05.02 Duties and Liabilities of Agents and Principals

Question 1

What are duties of principal to agent?

Answer 1

To comply with agency agreement; to reimburse reasonable expenses.

Question 2

Does the agent owe a duty of loyalty to their principal?

Answer 2

Yes. The agency relationship is a fiduciary relationship. Because an agent is a fiduciary, the agent owes a duty of loyalty to their principal.

Question 3

What does the duty of loyalty prohibit?

Answer 3

The duty of loyalty prohibits agents from competing with their principals. It also prohibits conflicts on interest, appropriation of business opportunities, and the disclosure of confidential information about the principal.

Question 4

What is the duty to follow instructions?

Answer 4

Duty of obedience. The agent should follow the principal’s instructions unless those instructions call for illegal or immoral acts.

Question 5

What is the duty of reasonable care?

Answer 5

The agent must discharge all responsibilities carefully with the prudence of a reasonable person.

Question 6

True or False: Negligent conduct in the execution of duties allows the principal to recover from the agent.

Answer 6

True. Agents, like all individuals in whatever capacity, are always liable for their negligence.

Question 7

What are the six ways in which a principal can be held liable for the actions of their agents?

Answer 7

1. A principal is liable for the torts of agents if the agent was doing as the principal instructed or ordered.
2. A principal is liable for the torts of agents if the principal hires an agent who is not qualified to perform the job assigned.
3. A principal is liable for the torts of an agent who was hired without doing an appropriate background check and pre-hiring screening.
4. A principal is liable for the torts of the agents if the principal failed to supervise properly.
5. Principals are also liable for any harm caused by the actions of their agents that involve inherently dangerous activities.
6. A principal is liable for the negligent torts of agents committed in the scope of employment. The principal may be vicariously liable under the doctrine of vicarious liability.

Question 8

What are the two requirements for imposing vicarious liability on principals for the negligent torts of agents?

Answer 8

Existence of a master-servant relationship - a master-servant relationship is determined by the ability of the principal to control the activity of the agent.
Agent is a servant - the key to determining whether the agent is a servant or an independent contractor is this question: does the principal have the right to control the method and manner of the agent’s work?
Consider these: degree of control; method of payment (hourly vs weekly); other sources of income (this is the agent’s only source); who furnishes tools and equipment.

Question 9

What is the tort liability of independent contractors?

Answer 9

Principals are liable for certain torts of independent contractors. If the actions of the independent contractor were authorized, then the principal is liable for the independent contractor’s action.

Question 10

What is a termination by fulfillment?

Answer 10

An agency relationship is terminated when the conduct authorized under the agency relationship is complete.
Actual and constructive notice is required.

Question 11

What is a termination by lapse of time?

Answer 11

If an agency relationship is restricted in length and the authorized length of time ends, then the agency relationship ends.
Actual and constructive notice is required.

Question 12

What is a termination by a specified event?

Answer 12

An agency relationship established to accomplish an event ends when that event is done.
Actual and constructive notice is required.

Question 13

What is a termination by mutual agreement?

Answer 13

An agency relationship ends when the principal and agent agree to end their relationship.
Actual and constructive notice is required.

Question 14

What is a termination by unilateral act of one party?

Answer 14

When the principal or agent fails to perform the duties under the agency agreement, the agency relationship ends, just as in any breach of contract. “You’re fired” or “I quit”.
Actual and constructive notice is required.

Question 15

What is a termination by operation of law?

Answer 15

Legal events that cause the termination of the agency relationship. Termination by operation of law ends all authority: express, implied, and apparent.

Question 16

What is a termination by death of either principal or agent?

Answer 16

Death of the principal means that there is no longer a party to the contract. Death of the agent speaks for itself.

Question 17

What is a termination by insanity of the principal?

Answer 17

The insanity of the principal means that there is no party with capacity to enter into contracts. If there is no principal with capacity, there is no contract because the agent is not the party to the contract.

Question 18

What is a termination by bankruptcy?

Answer 18

Bankruptcy of the principal is another event that triggers an operation-of-law termination of an agency.
Bankruptcy of the agent terminates an agency relationship only if the agent’s bankruptcy would impair the agent’s ability to perform responsibilities.

Question 19

What is a termination by general contract law termination provisions?

Answer 19

As with all contracts, if the law makes the conduct of the agent or the subject matter of the contract illegal, the agency relationship ends. The loss or destruction of the property that is the subject matter of the agency relationship terminates the agency relationship.
Actual and constructive notice is required.

Question 20

What is a disclosed principal?

Answer 20

A disclosed principal is one in which the third party is aware that the agent is acting for a principal and the third party knows who that principal is.

Question 21

When the principal is disclosed and the agent has express (actual or implied) authority, who has liability?

Answer 21

Only the principal is liable to third parties.
There is no liability of agent.

Question 22

When the principal is disclosed and the agent has apparent authority, who has liability?

Answer 22

Only the principal is liable to third parties.
The agent is liable to principal for exceeding authority.

Question 23

When the principal is disclosed and the agent has no authority (actual or apparent), who has liability?

Answer 23

Only the agent is liable to third parties.
Principal is not liable to agent because the agent had no authority.

Question 24

When the principal is partially disclosed and the agent express (actual or implied) authority, who has liability?

Answer 24

The principal and agent are liable to third party.
Principal is liable to agent if third party holds the agent liable.

Question 25

When the principal is partially disclosed and the agent has apparent authority, who has liability?

Answer 25

Apparent authority is not possible because third party does not know who principal is.
Principal is not liable to third party. Agent is liable to third party.
Principal is not liable to agent acting without authority when principal was not identified.

Question 26

When the principal is partially disclosed and the agent has no authority, who has liability?

Answer 26

Principal is not liable to third party because there can be no apparent authority without an identified principal.
Principal is not liable to agent because agent had no authority.

Question 27

When the principal is undisclosed and the agent has express (actual and implied) authority, who has liability?

Answer 27

Principal and agent are liable to third party.
Principal is liable to agent if third party holds the agent liable.

Question 28

When the principal is undisclosed and the agent has apparent authority, who has liability?

Answer 28

Apparent authority is not possible because third party does not know a principal exists or the principal’s identity.
Principal is not liable to third party. Agent is liable to third party.
Principal is not liable to agent acting with no apparent authority because principal’s existence or identity were not know by third party.

Question 29

When the principal is undisclosed and the agent has no authority, who has liability?

Answer 29

Principal is not liable to third party. Agent is liable to third party.
Principal is not liable to agent because agent had no authority.