Agency

Question 1

what is the relationship bt principal and agent

Answer 1

Agency concerns the relationship that exists between an agent and principal whereby the agent acts on principal’s behalf and is subject to the principal’s control

Question 2

what are the elements needed to form a principal/agent relationship

Answer 2

BCC

agency relationship is created when:
1) Consent—parties expressly or impliedly agree to enter an agency relationship; and

2) Control—agent is subject to the principal’s control
- E.g., agent is at least supervised by principal

3) Acting on Behalf—the agent must be acting on behalf of the principal, which is generally understood to mean that the agent must be acting primarily for the benefit of the principal

Question 3

what are the different methods for creating a principal/agent relationship

Answer 3

Agency can be created by:
- Agreement by parties—writing not required

• Apparent authority—principal holds another out as her agent to a third party
• Ratification—principal agrees retroactively to be bound by previously unauthorized acts of an agent

Question 4

how can an agency relationship be terminated

Answer 4

1) by the parties
2) by operation of law

Question 5

how is an agency relationship terminated by the parties

Answer 5

agency can be terminated by parties where:

• Party desire — either party manifests to the other the desire to terminate the agency relationship (termination effective when notice is received)
• Expiration — express terms of the agency expire
• Purpose fulfilled — the purpose of the agency relationship has been fulfilled

Question 6

how is the agency relationship terminated by operation of law

Answer 6

can occur where:

• Agent or principal dies
• Agent or principal loses capacity
• Agent materially breaches a fiduciary duty owed to principal

Question 7

what are the duties owed by the agent to the principal

Answer 7

1) loyalty
2) care
3) obedience

Question 8

what’s involved in the duty of loyalty owed by the agent to the principal

Answer 8

agent has a fiduciary duty of undivided loyalty to principal
- Agent breaches duty if he has adverse interests and fails to disclose such interests
- agent cannot act on behalf of two different principals with adverse interests

Question 9

what’s involved in the duty of obedience owed by the agent to the principal

Answer 9

• agent must obey principal’s lawful instructions
• Agent’s interpretation of principal’s instructions must be reasonable under the circumstances

Question 10

what’s involved in the duty of care owed by the agent to the principal

Answer 10

agent must carry out his agency with reasonable care
- Reasonable care judged in light of local community standards

Duty to notify — included in duty of care; agent must notify principal of all agency-related matters that come to agent’s attention; all such matters are imputed to principal

Question 11

what are the duties owed by the principal to the agent

Answer 11

1) compensation (unless agent agrees to do it gratuitously)

2) reimibursement (indemify expenses/losses reasonably incurred in carrying out agent’s duties)
- note: also includes legal liability incurred by the agent

3) cooperation (principal must cooperate with agent to help agent carry out agency functions)

Question 12

how to determine if the principal is bound by the agent’s actions

Answer 12

Ask: Did agent have actual authority?
- If Yes — principal will be bound regardless of whether third party knew of agent’s authority

If no actual authority, did the agent have apparent authority?
- If Yes - Apparent authority will bind principal to K, but agent may be held liable to principal for acting beyond scope of her authority

• Ratification can bind principal for agent’s unauthorized

Note: An agent cannot be held liable to principal as long as agent acted within the scope her authority

Question 13

what is actual authority

Answer 13

An agent acts with actual authority when, at the time of taking an act having legal consequences for the principal, the agent reasonably believes that the principal wishes the agent to act
- I.e., actual authority is the authority the agent reasonably believes he possesses based on his dealings with principal

Question 14

what is express actual authority

Answer 14

authority expressly provided to agent by principal (i.e., provided in writing or orally from principal to agent)
- E.g., principal directs agent to engage in a precise task; in doing so, agent has express actual authority

Question 15

what is implied actual authority

Answer 15

authority agent reasonably believes he has based on the principal’s words or conduct
- Includes incidental acts taken by agent that are reasonably necessary to complete a task or transaction on principal’s behalf
- E.g., if principal tells agent to “hire a receptionist,” agent has authority to take actions reasonably necessary to do so (e.g., place a job posting, interview candidates, etc.)

Question 16

how is actual authority terminated

Answer 16

actual authority of any kind can terminate due to lapse of time (specified or unspecified), happening of an agreed-upon event, change of circumstances, etc.

Question 17

what is apparent authority

Answer 17

Apparent Authority - is the “apparent” authority a third party believes an agent to have based on the principal’s actions/manifestations (i.e., how the principal holds out the agent to third parties)

Even when an agent lacks actual authority, principal can be held liable for agent’s acts if agent acted with apparent authority

Agent’s acts will be binding on principal if a third party can show that agent acted with apparent authority
- Note — if a third party knows that the agent does not have actual authority, apparent authority does not exist

Question 18

what is required for an agent to be considered to have acted with apparent authority

Answer 18

agent acts with apparent authority if:

• Principal holds agent out as having authority to act on principal’s behalf; and
• Principal’s conduct causes a third party to REASONABLY believe the agent has such authority

Question 19

what does “holding out” mean in the context of apparent authority

Answer 19

principal must affirmatively act or fail to act in a way that causes the third party’s reasonable belief (mere assertion of authority by agent is insufficient to bind principal

• Affirmative act — can be words or conduct by principal that causes third party’s reasonable belief in agent’s authority
• Inaction — can be inaction by principal, where a duty to act exists, that causes third party’s reasonable belief in agent’s authority
• e.g., where principal knows third party wrongly believes agent has authority to act, principal has a duty to correct

