(1) Agency: Formation & Types of Relationships

Question 1

Definition & Who can be an agent:

Agent

Formation

Answer 1

An agent is a person or entity that acts on behalf of another – the principal.

Anyone can be an agent (minor, incompetents, etc.).

Question 2

Defintion & Do you need capacity?

Principal

Formation

Answer 2

A person who has the right to control the agent.

A principal must have the capacity to consent to the formation of the agency relationship.

Question 3

Creation of Agency Relationship

Answer 3

Agency is a fiduciary relationship, and exists if there is: (1) assent/consent (a formal or informal agreement between the principal and the agent); (2) benefit (the agent’s conduct on behalf of the principal primarily benefits the principal); AND (3) control (the principal has the right to control the agent by being able to supervise the agent’s performance – the degree of control does not need to be significant).

Question 4

Is there a writing requirement to form an agency relationship?

Formation

Answer 4

NO

Question 5

How to termiante an agency relationship?

Answer 5

Termination of the agency relationship can occur unilaterally (aka only the agent or principal needs to want to terminate.)

Question 6

Types of Agency Relationships

Overview

Answer 6

1. Gratuitous Agency
2. Employee
3. Independent Contractor
4. Sole-Proprietor
5. Partner
6. Member
7. Shareholder

Question 7

Gratuitous Agency

Answer 7

When the agent does not receive compensation.

Question 8

Employee

Answer 8

An employee is a person who (1) is hired to work for another person or business, (2) for compensation, AND (3) is subject to the employer’s direction or control as to the details of how to perform the job. (Associates and non-equity partners are employees of the firm)

Question 9

Independent Contractor

Answer 9

An independent contractor is a person who is hired by an employer for compensation and is subject to the employers direction or control as to what the independent contractor does BUT NOT they do it.

Other important factors to consider include: (a) the degree of the employers control; (b) whether the pay is hourly or by the job; (c) whether the employer furnished the tools or other items needed for the job; (d) whether the job was for the benefit of the employer’s business; AND (e) the length of the working relationship.

Question 10

Sole-Proprietor

Answer 10

A sole proprietor is the owner of a sole proprietorship. A sole proprietorship is a single owner for-profit business, that operates without formally creating a business organization.

Question 11

Partner

Answer 11

A partner is (1) a co-owner of a partnership; (2) shares in the profits of the business; (3) is a party to the partnership agreement; AND (4) has a capital account (the individual accounting of each partner’s investment in the partnership). Typically, partners share profits and losses equally, unless otherwise agreed.

Question 12

Member

Answer 12

A member is (1) an owner or co-owner of an LLC; (2) is a party to the Operating Agreement; AND (3) has a capital account (the individual accounting of each member’s investment in the LLC).

Question 13

Shareholder

Answer 13

A shareholder is the owner of one of more shares of stock in a corporation.

Question 14

Actual Authority of Agent

Contractual Liability

Answer 14

A principal is bound to contracts entered into by its agent if the agent has actual authority. Actual authority may be express or implied.

Question 15

Express Authority

Contractual Liability - Actual Authority of Agent

Answer 15

Express Authority occurs when the principal has explicitly told the agent (either orally or in writing) that they are entitled to act on their behalf.

Question 16

Implied Authority

Contractual Liability - Actual Authority of Agent

Answer 16

Implied Authority occurs when either: (a) the agent believes they are entitled to act because the action is incidental or necessary to carry out their express authorized duties; (b) the agent has acted similarly in prior dealings between the principal and agent (prior acquiescence of principal); OR (c) it is customary for agents in that position to act in that way.

Question 17

General Rule & When it arises.

Apparent Authority of Agent

Contractual Liability

Answer 17

A principal is bound to the contracts entered into by an agent if the agent had apparent authority.

Apparent authority arises where (1) the principal holds out another as having authority; AND (2) the 3rd party reasonably relies on that authority.

Aprincipal holds an agent out as having authority when they (a) give the agent a position or title indicating certain authority; (b) has previously held the agent out as having authority and has not published a revocation of said authority; OR (c) has clocked the agent with the appearance of such authority.

