Agency

Question 1

Why do we need a law of agency? What kinds of legal disputes are resolved by the law of agency?

Answer 1

Dealings between more than two people – not typically answered by the common law of contracts, property and torts

Question 2

Does an agency relationship require a contract? Consideration? Why or why not?

Answer 2

No. Agents may act gratuitously; assent, not consent.

Question 3

What is a fiduciary? What are fiduciary duties? Why do we need them?

Question 4

Under what circumstances may an agent act in a manner that would otherwise be disloyal?

Question 5

What would you have advised Singer to do in order to avoid liability to General Automotive Manufacturing Co.?

Question 6

How can there be apparent authority even if there isn’t an agency relationship?

Question 7

How is the basis for apparent authority in the Paychex case similar to the basis for undisclosed principal liability?

Question 8

Does the undisclosed principal rule make sense? Why or why not?

Question 9

Who does ratification benefit?

Question 10

Do you think the result would have changed in the Snowbird Ski Resort case if Snowbird had a rule saying that employees would be terminated for skiing in contravention of signs at the resort? If it had a “no jumping on work days” rule? If the Utah Supreme Court had applied the “foreseeability” test instead of the “motive/purpose” test?

Question 11

What do you think of the application of respondeat superior in the Snowbird Ski Resort case? Do you agree with the holding of the Utah Supreme Court?

Question 12

Where does Agency Exist?

Answer 12

Agency exists where:
One person (the Principal) manifests assent to another (the Agent) that A shall act on P’s behalf and subject to P’s control and A consents so to act. (Rest. 3d § 1.01)

Question 13

Can agency be formed by implication?

Answer 13

Yes. Agency can be formed expressly or can be implied by the circumstances.

Question 14

What is an Express Agency?

Answer 14

An agency that occurs when a principal and an agent expressly agree to enter into an agency agreement with each other.
– E.g., exclusive agency contract, power of attorney

Question 15

Do Express Agency contracts need to be written?

Answer 15

No. Express agency contracts can be either oral or written unless the Statute of Frauds stipulates that they must be written.

Question 16

What is implied agency?

Answer 16

An agency relationship can be implied from the conduct of the parties. The extend of the agents authority is determined from the particular facts and circumstances of the particular situation. There doesn’t have to be specific mention of “agency” or a written agreement for an agency relationship to exist.

Question 17

What are the 3 elements of Agency formation?

Answer 17

1. Mutual Assent
2. Control
3. Acting on behalf of a principal

Question 18

What is Mutual Assent in Agency formation?

Answer 18

The parties must assent that the agent will act on behalf, and subject to the control of the principal.

Question 19

What is Control in Agency formation?

Answer 19

Control is evidenced in agency by a consensual relationship in which the principal has the power and right to direct the agent as to the goal of the relationship.

Question 20

What is Acting on behalf of the Principal in Agency formation?

Answer 20

In an agency relationship, the agent is acting on behalf of the principal.

Question 21

What are the Principals obligations to the Agent?

Answer 21

Restatement 3rd of Agency (R3oA) § 8.14 – “the principal has a duty to reimburse or indemnify the agent for:
* any promised payments,
* any payments the agent makes within the scope of actual authority, and
* when the agent “suffers a loss that fairly should be borne by the principal in light of their relationship.””

Also

R3oA § 8.15 – “a principal has an obligation to
* deal with the agent fairly and in good faith.
* The principal should also generally cooperate with the agent and not unreasonably interfere with the agents performance of his or her duties.”

Question 22

What are the Agents duties to the Principal?

Answer 22

The duties that are owed by the agent to the principal are not just obligations, they are fiduciary duties.

A fiduciary is someone, such as an agent, a partner, or a corporate director, who stands in a special relation of trust, confidence, or responsibility in certain obligations to others.
* Fiduciary relationship requires one party to put the other party’s interest ahead of her own.

Question 23

When can a 3rd party hold a principal liable in contract for the actions of the agent?

Answer 23

5 bases by which a principal can incur contract liability:
-actual authority,
-apparent authority,
-undisclosed principal liability,
-ratification, and
-estoppel.

Any one of these sufficient for holding a principal liable. Most common: Actual and Apparent authority.

Question 24

What is Actual Authority?

Answer 24

R3oA § 2.01 – “An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principals manifestations to the agent, that the principal wishes the agent so to act.”

An agents belief is reasonable if:
* it reflects any meaning that the agent knows from the principal is to be ascribed or
* if it accords with the inferences that a reasonable person in the agents position would draw in light of the context.

Question 25

Does Actual authority need to be express?

Answer 25

No. Actual Authority can be express or implied.

Question 26

What is Express Actual Authority?

Answer 26

The authority to do what the principal explicitly instructs.

Question 27

What is Implied Actual Authority?

Answer 27

what a reasonable person in the agents position would understand to be reasonably included in those instructions in order to accomplish the objective.

Implied authority can be inferred from words that the principal used, from custom, or from the relations between the parties.

The agent can do incidental acts that are related to a transaction that is authorized.

Question 28

What is Apparent Authority?

Answer 28

When a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principals manifestations. R3oA § 2.03.

