Agency

Question 1

Agency - General Definition

Answer 1

Agency = oner person (the agent) acting on behalf of and subject to the control of another person (the principal).

Question 2

Agency - Creation of an Agency Relationship

Answer 2

Most common method = appointment (oral or written).

Question 3

Agency - Determining the Existence of an Agency Relationship

Answer 3

Requirements for agency =

i) principal manifests assent to the agent;
ii) agent acts on principal’s behalf;
iii) agent’s actions subject to principal’s control; and
iv) agent manifests assent or otherwise consents.

Question 4

Agency - The Principal - Principal’s Control

Answer 4

Key indicia of principal = the right to control. Does not have to control the full range of agent’s actions (e.g. professional judgment). Can fail to exercise right to control.

Question 5

Agency - The Principal - Types of Principals

Answer 5

Some types = individual (must have capacity and not be a minor), employer, entrepreneur, corporation (must have legal existence, not future incorporation pending), partnership (partners, employees, lawyers, etc. can all serve as agents).

Question 6

Agency - The Agent - Subject to Principal’s Control

Answer 6

Key indicia agent = person who works on behalf of and subject to control of another.

Question 7

Agency - The Agent - Types of Agent

Answer 7

Some types = individual (needs only minimal capacity and can be a minor), employee, contractor, trustee, gratuitous agent (unpaid), subagent (appointed by agent).

Question 8

Agency - Formation of Agency Relationships - “Equal Dignities” Rule

Answer 8

In some states, written authorization is required for a principal to be liable for the acts of the agent. Principal can raise lack of written authorization as a defense to liable to third parties. Equal dignities = the authorization must be of equal dignity to the underlying transaction.

Question 9

Agency - Liability to Third Parties - Requirements for Principal’s Contractual Liability

Answer 9

Requirements =

i) actual authority (express or implied);
ii) apparent authority; or
iii) principal is estopped from denying agent’s authority.

Additionally, even if agent acts without authority, principal can become bound by ratifying the contract.

Question 10

Agency - Liability to Third Parties - Actual Authority for Principal’s Contractual Liability

Answer 10

Actual authority requires the agent to believe he is doing what the principal wants (subjective standard) and the belief must be reasonable and based on the principal’s manifestations (objective standard). Third party knowledge is not relevant.

Question 11

Agency - Liability to Third Parties - Implied Actual Authority for Principal’s Contractual Liability

Answer 11

An agent has implied authority to take whatever actions he reasonably understands to be necessary to achieve the principal’s objectives, or that the principal implies are authorized through acquiescence. In some cases, there is implied authority to delegate, e.g. for grunt work, tasks requiring a professional, or when it’s customary to have subagents assist with a task.

Question 12

Agency - Liability to Third Parties - Apparent Authority for Principal’s Contractual Liability

Answer 12

Apparent authority derives from the reasonable reliance of a third party on the party’s perception of the level of authority granted to the agent by the principal. The perception is based on the principal’s behavior over a period of time.

Question 13

Agency - Liability to Third Parties - Termination of Actual Authority

Answer 13

Some ways actual authority can be terminated = revocation, agreement, change of circumstances, passage of time, principal’s death (once agent has notice), agent’s death, principal’s loss of capacity, agent’s breach of fiduciary duty.

Question 14

Agency - Liability to Third Parties - Estoppel for Principal’s Contractual Liability

Answer 14

Principal can be estopped from denying the existence of authority when the principal intentionally or carelessly caused a belief about authority that was justifiably relied on or had notice of such a belief and the possibility that it might cause others to change their position in reliance on it and failed to take reasonable steps to notify.

Question 15

Agency - Liability to Third Parties - Negligence for Principal’s Contractual Liability

Answer 15

Principal can be liable for an imposter’s acts when the principal negligently allows the imposter to have the appearance of actual authority.

Question 16

Agency - Liability to Third Parties - Ratification for Principal’s Contractual Liability

Answer 16

Principal can later ratify an act performed by another person by affirming that it was done on the principal’s behalf. Requirements = principal must ratify the entire act, principal and third party must have legal capacity at time of the act, ratification must be timely, and principal must have knowledge of the material facts involved in the act. Third party can avoid transaction if it is ratified after a material change in facts and it would be unfair to enforce the transaction.

