Agency

Question 1

Formation of an Agency Relationship

Answer 1

An agency relationship results when two people, a principal and an agent, manifest mutual consent that the agent will act on the principal’s behalf and subject to the principal’s control.

• Note that the “control” requirement is minimal. It’s enough for the principal to specify the task that the agent is to complete.

Question 2

What degree of capacity is required for an agency relationship to form?

Answer 2

Generally, the principal must have contractual capacity because otherwise the agent cannot bind the principal in contract.

Question 3

What are an agent’s fiduciary duties?

Answer 3

An agent owes the principal the following fiduciary duties:

1. ​Duty of Care;
2. Duty of Loyalty;
3. Duty of Obedience.

Question 4

Duty of Care

Answer 4

An agent must carry out her agency with reasonable care.

Question 5

Duty of Loyalty

(Principal / Agent)

Answer 5

An agent owes the principal a duty of undivided loyalty.

1. An agent must account to the principal for profits made within the scope of the agency;
2. An agent must act exclusively for the benefit of the principal;
3. An agent may not compete with the principal;
4. An agent may not act as an adverse party to the principal.

Question 6

Duty of Obedience

(Principal / Agent)

Answer 6

An agent must obey the principal’s reasonable instructions.

Question 7

Types of Authority

Answer 7

There are several types of authority:

• Actual Authority
  
  • Express Actual Authority
  • Implied Actual Authority
• Apparent Authority
  
  • Apparent Authority by Power of Position
  • Lingering Apparent Authority

Question 8

Actual Authority

Answer 8

Actual authority is authority that the agent reasonably believes she possesses based on the principal’s dealings with her.

• Actual authority is express when the principal grants authority in words.
• Actual authority can be implied by custom, if authority is necessary incidental to one of the agent’s duties, or by acquiescenece.

Question 9

How is actual authority terminated?

Answer 9

Actual authority may terminate:

1. Automatically after a specified period of time or after a reasonable time;
2. By a change of circumstances;
3. If the agent breaches their fiduciary duties;
4. If either the principal or agent manifest their intent to terminate;
5. If either the principal or agent die.

Question 10

Apparent Authority

Answer 10

Apparent authority is authority that a third party reasonably believes the agent possesses based on the third party’s dealings with the principal.

Question 11

Power of Position

Answer 11

An agent’s title or position may establish apparent authority to conduct acts or duties that are typical of a person who holds the same title or position.

Question 12

Can an agent’s actions create apparent authority?

Answer 12

No! Only the principal’s actions may create apparent authority.

⇒ Whether an agent has authority depends entirely on the reasonable interpretation of the principal’s manifestations.

Question 13

Lingering Apparent Authority

Answer 13

Apparent authority lingers even after actual authority ends. To end an agent’s apparent authority, the principal must communicate the agent’s lack of authority to third parties.

Question 14

Ratification

Answer 14

If an agent has no authority to enter into a contract on the principal’s behalf, but does so anyway, the principal may ratify the contract. Ratification may be express or implied. The following requirements must be met:

1. The principal must have knowledge of all material facts;
2. The principal must ratify the entire contract.

Ratification cannot be used to cut off the rights of intervening parties.

Question 15

Principal’s Liability in Contract

What’s the exception?

Answer 15

In general, if an agent with authority enters into a contract, then the principal is liable and the agent is not liable. However:

• If the principal is undisclosed, then the agent is liable in addition to the principal.
• If the principal is partially disclosed, such that the third party knows that the agent is acting on behalf of a principal but does not know the principal’s identity, the the agent is liable in addition to the principal.

Question 16

Master

Answer 16

A master is a principal who employs an agent to perform a particular task and who has a high degree of control over how the agent conducts the task.

Question 17

Servant

Answer 17

A servant is an agent employed by a master to accomplish a task and who is subject to significant control with respect to how they accomplish that task.

Question 18

Independent Contractor

Answer 18

An indpendent contractor is employed by another person to complete a task, and has substantial discretion in determining how to accomplise the task.

Question 19

Master’s Liability for Servant’s Torts

(General Rule)

Answer 19

In general, a master is liable for a servant’s unintentional torts if they are committed within the scope of employment.

⇒ The servant remains liable for her own torts! The master and the servant are jointly and severally liable.

Question 20

When is a servant acting within the scope of employement?

Answer 20

A servant acts within the scope of employment if:

1. Their conduct was of the kind that they were employed to perform;
2. Their conduct occured at a normal time a place given their employment;
3. Their conduct was motivated, at least in part, to benefit the principal.

Question 21

Master’s Liability for a Servant’s Intentional Torts

(General Rule & Exception)

Answer 21

In general, a master is not liable for a servant’s intentional torts. However, they may be liable if:

1. The conduct was authorized or ratified by the master;
2. The conduct was of the kind that the servant was hired to perform, or inherent to the job;
3. The conduct was intended to benefit the employer.

Question 22

Factors to Identify an Independent Contractor

Answer 22

Several factors are important when determining whether a person is an independent contractor or a servant:

1. ♦♦♦ The degree of control that the person has over the details of how to accomplish her task;
2. The skill required to perform the task;
3. Who provides tools and facilities;
4. The period of employment;
5. The basis of compensation;
6. Whether the contracting parties each maintain distinct businesses.

Question 23

Who is liable for a borrowed servant’s torts?

Answer 23

If a principal “loans” a servant’s services to another person, whomever had the primary right of control at the time the servant committed the tort is liable.

⇒ Again, remember that the servant remains liable for her own torts.