Question 29

When may Apparent Authority be the basis of contract liability?

Answer 29

where an agent acts beyond the scope of their actual authority or even where there is not a true agency relationship

Question 30

What does Apparent Authority depend on? What is the critical determination?

Answer 30

The 3rd party’s reasonable beliefs.

It is critical to determine whether: a principal or purported principal has made a manifestation that led a 3rd party to reasonably believe that the agent or act had authority to act on behalf of the principal or purported principal.

Question 31

What is a Manifestation for purposes of Apparent Authority?

Answer 31

Manifestation can be words or conduct – for apparent authority, it must be traceable to the principal or by the principal giving an agent a certain title or position.

Comment c to § 2.03 of R3oA - Manifestations include explicit statements that a principal makes directly to a 3rd party, as well as statements made by others concerning an actors authority that reach the 3rd party and are traceable to the principal.

Question 32

What is Undisclosed Principal Liability?

Answer 32

When a 3rd party does not have notice that the person they are dealing with is an agent acting on behalf of someone else. The principal is “undisclosed”

Question 33

When can an undisclosed principal be held liable on the basis of Actual Authority?

Answer 33

When the agent was acting within the scope of authority when dealing with the 3rd party. Even if the agent was not acting within the scope of actual authority, the undisclosed principal can still be held liable.

Question 34

What are the 2 ways in which an undisclosed principal could be subject to liability?

Answer 34

R3oA § 2.06 – captures 2 ways in which an undisclosed principal could be subject to liability

1 – a principal is subject to liability to a 3rd party who is justifiably induced to make a detrimental change in position by the conduct of an agent acting without actual authority when the principal has notice of the agents conduct and its likely impact on 3rd parties and fails to take reasonable steps to inform them of the facts.

2 – Watteau Case – pg. 32-33 of book

Question 35

What is Ratification?

Answer 35

A doctrine that allows a person to retroactively bind herself to a contract entered into purportedly on her behalf, even though the agent or purported agent was not acting with authority at the time he entered into the contract.

R3oA § 4.01 – the affirmance of a prior act done by another, whereby the act is given effect as if done by an agent acting with actual authority.

Question 36

What is the effect of Ratification?

Answer 36

The effect of ratification is to validate the contract as if the principal had originally authorized it. Upon ratification, the agent is relieved of liability for breach of duty to principal.

Question 37

Can Ratification be implied?

Answer 37

Yes. Ratification can be express or implied.

For either one there must be a manifestation of assent or other conduct indicative of consent by the principal.

Express – when a person objectively manifests acceptance of the transaction, such as through oral or written statements.

Implied – when the person engages in conduct that justifies a reasonable assumption that the person consents to the transaction.

Question 38

What are the Ratification rules from R3oA §§ 4.02-4.07?

Answer 38

• Valid ratification requires that that principal is fully aware of all material facts involved in the transaction.
• Ratification is all or nothing – no partial ratification.
• Ratification operates through equitable principles. The ratification is ineffective if it would be inequitable to the 3rd party as a result of a material change in circumstances or if a 3rd party has already manifested an intent to withdraw from the transaction.

Question 39

What is Estoppel?

Answer 39

Equitable doctrine – the principal is estopped from disclaiming the contractual liability.

Question 40

Does Estoppel create a binding contract?

Answer 40

No. Does not create a binding contract – simply prevents a principal from avoiding an obligation by arguing that no authority existed at the time the agent or actor entered into a contract.

Question 41

How is Estoppel different from Apparent Authority?

Answer 41

Estoppel does not require showing that the principal made manifestations of authority to the 3rd party, but it does require showing that the 3rd party detrimentally changed position in reliance on the principal.

Question 42

What does Estoppel require a showing of?

Answer 42

Require showing that the 3rd party detrimentally changed position in reliance on the principal.

Question 43

What does Agent contract liability depend on?

Answer 43

Agent liability depends on whether the agent has entered into the contractual obligation with the 3rd party on behalf of a:

disclosed,
unidentified, or
undisclosed principal.

R3oA §§ 6.01-6.03

Question 44

For purposes of Agent contract liability, what is a Disclosed Principal?

Answer 44

when an agent acting with actual or apparent authority makes a contract on behalf of a disclosed principal, it is only the principal and the 3rd party who are parties to the contract.

• The agent is not a party unless the agent and 3rd party agree otherwise.
• If principal is bound by an agreement under a 3rd party’s apparent authority claim, the principal may have a claim against the agent for actions that were taking without actual authority.

R3oA § 8.09.

Question 45

For purposes of Agent contract liability, what is an Unidentified Principal?

Answer 45

A principal is unidentified if, when an agent and a 3rd party interact, the 3rd party has notice that the agent is acting for a principal but does not have notice of the principals identity.

when an agent acting with actual or apparent authority makes a contract on behalf of an unidentified principal, all three – the principal, agent, and 3rd party – are all parties to the contract unless the agent and the 3rd party agree otherwise regarding the agents liability.

Question 46

When an agent acting with actual or apparent authority makes a contract on behalf of an unidentified principal, who is a party to the contract?

