Agency Flashcards
Creation of Agency Relationship
An agent is a person or entity that acts on behalf of another – the principal. Agency is a fiduciary relationship, and exists if there is:
(1) assent/consent (a formal or informal agreement between the principal and the agent);
(2) benefit (the agent’s conduct on behalf of the principal primarily benefits the principal); AND
(3) control (the principal has the right to control the agent by being able to supervise the agent’s performance – the degree of control does not need to be significant).
Contractual Liability of Principal and Agent
Actual Authority, Apparent Authority, Ratification
Actual Authority + Contracts
A principal is bound to contracts entered into by its agent if the agent has actual authority. Actual authority may be express or implied.
Apparent Authority
A principal is bound to contracts entered into by its agent if the agent has apparent authority. Apparent authority arises where:
(1) the principal holds out another as having authority; AND
(2) the third-party reasonably relies on that authority.
Actual Express Authority
Express authority occurs when the principal has explicitly told the agent (either orally or in writing) that he is entitled to act.
Actual Implied Authority
Implied authority occurs when either:
(a) the agent believes he is entitled to act because the action is incidental or necessary to carry out his express authorized duties;
(b) the agent has acted similarly in prior dealings between the principal and agent (prior acquiescence of principal); OR
(c) it is customary for agents in that position to act in that way.
Apparent Authority Holds Out Another
A principal holds an agent out as having authority when he:
(a) gives the agent a position or title indicating certain authority;
(b) has previously held the agent out as having authority and has not published a revocation of said authority; OR
(c) has cloaked the agent with the appearance of such authority.
Apparent Authority (3P Reasonable Reliance)
A principal will be bound to a contract even if the agent acted on his own behalf or in violation of authority UNLESS
(a) the third party had notice the agent was exceeding his authority, or
(b) the contract/transaction was not within the ordinary usages of business (ordinary usage includes purchase of goods at a reasonable price).
NOTE: A third-party has a duty to make further inquiry when the situation suggests that it may be unreasonable to believe that the agent has authority.
Principal Ratification of Agents Contracts
A principal’s ratification of an agent’s conduct will make the principal liable for those contracts entered into by an agent without actual or apparent authority.
Ratification occurs when the principal:
(1) has knowledge of all material facts or contract terms; AND
(2) thereafter manifests assent (approves) of the same through words or conduct.
Employee
An employee is a person who
(1) is hired to work for another person or business (the employer),
(2) for compensation (salary, wage, fee, and/or commission), AND
(3) is subject to the employer’s direction or control as to the details of how to perform the job.
Associates and Non- Equity Partners are typically employees of a firm.
Sole-Proprietor
A sole-proprietor is the owner of a sole proprietorship. A sole proprietorship is a single owner for- profit business, that operates without formally creating a business organization.
Partner
A partner is
(1) a co-owner of a partnership,
(2) shares in the profits of the business,
(3) is a party to the partnership agreement, AND
(4) has a capital account (the individual accounting of each partner’s investment in the partnership).
Typically, partners share profits and losses equally, unless otherwise agreed.
Member
A member is
(1) an owner or co-owner of an LLC (Limited Liability Company),
(2) is a party to the Operating Agreement, AND
(3) has a capital account (the individual accounting of each member’s investment in the LLC).
Shareholder
A shareholder is the owner of one or more shares of stock in a corporation.
Doctrine of Respondeat Superior
Under the Doctrine of Respondeat Superior, an employer is vicariously liable for an employee’s negligent acts if the employee was acting within the scope of employment.
A party is generally NOT vicariously liable for the torts of an independent contractor.
Within the Scope of Employment
An employee acts within the scope of employment when:
(a) performing work assigned by the employer;
(b) engaging in a course of conduct subject to the employer’s control; OR
(c) the conduct is of the same general nature as that authorized or incidental to the conduct authorized.
Conduct is NOT outside the scope of employment merely because an employee disregards the employer’s instructions.
Not Within the Scope of Employment
An employee’s act is NOT within the scope of employment when:
(1) it occurs within an independent course of conduct; AND
(2) is not intended by the employee to serve any purpose of the employer.
Employee Intentional Torts
An employee’s intentional torts are NOT generally within the scope of employment UNLESS the act:
(a) was specifically authorized by the employer;
(b) was driven by a desire to serve the employer; OR
(c) was the result of naturally occurring friction from the type of employment.
Independent Contractor Liability/Defintion
An independent contractor is a person who contracts with another to do something for him, but who is not controlled nor subject to the other’s right to control with respect to his performance. The contractor may or may not be an agent.
Generally, if the principal has the right to control the manner and method in which the job is performed, then the person is deemed to be an employee of the principal. In contrast, a person subject to less extensive control is considered an independent contractor.
A party is generally NOT vicariously liable for the torts of an independent contractor.
Employee Liability for Negligent Conduct & Indemnification
Generally, a person is liable for his own negligent conduct.
However, if an employee acts within the scope of his employment in order to further the goals of the employer, the employee may seek indemnification from the employer for damages resulting from his negligent conduct.
