Agency

Question 1

When are parties in agency?

Answer 1

Agency is generally defined as the relationship that arises when one person (the principal) manifests assents that another (the agent) shall act on his behalf and under his control, and the agent consents to so act.

Question 2

What are the requirements to create an agency relationship?

Answer 2

1. Capacity: principal must have contractual capacity; agents need only minimal capacity.
2. Formalities:
   a. consent manifested by BOTH the principal and the agent to create.
   b. No consideration required.
   c. Generally no writing required (but see SOF)

Question 3

What is the “equal dignities” rule?

Answer 3

Many states require an agreement to be in writing when the agent is to enter into certain contracts within the SOF (mostly land transactions) or when the agency agreement would fall within the SOF.

Question 4

How might an agency relationship be created?

Answer 4

1. By act of parties: parties may be bound through holding out by the principal (i.e., apparent authority) or ratification.
2. By operation of Law:
   a. Estoppel (reliance)
   b. statute (statutes create agencies usually to accomplish a limited purpose).

Question 5

Generally, what are the agent’s duties to the principal?

Answer 5

An agent is a fiduciary of their principal, so, in addition to any express contractual duties, the agent also owes the fiduciary duties of loyalty, obedience to lawful instructions, and reasonable care under the circumstances.

Question 6

What is the agent’s duty of care?

Answer 6

An agent owes a duty to their principal to carry out their agency with reasonable care—this is a sliding scale depending on any special skills that the agent may have.

Question 7

What is the agent’s duty of loyalty?

Answer 7

The agent owes a duty of undivided loyalty to the principal, which includes the following obligations:
a. agent may not use position to profit themselves.
b. agent must act solely for the benefit of the principal and not to benefit themselves or a third party.
c. agent must refrain from dealing with their principal as an adverse party or from acting on behalf of an adverse party.
e. an agent may not compete with their principal concerning the subject matter of the agency.
f. the agent may not use the principal’s property for the agent’s own purposes or a third party’s purposes.

Question 8

What is the agent’s duty of obedience?

Answer 8

An agent must obey all reasonable directions of their principal. If the agent disobeys a reasonable direction, the agent may be liable to the principal for any loss that the principal suffers.

Question 9

What remedies are available to the principal for an agent’s breach of duties?

Answer 9

contract actions, tort actions, actions for secret profits, equitable actions for an accounting, imposition of a constructive trust, and withholding of compensation for intentional torts or intentional breaches of fiduciary duty.

Question 10

Is the principal’s duty to an agent fiduciary in nature?

Answer 10

No. Fiduciary responsibilities run only from the agent to the principal.

Question 11

What duties does the principal have to an agent?

Answer 11

The principal owes the agent all of the duties imposed by their contract, reasonable compensation, and reimbursement expense. The principal also generally should cooperate with the agent and not unreasonably interfere with the agent’s performance.

Question 12

When does an agent have the power to bind a principal?

Answer 12

When the agent enters to a contract on the principal’s behalf and has acted with authority.

Question 13

What are the three types of authority?

Answer 13

1. Actual;
2. Apparent; and
3. Ratified.

Question 14

What is actual authority?

Answer 14

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 the authority to act on the principal’s behalf, the agent has actual authority to bind the principal.

Actual authority may be expressed or implied.

Question 15

What is express authority?

Answer 15

Express authority is that which is actually contained within the four corners of the agency agreement. it is effective even if it was granted mistakenly or because of misrepresentations.

Question 16

What is implied authority?

Answer 16

Implied authority is authority that the agent reasonably believes they have as a result of the principal’s words or actions. It includes authority:
1. incidental to express authority;
2. arising out of custom known to the agent;
3. resulting from prior acquiescence by the principal;
4. to take emergency measures;
5. to delegate authority in cases of ministerial acts, where circumstances require, where performance is impossible without delegation, or where delegation is customary;
6. to pay for and accept delivery of goods where there is authority to purchase;
7. to give general warranties as to fitness and quality and grant customary covenants in land sales, collect payment, and deliver where there is authority to sell; and
8. to manage investments in accordance with the “prudent investor” standard.

Question 17

When might actual authority be terminated?

Answer 17

Termination (or revocation) of actual authoirty occurs by:
1. The happening of an event specified in the agent’s and principal’s agreement as something that will terminate the agent’s authority;
2. Lapse of a reasonable time if a time for termination is not specified in the agreement;
3. a change in circumstances, including the destruction of the subject matter of the authority, insolvency of the agent or principal, and a change in the law or business conditions;
4. agent’s breach of fiduciary duty;
5. either party’s unilateral termination; or
6. operation of law (think death (but death of principal is only termination when agent has notice of it), loss of capacity (absent durable power of attorney

Question 18

What is ratification and how can it bind the principal?