Answer 46

all three – the principal, agent, and 3rd party – are all parties to the contract unless the agent and the 3rd party agree otherwise regarding the agents liability.

Question 47

For purposes of Agent contract liability, what is an undisclosed principal? Who are party’s to the contract/who is liable?

Answer 47

When an agent acting with actual authority makes a contract on behalf of an undisclosed principal, the agent and 3rd party are parties to the contract; and unless excluded, the principal is also a party to the contract.

If the agent does not want to be liable on the contract, then the agent must disclose that they are acting on behalf of the principal and provide the identity of the principal.

Question 48

What is the Breach of implied warranty of authority?

Answer 48

A person (or agent) who enters into an agreement with a 3rd party, purporting to bind another person (or principal), yet actually lacking the authority to do so, may be sued by the 3rd party if the implied representation is false.

R3oA § 6.10 – A person who purports to make a contract, representation or conveyance to or with a 3rd party on behalf of another person, lacking power to bind that person, gives an implied warranty of authority to the 3rd party and is subject to the liability to the 3rd party for damages for loss caused by breach of that warrant, including loss of the benefit expected from performance by the principal unless:

o The principal or purported principal ratifies the act as stated in R3oA § 4.01; or
o The person who purports to make the contract, representation, or conveyance gives notice to the 3rd party that no warranty of authority is given; or
o The 3rd party knows that the person who purports to make the contract, representation, or conveyance acts without actual authority.

Question 49

When can a Principal be held liable in Tort?

Answer 49

 A principal can be held directly liable when an agent acts with actual authority to commit a tort or when the principal ratifies the agents conduct.

 A principal can also be liable if harm to a 3rd party was caused by the principals negligence in selecting or supervising the agent.

 A principal can be liable - directly or strictly – if the agent is engaged in “inherently” or “abnormally dangerous” activity involving demolition, blasting, a wild animal, or any activity which is likely to cause harm or damage unless precautions are taken.

Question 50

What are the two forms of holding a Principal liable from R3oA?

Answer 50

1. Respondeat Superior - When an agent is an employee who commits a tort while acting within the scope of employment. R3oA § 7.07.
2. Apparent Agency - When an agent commits a tort when acting with apparent authority in dealing with a 3rd party on or purportedly on behalf of the principal. R3oA § 7.08.

Question 51

In the agency context, what is the test for the existence of actual authority?

Answer 51

In the agency context, the test for whether actual authority exists is whether:

(1) an agent has been granted the power to take an action
(2) that has legal consequences for the principal. At the time of taking action, the agent must reasonably believe—based on the principal’s words or conduct—that the principal has authorized the agent to take such action.

Some states require a writing signed by the principal to prove that the agent has actual authority to enter into certain, binding transactions.

Question 52

Must a principal expressly provide authority to an agent for the agent to have actual authority?

Answer 52

No. A principal need not expressly provide authority for an agent to have actual authority. A principal may provide either express or implied actual authority to an agency. A principal expressly provides actual authority to take action if the principal specifically states, orally or in writing, that authority has been granted for a specific undertaking. However, a principal may impliedly provide actual authority for an agent to take action if:

the principal intentionally or negligently allows the agent to believe that such authority has been granted, or
the action is necessary or customary for carrying out the agent’s expressly authorized duties.

Question 53

What is implied authority?

Answer 53

An agent has implied authority to take action if the principal intentionally or negligently allows the agent to believe that such authority has been granted.

Question 54

What is inherent authority?

Answer 54

An agent has inherent authority to take action that is necessary or customary for carrying out the agent’s expressly authorized duties.

Question 55

In the agency context, what are the possible methods for terminating an agent’s actual authority?

Answer 55

In the agency context, an agent’s actual authority may be terminated if:

the principal or the agent dies;
the principal loses capacity;
one or both parties revoke the agency relationship;
circumstances occur that should cause the agent to reasonably conclude that the principal would no longer manifest assent to the authority, like a specified event or a fixed period of time; or
a statute mandates the termination.
Generally, the termination of an agent’s actual authority becomes effective only once the agent or the third party has notice of the terminating event.

Question 56

In the agency context, is it possible for a principal to be unable to revoke an agent’s actual authority?

Answer 56

Yes. In the agency context, it is possible for a principal to be unable to revoke an agent’s actual authority. A grant of actual authority to an agent may be irrevocable if the authority is related to:

a power given as security,
a proxy to vote securities, or
an ownership interest that is irrevocable under statutory law.

Question 57

A business owner told one of her workers that one of the owner’s commercial storage facilities had been experiencing petty theft. The owner decided to have a new alarm system installed. The owner instructed her worker to purchase and arrange for the installation of a new alarm system for approximately $5,000. The worker made the purchase and arranged for the alarm company to install the system. Commercial businesses in that county needed a permit to operate an alarm. The worker then filed the necessary paperwork with the county office to order the permit. The owner received the permit and a bill for $500 from the county the following month.

Did the worker have the legal authority to bind the owner to the $500 permit payment?