Question 17

Agency - Liability to Third Parties - Requirements for Respondeat Superior

Answer 17

Requirements =

i) agent is a servant/employee; and
ii) agent commits the tort while acting within the scope of employment.

Question 18

Agency - Liability to Third Parties - “Employee” for Respondeat Superior

Answer 18

Key factor = whether the employer has the right to control the manner and means by which the agent performs work.

Question 19

Agency - Liability to Third Parties - “Scope of Employment” for Respondeat Superior

Answer 19

Requirements =

i) performing work assigned by the employer; or
ii) engaging in a course of conduct subject to the employer’s control.

Even for careless work, illegal acts, use of physical force, etc. employer is still liable if the act is within the time and space limits of employment, the agent was motivated in part to act for the employer’s benefit, and the act was the kind of act the employee was hired to perform. When an employee acts independently of any intent to serve any purpose of the employer, the employer may escape liability.

Question 20

Agency - Liability to Third Parties - Apparent Authority for Vicarious Liability

Answer 20

A principal is vicariously liable for a tort committed by an agent with apparent authority when the agent’s appearance of authority allows him to commit the tort of conceal its commission. E.g. fraudulent and negligent misrepresentation, etc. NB: agent’s motivation or lack of benefit to the principal is not relevant.

Question 21

Agency - Liability to Third Parties - Principal’s Direct Liability to Third Parties

Answer 21

Principal is directly liable to third person harmed by agent’s conduct if:

i) principal authorizes or ratifies the conduct;
ii) principal is negligent in selecting or controlling the agent; or
iii) principal delegates a nondelegable duty of care and the agent breaches the duty.

Question 22

Agency - Rights and Duties - Principal’s Rights

Answer 22

Rights to select and control the agent within the scope of the agency relationship = right to control, right to expect agent to follow instructions and perform tasks with reasonable care (agent’s duty of care), right to expect good faith, loyalty, and obedience (agent’s fiduciary duty), right to notice of all issues relevant to the agency relationship, right to an accounting.

Question 23

Agency - Rights and Duties - Principal’s Duties

Answer 23

Duties = duty to treat the agent fairly and in good faith and to inform of risks of harm or loss, duty to act in good faith in accordance with contractual terms, duty to compensate according to any agreement, duty not to interfere with agent’s completion of work, duty to indemnify (subject to agreement to contrary), duty to refrain from conduct likely to injure agent’s business reputation or reasonable self-respect.

Question 24

Agency - Rights and Duties - Principal’s Remedies

Answer 24

Right to recover for breach of agent’s fiduciary duty breach of contract and tortious actions outside the scope of employment. Potential remedies = injunction, damages for breach of contract, tort damages (including punitive damages), avoidance or rescission of contract, restitution, forfeiture of compensation, disgorgement of profits earned without the principal’s consent.

Question 25

Agency - Rights and Duties - Agent’s Rights

Answer 25

Rights include compensation (as per any agreement), be allowed to work without interference, reimbursed for losses, safe work environment, indemnity for working on behalf of the principal.

Question 26

Agency - Rights and Duties - Agent’s Remedies

Answer 26

May have contract or tort claim.

Question 27

Agency - Rights and Duties - Agent’s Duty of Loyalty

Answer 27

Duty includes fiduciary duty to act solely for the benefit of the principal, e.g. not deal with principal as adverse party, refrain from acquiring a material benefit, don’t usurp business opportunities, don’t compete, duty to disclose multiple principals, duty not to use principal’s confidential information.

Question 28

Agency - Rights and Duties - Agent’s Performance-Based Duties

Answer 28

Duties include obedience and reasonable care. “Must have” duties = duty of care (reasonable diligence and skill), duty to provide information to principal, duty of loyalty, duty of obedience, duties not to usurp business opportunities, not to take financial gain from the principal, to provide and accounting, and to commingle the principal’s property with that of a third party.