Agency

Question 1

What is agency?

Answer 1

Fiduciary relationship arising when one person (principal) appoints another (the agent) to act on the principles behalf.

Question 2

What are the requirements for creating an agency relationship?

Answer 2

1. Consent of both parties
2. Legal capacity (principal must have contractual capacity (be an adult); agent only needs minimal capacity.
3. Agent must act on behalf of the principal (for the benefit of the principal)
4. Agent must act subject to principal’s control

Question 3

Do agency relationships require consideration?

Answer 3

No contractual consideration required.

Question 4

Two ways agency relationships are created

Answer 4

1. By operation of law–created by estoppel due to 3P reliance on principal’s communication
2. By act of parties–when parties expressly or impliedly deem one to exist

Question 5

What duties does the agent have to the principal?

Answer 5

An agent is a fiduciary of the principal and owes the fiduciary duties of:
1. Undivided loyalty
2. Obdenience to lawful instructions; and
3. Reasonable care under the circumstances

Question 6

What is the agent’s duty of undivided loyalty?

Answer 6

Means that the agent owes undivided loyalty to the agent, and cannot use their position to profit at the expense of the agent or a 3P.

Agent must not deal with their principal as an adverse party

Agent cannot compete with the principal

Question 7

What is the agent’s duty of obedience?

Answer 7

Agent has a duty to obey all lawful and reasonable directions of the principal.

If agent disobeys, the agent will be liable to the principal for any losses incurred as a result.

Question 8

What is the agent’s duty of reasonable care?

Answer 8

Agent owes a duty of reasonable care in carrying out the ageny relationship.

Question 9

What are the principal’s remedies for agent’s breach?

Answer 9

Upon agent’s breach of fiduciary duty, the principal may:
1. Sue in contract or tort
2. Seek equitable remedies
3. Withholding compensation for agent’s intentional torts or intentional breaches

Principal has a right to recover the actual profits/properties held by agent even if agent’s profit did not result in principal’s loss.

Question 10

What are the principal’s duties to agent?

Answer 10

The principal’s duties are NOT fiduciary, however, the principal has obligations to the agent:
1. contractual duties
2. Reasonable compensation
3. Reimbursement for agent’s expenses in carrying out principal’s orders.

Question 11

Can the principal liable be for agent’s contracts?

Answer 11

Yes. An agent has power to bind principal to a contract the agent enters on principal’s behalf only if agent acted with apparent or actual authority, or if the principal ratified the conduct.

Question 12

What is actual authority?

Answer 12

Authority the agent reasonably believes they possess based on principal’s dealings iwth them.

If principal’s words/actions would lead a reasonable person to believe that the agent had the authority to act on principal’s behalf, the agent had actual authority to bind.

Question 13

What are the two types of actual authority?

Answer 13

1. Implied actual authority–authority that the agent reasonably believed they had based on the principal’s words/actions.
2. Express actual authority–direct authority conveyed by the principal to the agent, either oral or written.

Question 14

How may actual authority be terminated?

Answer 14

1. Occurrence of an event (K specifying authority ends, etc.)
2. Change in circumstances (subject matter destroyed; insovlency of agent or principal)
3. Agent’s breach of fiduciary duty
4. By operation of law (death/loss of capacity)
5. By either party’s unilateral termination

Question 15

What is apparent authority?

Answer 15

Apparent authority can exist when the principal holds out another as possessing authority and as a result, a third-party reasonably believed that the party had actual authority.

A principal’s words/conduct that would lead a reasonable person in the third-pary’s position to believe that the agent has authority to act on the principal’s behalf, then the agent has apparent authority to bind principal.

Because apparent authority is created upon the manifestation of a third party’s belief as to the principal’s conduct, apparent authority does not arise based on an agent’s misrepresentations.

Question 16

What are the types of apparent authority?

Answer 16

Apparent authority may be found where:

1. When agent exceeds their authority, but the principal previously permitted the agent to exceed their express or implied authority and knows the 3P was aware–this binds the principal
2. Where agent had no actual authority. Principal will not be bound if he does not hold the agent out as having authority– This will not bind principal where agent misrepresented his authority
3. A principal may be liable when principal negligently permits an imposter to be in a position to appear to have agency authority–this is agency by estoppel–principal will be estopped from denying the imposter was their agent.

Question 17

Does the death/incompetency of principal terminate the agent’s apparent authority?