Answer 57

Yes. The worker had inherent authority to bind the owner to the $500 permit payment. In an agency relationship, an agent has actual authority if the principal has granted the agent the power to take action that has legal consequences for the principal. This authority is express if the principal specifically gives the agent authority for a defined undertaking. An agent also has implied or inherent authority to take an action that is necessary or customary for carrying out any expressly authorized duties.

Here, the worker was the owner’s agent. The worker had express authority to buy the alarm system but did not have express authority to order the permit. However, obtaining a permit is a necessary part of getting an operable alarm system. Thus, the worker had implied or inherent authority to order the permit and bind the owner to pay for it.

Question 58

In the agency context, what is the test for the existence of apparent authority?

Answer 58

In the agency context, the test for whether apparent authority exists is whether: (1) a principal intentionally or negligently (2) allows a third party (3) to believe that an agent has actual authority. Although the tests are similar, apparent authority is not the same as implied actual authority that exists because the principal intentionally or negligently allows the agent to believe the agent has actual authority. For apparent authority, the third party’s belief is what matters—not the agent’s. A third party may recover from the principal based on an agent’s apparent authority by establishing that:

the principal was responsible for the agent’s appearance of authority, and
the third party reasonably relied on the agent’s representation or action.

Question 59

In the agency context, what is the test for whether an agent’s apparent authority has been terminated?

Answer 59

In the agency context, generally, an agent’s apparent authority has been terminated only when it is no longer reasonable for the third party to believe that the agent has actual authority. One way to accomplish this is for the principal to expressly notify the third party that the agent’s authority has terminated.

Question 60

A business owner had given a worker the title of head of purchasing. The worker’s business cards had the worker’s full name and title. For three years, the worker had been the owner’s agent, periodically ordering raw materials from a local vendor on the business owner’s behalf. The owner had always paid promptly for the delivered materials. One day, the owner then told the worker that the worker could no longer place any orders larger than $1,000. The owner did not inform any third parties about the worker’s new purchasing limitations. The next day, the worker received a call from the local vendor and ordered $5,000 of raw materials. When the owner received the bill, she was furious and refused to pay it.

Is the owner liable for the $5,000 order?

Answer 60

Yes. The owner is liable for the order. Apparent authority exists if a principal allows a third party to believe an agent has actual authority. Apparent authority is terminated only if it is no longer reasonable for the third party to believe the agent has authority, like if the principal tells the third party that the agent has no authority. If an agent has apparent authority, the principal can be liable for the agent’s actions.

Here, by giving the worker a title indicating purchasing authority and paying for the worker’s orders, the owner allowed the third-party vendor to believe the worker had authority to place orders. This gave the worker apparent authority. At the time the worker placed the $5,000 order, nothing had happened to make the vendor’s belief unreasonable and terminate the worker’s apparent authority. Thus, the owner is liable for the order.

Question 61

In agency, what is ratification?

Answer 61

In agency, ratification occurs if a principal (1) adopts or affirms an agent’s unauthorized action and (2) has knowledge of the material facts of the action, such that the action is given the same effect as if taken by an agent with actual authority. Material facts are those that substantially affect the existence or extent of the obligations related to the agent’s unauthorized action. A principal may ratify actions by affirmatively manifesting assent or by reasonably indicating consent with appropriate conduct. Typically, a principal may only ratify actions that are taken by a party who is acting or purporting to act as an agent on the principal’s behalf.

Question 62

May a principal who ratified his agent’s unauthorized actions subsequently avoid the effect of ratification under some circumstances?

Answer 62

Yes. A principal who ratified his agent’s unauthorized actions may subsequently avoid the effect of ratification if, at the time of the affirmance, the principal was both unaware of material facts relevant to the agent’s unauthorized actions and of his own ignorance of those facts. A principal may only ratify actions that were taken by a party who was acting or purporting to act as an agent on the principal’s behalf.

Question 62

What is a disclosed principal?

Answer 62

A disclosed principal is a principal whose identity and agency relationship are known to third parties. Even if the principal’s identity isn’t overtly disclosed, but a third party has enough information available to reasonably infer the identity of the principal, the principal is considered disclosed. A disclosed principal, but not the principal’s agent, is liable for contracts within the scope of the agent’s actual or apparent authority.

Question 63

What is an undisclosed principal?

Answer 63

An undisclosed principal is a principal whose identity and agency relationship are not known to a third party. Thus, the third party dealing with the agent does not know that the agent is acting for someone else. Both an undisclosed principal and the principal’s agent are liable for a contract within the scope of the agent’s actual authority. Apparent authority cannot exist in this context, because apparent authority is premised on a manifestation from a principal to a third party that the agent is permitted to act on behalf of the principal. However, if the principal is undisclosed, there can be no such manifestation of authority, because the third party believes the agent is acting on the agent’s own behalf.

Question 64

What is a partially disclosed principal?

Answer 64

A partially disclosed principal is a principal whose agency relationship, but not identity, is disclosed to a third party. Therefore, the third party knows that the agent is acting on behalf of another, but not the particular identity of that person. Both the principal and the principal’s agent are liable for contracts within the scope of the agent’s actual or apparent authority.

