Agency

Question 1

What is an agency relationship?

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

What is required for the creation of an agency relationship?

Answer 2

• Consent
• Capacity
  
  • Principal must have contractual capacity to consent
  • Agent only needs minimal capacity
• Writing
  
  • Not necessary unless required by the statute of frauds
• Consideration NOT required

Question 3

What is the “equal dignities rule”?

Answer 3

When an agent is empowered to enter into contracts on the principal’s behalf that would require a writing, the agency agreement itself must also be in writing.

Question 4

What are the agent’s duties to the principal?

Answer 4

Fiduciary Duties:

• Duty of Care – An agent owes a duty 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.
• Duty of Loyalty – The agent owes a duty of undivided loyalty to the principal
• Duty of Obedience – An agent must obey all reasonable directions of their principal. If the agent disobeys a reasonable direction, the agent will be liable to the principal for any loss that the principal suffers.

Question 5

What duties does a principal owe an agent?

Answer 5

The principal does NOT owe an agent any fiduciary duties.

However, the principal owes the agent all of the duties imposed by their contract, reasonable compensation, and reimbursement for expenses.

Question 6

How can an agent bind a principal to contractual obligations?

Answer 6

Agent must have had authority to enter into the contract on the principal’s behalf. There are three types of authority:

• Actual authority
• Apparent Authority
• Ratification

Question 7

When does actual authority exist?

Answer 7

Actual Authority – 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

Can be express (e.g. terms of the agency agreement) OR implied (e.g. arising by custom)

Question 8

How is actual authority terminated?

Answer 8

• The happening of an event specified in the agent’s and principal’s agreement as something that will terminate the agent’s authority
• Lapse of a reasonable time if a time for termination is not specified in the agreement
• A change in circumstances, including destruction of the subject matter of the authority, insolvency of the agent or principal, and a change in the law or business conditions
• Agent’s breach of fiduciary duty
• Either party’s unilateral termination (both parties have the power to terminate an agency unilaterally, although such termination may constitute a breach of contract) OR
• Operation of law (for example, death or loss of capacity of either party except where a durable power of attorney—written authority that says it will not terminate on the principal’s disability—is present. Termination in the case of a principal’s death is effective only when the agent has notice of it)

Question 9

When is an agency relationship irrevocable?

Answer 9

If the agency was given to protect the agent’s (or a third party’s) rights and it is supported by consideration.

These agencies cannot be unilaterally terminated nor terminated by operation of law

Question 10

When does apparent authority exist?

Answer 10

Apparent Authority – 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 the principal’s behalf

Question 11

How is apparent authority terminated?

Answer 11

• Lingering Apparent Authority
  
  • Remember, apparent authority can exist even when actual authority does not. Similarly, apparent authority can linger after actual authority ends.
• Notice May Be Necessary
  
  • Where an agent’s actual authority has terminated, he will have apparent authority to act on the principal’s behalf as to all third parties with whom the principal knows he dealt unless and until the third parties receive either actual or constructive notice of the termination.

Question 12

When does an agent have authority by ratification?

Answer 12

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.

Question 13

What must occur for an agent to have authority by ratification?

Answer 13

For ratification to occur, the “principal” must:

• Have knowledge of (or have reason to know) all material facts regarding the contract
• Accept the entire transaction (meaning the “principal” cannot merely ratify a portion of the transaction) AND
• Have capacity (be competent and of legal age)

Generally, a “principal” may ratify anything unless:

• (1) performance was illegal at the time of ratification,
• (2) the third party has withdrawn, or
• (3) there has been a material change in circumstances.

Question 14

What can a principal ratify?

Answer 14

Generally, a “principal” may ratify anything unless:

• (1) performance was illegal at the time of ratification,
• (2) the third party has withdrawn, or
• (3) there has been a material change in circumstances.

Question 15

What are the consequences of ratification between the principal and agent?

Answer 15

Upon ratification, the “agent” is relieved of liability for breach of duty and their implied warranty of authority

Question 16

What is an agent’s liability to a third party?

Answer 16

• As a general rule, if the agent had some form of authority, the agent cannot be held personally liable on the contract.
• If the agent had no authority, the agent can be held liable for breach of the implied warranty of authority.
• 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 17

When is a principal liable for the torts of his agent?

Answer 17

A principal may be vicariously liable for the torts of their agent under two theories: (1) respondeat superior and (2) apparent authority.

Vicarious liability means that joint and several liability for the agent’s tort will be imputed to the principal.

Note: in addition to vicarious liability, a principal may be directly liable for their own negligence in hiring, retaining, or supervising the agent.

Question 18

How do you determine whether an agent is an independent contractor OR an employee?

Answer 18

Employee – Principal retains the right to control the manner in which an employee performs their work.

Independent Contractor – A principal does not reserve/have a right to control the manner in which work is performed by an independent contractor.

Question 19

What factors will a court consider when determining whether an agent is an employee or an independent contractor?

Answer 19

• The degree of skill required on the job (where great skill is required, more likely to be independent contractor)
• Whose tools and facilities are used (if the principal supplies the tools and facilities used to perform the job, more likely to be employee)
• The period of employment (definite and/or short, more likely to be independent contractor; indefinite and/or long, more likely to be employee)
• The basis of compensation (if on time basis, more likely employee; if on job basis, more likely independent contractor)
• The business purpose (if person hired to perform an act in furtherance of principal’s business, more likely employee; if nonbusiness purpose, such as mowing a lawn, more likely independent contractor)
• Whether the person has a distinct business (person who has their own business or occupation is more likely to be an independent contractor)
• The characterization and understanding of the parties
• The customs of the locality regarding supervision of work

Question 20

When does respondeat supirior liability attach?

Answer 20

The employer is liable for the employee’s torts only if they were committed within the scope of the employee’s employment. There are three factors helpful in making this assessment:

• Was the conduct “of the kind” that the agent was hired to perform?
• Did the tort occur “on the job” (that is, within the time and space limits of the employment)?
• Was the conduct actuated at least in part to benefit the principal?

Question 21

When is a principal liable for an agent’s intentional torts?

Answer 21

The general rule is that the employer is not liable for the intentional torts of an employee (for example, battery or assault).

However, Intentional torts will be viewed as within the scope of employment if the conduct is:

• (1) a natural incident of the employee’s duties (as where force is authorized or the nature of the work gives rise to hostilities);
• (2) where the employee is promoting the employer’s business or is motivated to serve the employer; or
• (3) specifically authorized or ratified by the employer.

Question 22

When is a principal liable for the torts of an independent contractor?

Answer 22

A principal will incur liability for the 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

Question 23

When will a principal be vicarious liability for an agent’s torts by means of apparent authority?

Answer 23

A principal is vicariously liable where an agent appears to deal or communicate on behalf of the principal and the agent’s apparent authority enables the agent to

• (1) commit a tort OR
• (2) conceal its commission.

This means that for the principal to be liable, there must be a close link between the agent’s tortious conduct and the agent’s apparent authority.