Answer 18

Ratification occurs when the purported agent acts on behalf of a principal without any authority at all but then the principal validates the act and becomes bound. Ratification is essentially a substitute for before-the-transaction authority—it gives the transaction attractive effect unless the principal lacked contractual capacity at the time the agent entered into the transaction.

Question 19

What is apparent authority?

Answer 19

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. I.e., 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 o the principal’s behalf, the agent has apparent authority to bind the principal.

Question 20

What are the methods of ratification?

Answer 20

Ratification may be express or implied through the conduct of the “principal.” The most common form of express ratification is oral or written affirmation of a contract. The most common form of implied ratification is when the principal accepts the benefits of the contract. A principal can also ratify through silence (if there is a duty to disaffirm) or suing on the transaction.

Question 21

What are the requirements for ratification?

Answer 21

For ratification to occur, the principal must:
1. have knowledge of (or have reason to know) all material facts regarding the contract;
2. accept the entire transaction (i.e., cannot ratify only a portion of the transaction and
3. have capacity (competency and be of legal age).

Question 22

When will a principal be liable to a third party on a contract entered into by their agent?

Answer 22

When the agent had valid authority—either actual, apparent, or through ratification—to act.

Question 23

When is an agent held personally liable on the contract?

Answer 23

If the existence and identity of the principal are not disclosed.

But generally, if the agent had actual authority or apparent authority to enter a contract for the principal, or if the principal ratified a previously unauthorized contract, the agent cannot be held personally liable on the contract.

Question 24

If the principal is unidentified or if the principal is undisclosed, who may be liable on the contract if the agent had authority to enter the contract?

Answer 24

Either the princpal or the agent can be held liable.

Question 25

Under what theories might a principal be vicariously liable for the torts of their agent?

Answer 25

1. Respondeat superior; and
2. Apparent authority

Question 26

How will a principal be liable for the torts of an agent under the doctrine of respondeat superior?

Answer 26

An employer is liable for the torts of an employee committed within the scope of the employment. So, there must be an employer-employee relationship, and the employee must have committed the tort within the scope of the employee’s emploment.

Question 27

What is the difference between an independent contractor and an employee?

Answer 27

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. A principal does not reserve or have the right to control the manner in which work is performed by an independent contractor.

Question 28

What Right to Control factors might be considered when determining whether the principal has the right to control the method and manner of the work?

Answer 28

1. the degree of skill required on the job;
2. whose tools and facilities are used;
3. the period of employment;
4. the basis of compensation;
5. the business purpose;
6. whether the person has a distinct business;
7. the characterization and understanding of the parties;
8. the customs of the locality regarding supervision of work.

Question 29

What factors are helpful in making the assessment of whether the employee was within the scope of the employee’s employment?

Answer 29

1. Was the conduct “of the kind” that the agent was hired to perform?
2. Did the tort occur “on the job” (time and space limits of the employment—not a frolic)?
3. Was the conduct actuated at least in part to benefit the principal?

Question 30

Is an employer liable for intentional torts of the employee?

Answer 30

Generally no. exception: tort is within the scope of employment when it is (1) a natural incident of the employee’s duties; (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 31

When might a principal be vicariously liable?

Answer 31

A principal is vicariously liable where an agent appears to deal or communicates on behalf of the principal and the agent’s apparent authority enables the agent to (1) commit a tort; or (2) conceal its admission.

Question 32

What is the definition of a Partnership?

Answer 32

1. The association;
2. Of two or more person;
3. To carry on as co-owners;
4. A business for profit

Question 33

What intent is required to form a partnership?

Answer 33

Courts will only look to whether the parties intended to carry on a business as co-owners for profit.

The subjective intent of the parties is not to be a partnership is not relevant.

Question 34

What is the most important factor in deciding whether a partnership exists?

Answer 34

The sharing of profits. This raises a resumption of a partnership.

The presumption does not arise if the profit share was to pay a debt, as wages or compensation for services, as rent, or for the sale of goodwill of a business.

Question 35

What factors are evidence of a partnership?

Answer 35

1. The right to participate in control
2. Title to property is held in joint tenancy or in common
3. parties designate their relationship as a partnership
4. the venture undertaken by the parties requires extensive activity
5. Sharing of gross returns