Question 65

Under agency law, may a principal and the principal’s agent be liable for the agent’s contracts and torts?

Answer 65

Yes. Under agency law, a principal and the principal’s agent may be liable for the agent’s contracts and torts. Contract liability depends on whether the principal is disclosed, partially disclosed (or unidentified), or undisclosed. Additionally, although a principal is generally not liable for a contract outside the scope of an agent’s authority, the principal may nonetheless ratify and assume liability for an unauthorized contract. For a principal to be liable for an agent’s tort, the plaintiff must prove that the principal was responsible for the agent’s appearance of authority to bind the principal, and the plaintiff reasonably relied on the agent’s representation.

Question 66

In the agency context, can apparent authority exist if the principal is undisclosed?

Answer 66

No. In the agency context, apparent authority cannot exist if the principal is undisclosed. Apparent authority exists if a principal causes a third party to believe an agent has authority to act on the principal’s behalf. However, if a principal is undisclosed, then the third party is unaware of the principal. The third party will have no reason to believe an agent is acting for a principal if the third party has no awareness of that principal. If a third party enters into a deal with an undisclosed principal, the principal and the agent will be bound by any actions taken within the scope of the agent’s actual authority. However, the third party may or may not be bound by the deal (e.g., the third party will not be bound if the agent fraudulently failed to disclose the principal, because the third party would not knowingly agree to a deal with that principal).

Question 67

A woman owned a small farm and supplied produce to local grocery stores. The woman was also an agent for a national produce distributor. The national produce distributor instructed the woman to contact a local grocery store and offer to supply pumpkins for the upcoming holiday season. The woman contacted the store but falsely represented that she was not acting on behalf of the national produce distributor. The store representative assumed that the woman was offering local pumpkins and placed a large order. During the discussion with the woman, the store representative repeatedly told the woman that the store sold only local produce. Once the pumpkins were delivered, the store representative learned that the pumpkins had not been grown locally. The store representative sought to void contract for the pumpkin order.

May the store void the contract for the pumpkin order?

Answer 67

Yes. The store may void the order from the undisclosed national distributor. If a third party does not have notice that an agent is acting on behalf of a principal (i.e., if the principal is undisclosed), the principal and the agent are still bound by any actions taken within the scope of the agent’s actual authority. However, the third party may not be bound. Specifically, a third party can void a contract if:

an agent of an undisclosed principal falsely represents that she is not acting for a principal, and
the principal or the agent had notice that the third party would not have dealt with the principal.
Here, the woman falsely indicated that she was not acting on behalf of the national distributor. The woman knew the store would not have dealt with the distributor, because the store repeatedly told her that it sold only local produce. Thus, the store may void the contract for the order.

Question 68

If a third party has notice that an agent is acting for a principal but does not know the principal’s identity (i.e., if the principal is partially disclosed), will the unidentified principal be bound by actions within the agent’s authority?

Answer 68

Yes. If a third party has notice that an agent is acting for a principal but does not know the principal’s identity (i.e., if the principal is partially disclosed), both the principal and the agent will be bound by any act within the agent’s authority. The third party will also be bound both to the agent and the partially disclosed principal, because the agent is considered a party to the contract if the principal is partially disclosed.

Question 69

A charitable organization instructed its agent to contact a local event planner to organize an upcoming charity dinner. The agent was instructed not to disclose the charity’s identity. The agent informed the event planner that she was acting on behalf of a principal but could not divulge the principal’s identity. The event planner agreed to the arrangement and entered into a contract. The contract provided that event planner was to organize the dinner, and in exchange, the unidentified principal would pay the event planner for her time and give the agent a commission. However, the event planner later learned that she had a conflict in her work schedule and backed out of the event, breaching the contract. The charity was forced to cancel the dinner, and the agent never got any commission. The agent sued for the planner’s breach.

Was the agent a party to this contract?

Answer 69

Yes. The agent was a party to this contract. If a third party has notice that an agent is acting for a principal but does not know the principal’s identity (i.e., if the principal is partially disclosed), the principal and the agent will be bound by any act within the agent’s authority. The third party will also be bound both to the agent and the partially disclosed principal, as the agent is considered a party to the contract if the principal is partially disclosed.

Here, the principal instructed the agent to enter the contract, conferring actual authority. The event planner knew of the principal but not the principal’s identity. Thus, the agent was a contracting party. Because the event planner’s breach prevented the agent from receiving her commission, the agent may be able to bring a claim against the planner for the resulting damages.

Question 70

In addition to the elements of the particular tort claim, what two additional elements must a third party establish to recover against a principal for a tort committed by an agent with apparent authority?

Answer 70

In addition to the elements of the particular tort claim, to recover against a principal for a tort committed by an agent with apparent authority, a third party must establish that:

the principal was responsible for the agent’s appearance of authority to bind the principal, and
the third party reasonably relied on the agent’s representation.
Apparent authority arises if the principal’s words and actions cause a third party to reasonably believe that the agent has authority to bind the principal.

Question 71

What is the test for determining whether a principal has ratified an unauthorized action?

