Agency

Question 1

What are the seven elements that identify someone as an independent contractor rather than an employee?

Answer 1

An independent contractor is one who:
1. Bears the risk and benefits from good management

2. Maintains a high level of independence
3. Is free to work for others
4. Agrees to be paid a fixed fee
5. Receives payment based on results
6. Is liable for work performed, and
7. Accepts responsibility to remedy defects at her own expense

Question 2

What are the five “must have” duties an agent owes a principal?

Answer 2

1. Duty of care
2. Duty to provide information
3. Duty of loyalty
4. Duty of obedience
5. Duties not to usurp a business opportunity, not to take financial gain, provide an accounting, and no commingle

Question 3

What are the three ways to create express actual authority?

Answer 3

Express actual authority can be created via:

1. Oral or written words
2. Clear, direct, and definite language, or
3. Specific detailed terms and instructions

Question 4

What are the subjective and objective standards of intent for actual authority?

Answer 4

Subjective standard: the agent must believe that he/she is doing what the principal wants

Objective standard: the agent’s belief must be reasonable

Question 5

What three things must an agent have or do to create an agency relationship?

Answer 5

1. Have minimal capacity
2. Manifest assent and consent to act on the principal’s behalf
3. Manifest assent to be subject to the principal’s control

Question 6

What are the eight ways in which an agent’s actual authority may be terminated?

Answer 6

1. Principal’s revocation
2. Principal’s agreement with the agent
3. Change of circumstances
4. Passage of time
5. Principal’s death or suspension of powers
6. Agent’s death or suspension of powers
7. Principal’s loss of capacity
8. A statutorily mandated termination

Question 7

What are the four elements required for creating an agency relationship?

Answer 7

1. A principal manifests assent to an agent
2. The agent acts on the principal’s behalf
3. The agent’s actions are subject to the principal’s control
4. The agent manifests assent or otherwise consents

Question 8

What is a subagent?

Answer 8

A person appointed by an agent to perform functions that the agent has agreed to perform on behalf of a principal. The agent is liable to the principal for the conduct of the subagent.

Question 9

When an agent is contracting on behalf of a disclosed principal, what three steps must the agent take to avoid becoming a party to the contract?

Answer 9

The agent must:
1. Enter into the contract on behalf of the disclosed principal

2. Affirmatively disclose to the third party both the existence and identity of the principal, and
3. Not agree to become a party to the contract

Question 10

When does the election of remedies doctrine come into play?

Answer 10

When a principal is first undisclosed and the agent binds the principal to a contract with a third party, and then the third party learns of the principal’s existence, this doctrine comes into play and requires the third party to choose to hold either the agent or the principal liable and obtain a judgment against only one.

Question 11

What are three situations that would result in a principal being directly liable to a third party harmed by an agent’s conduct?

Answer 11

1. The principal authorizes or ratifies the agent’s conduct
2. The principal is negligent in selecting, supervising, or otherwise controlling the agent, or
3. The principal delegates to an agent performance of a non-delegable duty to use care to protect other persons or their property, and the agent breaches the duty

Note: Because it is the agent’s conduct that triggers a principal’s liability for violation of a non-delegable duty, some jurisdictions treat the principal’s liability as vicarious rather than direct.

Question 12

What capacity does a principal need?

Answer 12

To become a principal and be bound by an agent’s actions, a person must have capacity both to consent to the agency relationship and to enter into the transaction to which the agent purports to bind the principal.

Question 13

What is the two-factor rule for when a principal is vicariously liable to a third party harmed by the agent’s conduct?

Answer 13

A principal is vicariously liable when:

1.There is an employer-employee relationship and

2. The agent commits a tort while acting within the scope of employment.

Question 14

When is a principal not required to indemnify an agent’s losses?

Answer 14

A principal is not obligated to indemnify losses that result from an agent’s own negligence, illegal acts, or other wrongful conduct.

Question 15

What are the five types of principals?

Answer 15

1. Individual
2. Master / Employer
3. Entrepreneur
4. Corporation
5. Partnership

Question 16

As between a principal and agent, who owes whom the duty of loyalty?

Answer 16

The agent owes the principal the duty of loyalty, the principal does not owe the agent the duty of loyalty. However, a principal does have a duty to refrain from conduct likely to injure an agent’s business reputation or reasonable self-respect.

Question 17

What is the capacity required to serve as an agent?

Answer 17

Generally, anyone with minimal capacity can serve as agent, including minors, incompetents, and entities.

Question 18

Label the parties involved:

Seller lists a property with a broker and a Realtor shows the property to prospective buyers.

Question 19

What are an agent’s five general rights?

Answer 19

1. To be compensated (if so promised)
2. Allowed to work without interference
3. Reimbursed for losses
4. Provided a safe work environment
5. Indemnified for working on behalf of a principal

Question 20

When should one apply tort law to an agency scenario?

Answer 20

Tort law applies when vicarious liability attaches to a principal for torts or crimes committed by an agent.

Question 21

How does a principal ratify an act that was done on the principal’s behalf?

Answer 21

a principal can ratify an act that was done on the principal’s behalf. There are four requirements for ratification: (i) the principal must ratify the entire contract; (ii) the principal and the third party must have legal capacity to enter into the contract; (iii) the ratification must occur before the third party withdraws from the contract; and (iv) the principal must know the material facts of the transaction.