Agency

Question 1

Agency

Answer 1

Agency is a fiduciary relationship that arises when one person (the “principal”) appoints another (the “agent”) to act on the principal’s behalf and the agent consents to act. The agent must also act subject to the principal’s control.

Question 2

principal

Answer 2

the person for whom the agent works

Question 3

capacity needed for an agent

Answer 3

while a principal needs contractual capacity, an agent doesn’t

so a person may be an agent even though they have no contractual capacity

Question 4

T/F: Consideration is necessary for the creation of an agency relationship.

Answer 4

FALSE

Question 5

duty of care

Answer 5

part of the agent’s fiduciary duty to the principal

an agent owes a duty of care to their principal to carry out their agency with reasonable care; the degree of care is a sliding scale depending on any special skills that the agent may have

Question 6

duty of loyalty

Answer 6

part of the agent’s fiduciary duty to the principal

the agent owes a duty of undivided LOYALTY to the principal

Question 7

actual authority

Answer 7

actual authority is authority that the agent reasonably believes they possess based on the principal’s dealings with them

if the principal’s words or conduct would lead a reasonable person in the agent’s position to believe that the agent has authority to act on the principal’s behalf, the agent has actual authority to bind the principal

actual authority may be express or implied

Question 8

the effect of “title or position” on actual authority

Answer 8

the notion that title or position conveys authority can also be used to establish actual authority to the extent that the agent reasonably believes that they have authority to act based on the title or position given to them by the principal

Question 9

death and agency

Answer 9

death terminates the agency relationship

Question 10

apparent authority

Answer 10

apparent authority exists when the principal “holds out” another as possessing authority and based on this holding out, a third-party is reasonably led to believe that authority exists (even though as between the agent and the principal, no such authority has been granted)

put differently, if the principal’s words or conduct would lead a reasonable person in the third party’s position to believe that the agent has authority to act on a principal’s behalf, the agent has apparent authority to bind the principal

the policy of apparent authority is that it protects innocent third-parties who rely on the principal’s holding out of a person as their agent

Question 11

ratification

Answer 11

an agency relationship is created by ratification when an agent purports to act on behalf of a principal without any authority at all, but the principal subsequently validates the act and becomes bound

ratification effectively serves as a substitute for before-the-transaction authority

Question 12

third party actions against an agent whose principal is disclosed

Answer 12

if the principal’s existence and identity are disclosed to the third party, the general rule is that the principal will be liable on an authorized contract and the agent will not be

Question 13

third party actions against an agent whose principal is UNdisclosed

Answer 13

If the principal is unidentified (that is, the third party knows the agent was dealing on behalf of a principal but does not know exactly who the principal is) or if the principal is undisclosed (the agent does not reveal that they are contracting on behalf of a principal), EITHER the principal or the agent can be held liable on the contract IF the agent had authority to enter the contract.

Question 14

independent contractor v. employee

Answer 14

the difference between an employee and an independent contractor is that the principal/employer retains the right to control the manner in which an employee performs their work

Question 15

scope of tort liability for an employer/employee relationship

Answer 15

remember that an employer is not automatically liable for an employee’s torts; the employer is liable for the employee’s torts ONLY if they were committed within the scope of the employer-employee relationship

Question 16

liability for acts of BORROWED employees

Answer 16

the key issue is who has the primary right of control over the employee

that employer is liable

Question 17

employer-employee by estoppel

Answer 17

where a principal creates the appearance of an employer-employee relationship upon which a third-party relies, that principal will be ESTOPPED from denying the relationship and will be liable under the doctrine of respondeat superior

Question 18

liability for acts of independent contractors

Answer 18

a principal will be liable for acts of an independent contractor where:

(1) inherently dangerous activities (such as blasting) are involved;
(2) nondelegable duties have been delegated; or
(3) the principal knowingly selected an incompetent independent contractor (if the principal was merely negligent in selecting the independent contractor, the principal is liable only for their own negligence in selection, not for the contractor’s negligence)