Answer 71

A principal has ratified an unauthorized action only if the principal:

—has knowledge of the material facts surrounding the agent’s unauthorized action and
—adopts or affirms the action by either expressly manifesting assent or reasonably indicating consent with appropriate conduct.

Generally, a principal is not liable for an action outside the scope of an agent’s authority. However, if a principal ratifies an unauthorized action, the action has the same effect as if had been taken by an agent with actual authority and the principal will become liable for the action.

Question 72

Can a principal ratify actions taken by an individual who was not acting or purporting to act as the principal’s agent?

Answer 72

No. A principal cannot ratify actions taken by an individual who was not acting or purporting to act as the principal’s agent. A principal may only ratify actions taken by a party who is acting or purporting to act as an agent on the principal’s behalf.

Question 73

May a principal be held directly liable for an agent’s tortious conduct?

Answer 73

Yes. A principal may be held directly liable for an agent’s tortious conduct. A principal is directly liable to a third party harmed by an agent’s tortious conduct if:

-the agent acted with actual authority;
-the principal ratified the act; or
-the principal negligently hired, trained, or supervised the agent.

Even if a principal is not directly liable for an agent’s tortious conduct, the principal still may be held vicariously liable for the agent’s tortious conduct if the agent:
(1) acted with apparent authority or
(2) was an employee acting within the scope of employment.

Question 74

A business owner instructed a worker, the owner’s agent, to meet with a local vendor to discuss placing a large order for supplies. The worker met with the vendor and the vendor made the worker a favorable offer that was valid for only 60 minutes. The worker was unable to contact the business owner during that time and decided to accept the offer on the owner’s behalf. Later that day, the worker met with the owner and told the owner about the deal. After learning the material facts of the deal, the owner did not dispute the legitimacy of the contract. The owner also began using the supplies once they were delivered under the contract.

Has the owner ratified the contract?

Answer 74

Yes. The owner has ratified the contract. In an agency relationship, a principal may ratify the unauthorized actions of an agent who is acting or purporting to act on the principal’s behalf. Ratification occurs if a principal:

–has knowledge of the material facts surrounding an agent’s unauthorized action and
–adopts or affirms the action by expressly manifesting assent or reasonably indicating consent with appropriate conduct.

If a principal ratifies an action, the action has the same effect as if had been taken by an agent with actual authority.

Here, the worker entered the contract while acting as the owner’s agent to talk to the vendor. Although the owner did not authorize the worker to enter the contract, after learning the material facts, the owner indicated consent to the contract by not objecting to it and using the supplies. Thus, the owner ratified the contract.

Question 75

Is it possible for a principal to appoint, or authorize an agent to appoint, multiple co-agents for the same principal?

Answer 75

Yes. It is possible for a principal to appoint, or authorize an agent to appoint, multiple co-agents for the same principal. Similarly, the same agent may serve multiple co-principals in the same transaction or matter.

Question 76

Can a principal be directly liable to a third party harmed by an agent’s conduct?

Answer 76

Yes. A principal can be directly liable to a third party harmed by an agent’s conduct if
(1) the agent’s tortious conduct is within the scope of the agent’s actual authority or has been ratified by the principal, or (2) the principal was negligent in selecting, training, retaining, supervising, or otherwise controlling the agent.

An agent is always liable for his own tortious conduct, regardless of whether the agent is acting with actual or apparent authority or within the scope of employment.

Question 77

If an agent is an employee acting within the scope of employment, may the employing principal (i.e., the employer) be vicariously liable to a third party harmed by that agent’s tortious conduct?

Answer 77

Yes. If an agent is an employee acting within the scope of employment, the employing principal may be vicariously liable to a third party harmed by an agent’s tortious conduct if the agent was acting within the scope of employment (also known as the doctrine of respondeat superior). An agent is acting within the scope of employment if the agent is performing work assigned by the employing principal or engaging in conduct subject to the employing principal’s control.

However, an employing principal is not liable (either directly or vicariously) for an agent’s independent course of conduct that is outside the scope of employment and not intended to serve any purpose to the employing principal.

Question 78

In the agency context, may an agent be liable to a third party harmed by the agent’s tortious conduct?

Answer 78

Yes. In the agency context, an agent may be liable to a third party harmed by the agent’s tortious conduct. The agent can be held liable for the agent’s own tortious conduct, regardless of whether the agent is acting:

–as an agent or employee,
–with actual or apparent authority, or
–within the scope of the agent’s employment.

Question 79

May a principal be vicariously liable to a third party harmed by an agent’s tortious conduct if the conduct was within the scope of the agent’s apparent authority?

Answer 79

Yes. A principal may be vicariously liable to a third party harmed by an agent’s tortious conduct if the conduct was within the scope of the agent’s apparent authority. Generally, there are two types of circumstances that may make a principal vicariously liable for an agent’s tortious conduct. A principal may be vicariously liable if the agent was acting within the scope of either the agent’s:

–apparent authority or
–employment (also known as the doctrine of respondeat superior).