Question 20

high-level difference between apparent and actual authority

Answer 20

Apparent authority—based on the principal’s words or conduct, a third party reasonably believes that the agent is authorized

Actual authority—based on the principal’s words or conduct, the agent reasonably believes that the agent is authorized

Question 21

what is the principal’s power of “ratification”

Answer 21

Where an agent purports to act on behalf of a principal but lacks authority to do so, principal may still be bound by the agent’s acts if she subsequently ratifies the acts

Question 22

what are the requirements for a principal to have ratified the agent’s actions

Answer 22

1) Agent purported to act on principal’s behalf
- E.g., entered into K with third party without authority to do so

2) Principal has knowledge of material facts of the act (e.g., K terms)
- Principal must know or reasonably should know of material facts when agent’s act is affirmed/ratified

3) Principal affirmed (i.e., ratified) agent’s conduct
- Affirmance can be express or implied (i.e., conduct by principal consistent with approval of the otherwise unauthorized act)
- If principal accepts benefits of the agent’s act when it is still possible to decline, principal will be deemed to have ratified agent’s act

Question 23

what’s the effect of the principal ratifying the agent’s action

Answer 23

principal who ratifies an agent’s unauthorized act becomes liable to third parties for those acts
- E.g., if principal ratifies a K agent unauthorizedly entered into with third party, principal is bound to the K and can be held liable to third party

Question 24

when will principal be liable to third party for agent’s acts

Answer 24

A principal will be liable to the third party on a contract entered into by their agent if the agent had valid authority (actual, apparent, or through ratification) to act

Third party vs. principal — if agent had authority, principal is liable to the third party

Question 25

what is the agent’s liability to a third party if they disclosed the existence of the principal

Answer 25

If the principal existence AND identity are disclosed to a third party… the general rule is that the principal will be liable on an authorized contract and the agent will not be, the agent will be liable only if the parties to the contract intended the agent to be liable.

EXCEPTION: even if the principal’s existence and identity are fully disclosed, if the agent did not have authority to enter into the contract (so the principal will not be liable) the agent can be held liable to
the third party for damages for breaching an implied warranty that a principal with contractual capacity exists and that they, the agent, had authority to contract for the principal.

Question 26

what is the agent’s liability to a third party if they did not disclose/identify the existence of the principal

Answer 26

Either the agent or the principal can be held liable on the contract if the agent had authority to enter the contract

• Undisclosed principal = third party does not know of principal’s existence or identity
• Unidentified principal = third party knows that a principal exists, but does not know her identity

The majority of courts permit a third party to file suit against both the principal and agent but, upon objection of either defendant, the third party must elect prior to judgment which party they wish to hold liable.

Question 27

What is a third-party’s liability to principal and agent in a disclosed principal situation?

Answer 27

When the principal is disclosed, only the principal, not the agent, may enforce the contract and hold the third party liable

Question 28

What is a third-party’s liability to principal and agent in an unidentified or undisclosed principal situation?

Answer 28

When the principal is unidentified or undisclosed, either the principal or agent may enforce the contract and hold the third party liable.

Note that if the agent enforces the contract against the third party, the principal is entitled to all of the rights and benefits thereunder.

EXCEPTION: The principal may not enforce the contract if there has been an affirmative fraudulent misrepresentation of the principal’s identity or if there is an unforeseen increased burden to the third party due to the fact that performance is due to the principal and not the agent.

Question 29

what is respondeat superior

Answer 29

doctrine under which principal liability arises for torts committed within the scope of agency/employment

• For torts committed outside that scope (i.e., respondeat superior does not apply) principal can be liable if agent acted with authority

Question 30

what are the requirements necessary for principal to be held liable for agent’s tort via respondeat superior

Answer 30

1) Employer-employee relationship exists between principal and party who caused the injury
- Principal generally not liable for independent contractors

2) Tortious conduct was committed within the scope of employment; tort is within the scope of employment if:
- Conduct was the same or similar in nature to that which the employee was hired to perform, and/or
- Tort was committed in service of employer and/or to further employer’s goals

Question 31

what is the principal’s liability via respondeat superior for intentional torts of agent

Answer 31

employer is usually not liable b/c intentional torts are usually outside the scope of employment
- Exception — employer can be held liable where intentional tort occurs as a natural incident to carrying out employer’s business

Question 32

in general what is the principal’s liability for independent contractor (IK) torts

Answer 32

Principals are generally not liable for acts committed by independent contractors (“ICs”) b/c their work is outside the scope of an employment/servant-type agency relationship

Question 33

how to distinguish an Independent Contractor from an Employee

Answer 33

Distinction turns on principal/employer’s right to control the manner and method by which a person performs their job
- Employment relationship — employee is compensated on a time basis (e.g., per hour, per year, etc.); employer has a right to control the manner and method by which employee performs the job
- Independent Contractor relationship — Independent Contractor hired to do a particular job; paid a given amount for the particular job; principal has limited rights to control the manner and method in which IC performs

Question 34

when will the principal be liable for the acts of an Independent Contractor (IC)

Answer 34

public policy dictates that principals should be liable for certain torts committed by ICs

Principals can be held liable for IC torts where:
- Inherently dangerous activities— acts performed by IC that are, by nature, inherently dangerous, or
- Principal knowingly hires an incompetent IC