Answer 17

Under the majority view, no, it does not automatically terminate it.

Question 18

What is ratification?

Answer 18

This is a type of agency relationship created when agent purports to act on behalf of a “principal” without any authority, but the principal subsequently validates the act and becomes bound.

Question 19

How may a principal ratify?

Answer 19

The principal can ratify the conduct expressly or impliedly–impliedly means “principal” accepts benefits of the K, or if the principal is **silent when there’s a duty to disaffirm
**

Question 20

What are the requirements for ratification?

Answer 20

The “principal” must:
1. Know/have reason to know the material facts of the K;
2. Accept the Entire transaction, AND
3. Have capacity

Question 21

What can be ratified?

Answer 21

Anything can be ratified by a principal, unless:

1. Performance was illegal at time of ratificaiton;
2. Third party has withdrawn; OR
3. There has been a material change in circumstances.

An undisclosed principal may NOT ratify, and only disclosed (known to 3P) may ratify.

Question 22

Liabilities of principal to third parties?

Answer 22

P liable to 3P on a K entered by agent if agent had valid authority (actual, apparent, or thru ratification)

If agent did not have authority and principal has not ratified, P will NOT be bound.

Question 23

Agents v. Third Party Liabilities

Answer 23

NO liability for agent acting on actual or apparent authority.

If principal was disclosed (existence and identity known), principal will be liable on an authorized K, but the agent is liable if parties to K intended agent to be liable.

EXCEPTION:
1. Agent liable if existence and identity of P is undisclosed (3P didn’t know agent acting on principal’s behalf) **OR unidentified ** (3P knew there was a principal but not who).
2. If principal undisclosed/unidentified, then either the P or the A can be liable on a K if agent had authority to enter the K.

Question 24

Third Party liability to Agent and Principal

Answer 24

When P disclosed, only the P–not agent–can enforce the K and hold 3P liable.

When pirincipal is undisclosed/unidentified, either the P or A may enforce the K and hold 3P liable.

Principal cannot enforce the K if there was fraud misrepresentation of the P’s identity

Question 25

Liability of P for A’s Torts

Answer 25

Principal vicariously liable for A’s torts under 2 theories:
1. Respondeat Superior
2. Apparent Authority

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

P may also be directly liable for negligent hiring, retaining, or supervising A.

A principal can be directly liable for agent’s tort if they gave A actual authority OR ratified the tort.

Question 26

Respondeat Superior

Answer 26

P can be liable for A’s torts under respondeat superior, which holds the employer liable for torts committed within the scope of employment.

(Difference between employee and I.C. depeonds on whether the P can controll their work (Ps have no right to control IC, etc.)

P LIABLE FOR I.C. TORT IF:
1. IC engaged in inherently dangerous activity
2. There was a non-delegable duty OR
3. If P knowingly selected incompetent I.C.

For independent contracts, Ps generally NOT liable.

Question 27

Scope of Employment–Frolic and Detour

Answer 27

P/employer not automatically liable for employee’s torts unless committed during scope of employment

EXCEPTION:
1. If employee engaged in frolic and detour–meaning, employee’s deviation was a substantial departure from employer’s direction–not liable
2. BUT if it was a small detour/deviation, it is considered w/in scope of employment

Question 28

Liability for Intentional Torts

Answer 28

General rule: E not liable for intentional torts of employee. Intentional torts NOT considered w/in scope of employment

EXCEPTIONS:
1. Conduct authorized/ratified by employer
2. When force is authorized by employer/nature of work giving rise to hostilities (bouncer at club)
3. When employee promotes employer’s business or is motivated to serve employer.

P liable for agent’s misrepresentations IF agent had actual, apparent, or inherent authority to speak on the matter.

Question 29

Direct Liability of Employer?

Answer 29

An E is liable for their negligent hiring, training, or supervision of employees/ICs, or if they fail to check an employee/IC’s criminal record/job history.

Question 30

Employer–Employee Estoppel

Answer 30

If P creates appearance of employer-employee relaitonship, P estopped from denying its existence and will be liable under respondeat superior.

Question 31

If Respondeat Superior doesn’t apply..

Answer 31

Apply apparent authority!

P may be liable by vicarious liability if A acted with apparent authority

A principal is vicariously liable where its Agent communicates on behalf of P and A’s apparent authority engables the agent to :

1. Commit a tort; or
2. Conceal its commission