Question 80

An inventor created and manufactured a face mask that could rapidly filter smoke-filled air. The face mask was particularly useful to individuals trapped in areas close to wildfires. The inventor contracted with a number of independent contractors throughout the country to be the inventor’s sales force and sell the face mask for the inventor. The inventor set the price of the face mask but did not otherwise control any aspect of the contractors’ work. After a recent rash of wildfires throughout the country, the price of each face mask increased by 500 percent. Even with the price increase, the independent contractors secured a large number of rush orders. Various state agencies were notified of the price change and began investigating price-gouging claims.

May the inventor be held vicariously liable for the price-gouging claims for sales made by the independent contractors?

Answer 80

Yes. The inventor may be held vicariously liable for the price-gouging claims for sales made by the independent contractors. An independent contractor is a hired party who has significant control and discretion over the manner, terms, and conditions of the work to be performed on the principal’s behalf. Generally, a principal does not have vicarious liability for matters over which the independent contractor has control and discretion. However, if the principal has control and discretion over specific matters, then the principal may be vicariously liable for those matters.

Here, the inventor cannot be held liable for many aspects of the independent contractors’ sales work. Nevertheless, because the inventor had full control over the price, the inventor may be vicariously liable for any claim related to pricing, including the price-gouging claims.

Question 81

A restaurant owner employed staff to work in her restaurant. As part of their normal job duties, the staff sat restaurant patrons at tables in the restaurant. Generally, the staff members sat individuals in specific sections of the restaurant based on their ethnicity. The staff engaged in this practice because recommendation cards submitted by customers repeatedly praised and requested it. A group of patrons noticed the practice and sued the restaurant owner for discrimination.

Can the restaurant owner be vicariously liable for the staff’s seating conduct?

Answer 81

Yes. The restaurant owner can be vicariously liable for her staff’s seating conduct. A principal may be vicariously liable to a third party harmed by an agent’s conduct if the agent was acting within the scope of either the agent’s:

–apparent authority or
–employment (also known as the doctrine of respondeat superior).

However, an employing principal is not liable under the doctrine of respondeat superior for an agent’s independent course of conduct that is outside the scope of employment and not intended to serve any purpose of the employing principal.

Here, seating patrons is one of the staff’s job duties and within the staff’s scope of employment. The ethnicity-based seating practice was intended to make restaurant clientele happy, which furthers the owner’s business purpose. Thus, the owner may be vicariously liable for her staff’s conduct under the doctrine of respondeat superior.

Question 82

What is an agent’s duty of loyalty?

Answer 82

An agent’s duty of loyalty is the requirement that an agent must act for the principal’s benefit on all matters related to the agency relationship.

However, under some circumstances, a principal may consent to an ordinary act or transaction that would otherwise constitute a breach of the duty of loyalty.

Question 82

If an agent engages in an ordinary act or transaction that is a breach of the duty of loyalty, may the principal consent to that act or transaction?

Answer 82

Yes. If an agent engages in an ordinary act or transaction that is a breach of the duty of loyalty, the principal may still consent to that act or transaction.

However, for a principal to validly consent to an ordinary act or transaction that would otherwise constitute a breach of the duty of loyalty, the agent must:

–obtain the principal’s consent in good faith,
–disclose any material facts that would reasonably affect the principal’s judgment, and
–otherwise deal fairly with the principal.

Question 83

A woman instructed her agent to inquire about a large parcel of land that was being offered for sale. While inspecting the parcel of land, the agent noticed a small parcel of land for sale across the street and decided to submit a bid for the small parcel on his own behalf. The woman ultimately submitted an offer for the large parcel, and the offer was accepted. The woman then inspected the large parcel of land, and she noticed the small parcel across the street and put in a bid for that property as well. However, ultimately, the agent’s bid was the winning bid for the small parcel. Upon learning that the agent had outbid her for the small parcel, the woman was furious.

Did the agent compete with the woman and, therefore, violate the agent’s duty of loyalty?

Answer 83

No. The agent did not compete with the woman in violation of the agent’s duty of loyalty. An agent must act for the principal’s benefit in all matters related to the agency relationship. This duty of undivided loyalty encompasses the obligations to avoid both competition and self-dealing. This duty also prohibits the agent from dealing with the principal as an adverse party, or on behalf of an adverse party, in any transaction related to the agency relationship.

Here, the woman asked the agent to inquire about the large parcel of land. The agency relationship governed that transaction, but the relationship did not extend to the unrelated small parcel of land across the street. Because the agent’s acquisition of the small parcel of land was outside of the parties’ agency relationship, the agent’s purchase did not violate his duty not to compete against the woman.

Question 84

A man had an agent who represented him at various auctions to bid on pieces of art from the seventeenth century. A woman wanted to retain the same agent to attend the same auctions and bid on pieces of art from the eighteenth century. The agent accepted the work from the woman. The agent did not tell either the man or the woman that the agent was working as agent for more than one principal at the auctions, because the agent believed that the scope of her work for each principal was different enough to prevent any conflicts of interest.

Did the agent violate any of her fiduciary duties by not to disclosing the arrangements to the two principals?

Answer 84

Yes. The agent violated her fiduciary duties to both principals by not disclosing that she was working for multiple principals. An agent is allowed to act for more than one principal in some situations. However, an agent who acts for more than one principal in a transaction has a duty to deal fairly and in good faith with each principal. The agent must also disclose to each principal:

–the fact that the agent is also acting for the other principal or principals, and
–all other facts that would reasonably affect the principals’ judgments.