Question 18

Apparent Authority of Agent Rule - if agent acts on own behalf

Contractual Liability

Answer 18

A principal will be bound to a contract even if the agent acted on his own behalf or in violation of specific instructions unless (a) the 3rd party had notice the agent was exceeding his authority; OR (b) the contract/transaction was not within the ordinary usages of busines (ordinary usage includes purchase of goods at a reasonable price).

Question 19

When is Apparent Authority not Applicable?

Contractual Liability

Answer 19

Apparent authority is not applicable if the 3rd party has actual knowledge the agent did not have authority.

A 3rd party has a duty to ask questions when a situation suggests it is unreasonable to believes that an agent may not have authority.

Question 20

Difference between the two:

Implied vs Apparent Authority

Contractual Liability

Answer 20

Implied authority is when the principals words or actions cause an agent to reasonably believe in the agents authority to act. Apparent authority results when the principal causes a 3rd party to reasonable believe that the agent has authority to act.

Question 21

Reasonable Belief Factors

Contractual Liability

Answer 21

(a) past dealings between principal and agent that 3rd party is aware of; (b) trade customs; (c) relevant industry standards; (d) the principal’s written statements of authority; (e) transactions that benefit the principal; OR (f) extraordinary or novel transactions for the principal.

Question 22

Ratification of Agents Contracts

Contractual Liability

Answer 22

A principal’s ratification of an agents conduct will make the principal liable for those contracts entered into by an agent without actual or apparent authority.

Question 23

Ratification Rule

Contractual Liability - Ratification of Agents Contracts

Answer 23

Ratification occurs when the principal: (1) has knowledge of all material facts or contract terms; AND (2) thereafter manifests assent (approves) of the same through words or conduct. Approval can be shown through words or inferred from conduct.

Question 24

Rule:

Doctrine of Respondent Superior

Vicarious Tort Liability

Answer 24

A principal is vicariously liable to a 3rd party for the harm caused by the conduct of another when (1) the agent is an employee and (2) the agent commits a tort while acting within the scope of employment.

Question 25

When is an employee within the scope of employment

Respondent Superior

Answer 25

An employee is within the scope of employment when they are (a) performing work assigned by the employer or (b)engaging in a course of conduct subject to the employers control.

Question 26

Significant Deviation

Vicarious Tort Liability

Answer 26

when an employees personal errand is a significant deviation from the path needed for the purposes of performing work, the errand is a frolic and is outside the scope of employment. However if the errand is merely a detour then it is still within the scope of employment.

Question 27

Intentional Tort Rule

Vicarious Tort Liability

Answer 27

Intentional torts are normally excluded from employer liability except when (1) the conduct is within the scope of employment; (2) the agent was motivated in part to act for the employers benefit ; and (3) the act was the king of act that the employee was hired to perform.

Question 28

Independent Contractor Rule

Vicarious Tort Liability

Answer 28

A party is not vicariously liable for the torts of an independent contractor unless the independent contractor had apparent authority.

Question 29

Independent Contractor Definition

Vicarious Tort Liability

Answer 29

An independent contractor is a person who is not controlled or subject to the principals right to control with respect to their performance. The contractor may or may not be an agent. A court will look at the following factors to determine (1) the degree of the employers control; (2) whether the pay was hourly or by the job; (3) whether the employer furnished the tools or other items needed for the job; (4) whether the job was for the benefit of the employers business; and (5) the length of the working relationship.

Question 30

Employee Definition

Vicarious Tort Liability

Answer 30

An employee is a person where the principal has the right to control the manner and method in which the job is performed.

Question 31

Agents apparent authority

Vicarious Tort Liability

Answer 31

An agents appearance of authority enables then to commit or conceal the commission of a tort. Apparent authority exists when a 3rd party believes that the agent acted with actual authority and such belief is (1) reasonable and (2) traceable to a manifestation by the principal.

Question 32

Employee Liability for Negligent Conduct & Indemnification

Vicarious Tort Liability

Answer 32

A person is liable for their own negligent conduct. However, if an employee acts within the scope of his employment in order to further the goals of the employer, the employee may seek indemnification from the employer for damages resulting from his negligent conduct.