the reasonable appearance that Sales Rep could negotiate contracts. Vendor reasonably relied on this. Company is bound even though Sales Rep lacked actual authority.

Question 2

"A delivery driver for Pizza Co. makes a delivery and, on the way back, decides to drive 20 miles out of the way to visit a friend. While at the friend's house, the driver hits a pedestrian while backing out of the driveway."

Analysis: This is a frolic, not a detour. A 20-mile deviation to visit a friend is a substantial departure from the employer's business. Pizza Co. is likely NOT vicariously liable under respondeat superior.

Key Takeaways

Agency requires: assent, consent, and right to control
Apparent authority comes from the principal's conduct toward the third party, not the agent's claims
Respondeat superior: employer liable for employee torts within scope of employment
Frolic (employer not liable) vs. detour (employer liable)
Generally no vicarious liability for independent contractors (with exceptions)

Continue with Partnerships & LLCs or return to the Business Associations complete framework.

Study with our Business Associations outline templates.