Here, the agent was allowed to attend the same auctions and bid on artwork for both principals. However, the agent needed to disclose to each principal that she was also acting for the other principal, as well as all other facts that would reasonably affect the principals’ judgment. The agent’s failure to make these disclosures was a breach of her fiduciary duties.

Question 84

In the agency context, what does the duty to avoid competition with the principal prohibit an agent from doing?

Answer 84

In the agency context, the duty to avoid competition with the principal prohibits the agent from:

–dealing with the principal as an adverse party or on behalf of an adverse party in any transaction related to the agency relationship,
–personally competing with the principal during the agency relationship, and
–taking action on behalf of or otherwise assisting the principal’s competitors.

The duty to avoid competition a specific obligation imposed by the agent’s more general duty of undivided loyalty.

Question 85

What is an agent’s duty against self-dealing?

Answer 85

An agent’s duty against self-dealing prohibits the agent from engaging in transactions intended primarily to benefit anyone other than the principal. Specifically, the agent may not acquire a material benefit from a third party in connection with transactions or other actions taken on behalf of the principal or by virtue of the agent’s position. Additionally, the agent may not use the principal’s property or utilize or communicate the principal’s confidential information for the agent’s own purposes or the purposes of a third party.

Question 86

In the agency context, what are the agent’s duties of performance?

Answer 86

In the agency context, the agent’s duties of performance are:

–a duty to act in good faith,
–a duty to remain within the scope of actual authority granted by the principal, and
–a duty to obey all lawful instructions given by the principal or other persons designated by the principal regarding actions taken on the principal’s behalf.

Courts have also recognized additional performance duties. The duty of care requires an agent to use a reasonable person’s diligence and skill to perform actions for the principal. Further, if an agent claims special skills, the agent is expected to use those skills to perform actions for the principal. The duty of good conduct requires the agent to act reasonably within the scope of the agency relationship and refrain from actions likely to damage the principal’s enterprise. The duty to provide information requires the agent to inform the principal of particular information.

Question 87

In the agency context, what does the duty of good conduct require an agent to do?

Answer 87

In the agency context, the duty of good conduct requires the agent to:

–act reasonably and
–avoid taking any action that is likely to damage the principal’s enterprise.

This duty is limited to actions an agent takes within the scope of the agency relationship and is in addition to the agent’s general duty of performance.

Question 88

In the agency context, what does the duty to provide information require an agent to do?

Answer 88

In the agency context, the duty to provide information requires an agent to use reasonable efforts to inform the principal of any facts that the agent knows or should know if the agent knows or should know that either:

–the principal would want the facts, or
–the facts are material to the agent’s duties.

The duty to provide information does not require an agent to inform the principal of certain facts if the agent would violate a superior duty that the agent owes to a third party by providing those facts to the principal.

Question 89

Does an agent have any duty with respect to his principal’s property?

Answer 89

Yes. An agent owes his principal the duty to avoid intermingling the principal’s property with the agent’s or anyone else’s property, as well as to safeguard the property. This duty is considered a subset of an agent’s duty of performance owed to his principal.

Question 90

What general duties does an agent owe a principal?

Answer 90

Generally, an agent owes a principal the duties of loyalty, care, and performance. Each of these duties includes a variety of obligations. Additionally, an agent must obey the express and implied terms of any contract with the principal.

Question 91

In the agency context, what does the duty of good faith require a principal to do?

Answer 91

In the agency context, the duty of good faith requires the principal to:

–deal with the agent fairly and
–inform the agent about any risks of physical or financial harm that the principal knows or should know are present in the agent’s work.

Generally, this duty means the principal must not take actions that will foreseeably cause an innocent agent to suffer a loss.

Question 92

In the agency context, what does the duty to indemnify require a principal to do?

Answer 92

In the agency context, the duty to indemnify requires a principal to compensate the agent for hurt, loss, or damage if:

–indemnification is required by the terms of a contract between the agent and the principal,
–the agent makes a payment while acting under actual authority,
–the agent makes a payment that benefits the principal, or
–the agent suffers a loss that should be indemnified by the principal in the interest of fairness and pursuant to their agency relationship.

In general, the duty to indemnify means a principal must indemnify an agent if the agent incurs costs or suffers losses on the principal’s behalf. Sometimes, the general duty to indemnify is broken down into a duty to indemnify the agent for losses and a duty to reimburse the agent for expenses paid on the principal’s behalf.

Question 93

What are the primary duties that a principal owes to an agent?

Answer 93

Generally, the duties a principal owes an agent are:

–the duty of good faith,
–the duty to indemnify (including reimbursement), and
–a duty to act in accordance with the express and implied terms of any contract between the principal and the agent.

Some sources may also refer to a principal’s duty to compensate an agent. However, this is just a specific example of the general duty to comply with specific contractual terms regarding the agent’s compensation. If the parties’ agreement does not expressly address compensation, a contractual term requiring reasonable