Agency

Question 1

Who Is an Agent?

Answer 1

Restatement §1.01: Agency relationship
A principal “manifests assent to” an agent “that the agent shall act on the principal’s behalf and subject to the principal’s control,”
Manifestation – written, oral, conduct (RS §1.03)
P’s behalf – not for benefit of agent or 3d party
Control – often enough if specify end result
“and the agent manifests assent or otherwise consents so to act.”

Question 2

Authority

Answer 2

Agents acting with actual or apparent authority may bind principals (RS §6.01)
To hold principal liable on contract, Plaintiff (third party) must prove:
That an agency relationship existed and
That agent possessed authority – can attempt to prove multiple kinds of authority

Question 3

Analyzing Principal’s Liability to Third Parties in Contract

Answer 3

Agency relationship exists, unless estoppel or ratification (RS §§ 1.01), and
One or more of these depending on the facts:
Actual authority (RS §§ 2.01-2.02, 3.01)
Apparent authority (RS §§ 2.03, 3.03)
Undisclosed principal (RS § 2.06)
Estoppel (RS § 2.05)
Ratification (RS §§ 4.01-4.08)

Question 4

Actual authority

Answer 4

Actual Authority: Need manifestation from principal to agent, and agent must reasonably believe principal has assented to agent’s conduct – RS §§ 2.01, 3.01
RS § 2.02(1): “An agent has actual authority to take action designated or implied in the principal’s manifestations to the agent and acts necessary or incidental to achieving the principal’s objectives, as the agent reasonably understands the principal’s manifestations and objectives ….”
Can include customary powers, prior practices, etc.

Question 5

Apparent Authority

Answer 5

Need manifestation from principal to third party, and third party must reasonably believe principal has assented to agent’s conduct – RS §§ 2.03 & 3.03
Manifestation from principal to third party
direct communication by principal to third party
silence/inaction of P
course of conduct
custom – placing A in position with customary powers
And third party must reasonably believe agent has authority to act on behalf of the principal and that belief is traceable to the principal’s manifestations

Question 6

Actual vs. Apparent Authority

Answer 6

Actual authority = Exists when agent reasonably believes principal has given authority to agent.
Implied actual authority: act of putting agent in a position leads agent to reasonably believe agent has authority
Apparent authority = Exists when third party reasonably believes principal has given authority to agent.
Implied apparent authority: act of putting agent in a position leads third party to reasonably believe agent has authority

Question 7

Undisclosed Principal

Answer 7

Classic scenarios – third party does not know that she is dealing with an agent (so no apparent authority) and agent is violating P’s instructions (so no actual authority)
Exists to protect innocent third parties
See RS § 2.06
“An undisclosed principal is subject to liability to a third party who is justifiably induced to make a detrimental change in position by an agent acting on the principal’s behalf and without actual authority if the principal, having notice of the agent’s conduct and that it might induce others to change their positions, did not take reasonable steps to notify them of the facts.
An undisclosed principal may not rely on instructions given an agent that qualify or reduce the agent’s authority to less than the authority a third party would reasonably believe the agent to have under the same circumstances if the principal had been disclosed.”

Question 8

Estoppel

Answer 8

(RS §2.05; Hoddeson v. Koos Bros.)
Acts or omissions by the principal, either intentional or careless, which created an appearance of authority in the imposter
The third party justifiably (reasonably) is induced to make a detrimental change in position in reliance on such appearance of authority
The purported agent (imposter) has no actual or apparent authority, but principal is bound due to his own fault. Remedy to protect innocent third party against loss.

Question 9

Ratification

Answer 9

(RS §§ 4.01-4.08)
When agent or purported agent acts without authority (of any kind) and no grounds for estoppel or undisclosed P liability exist
P will be bound only if P ratifies contract
Ratification requires
An express or implied affirmation by P – RS §4.01(2)
Implied: accept benefits at time possible to decline benefits
P must know or have reason to know all material facts at time of affirmation – RS §4.06
P must ratify entire contract – RS §4.07
To which the law will give effect –RS §§ 4.05, 4.02(2)
RS §4.05: “A ratification of a transaction is not effective unless it precedes the occurrence of circumstances that would cause the ratification to have adverse and inequitable effects on the rights of third parties. These circumstances include:
any manifestation of intention to withdraw from the transaction made by the third party;
any material change in circumstances that would make it inequitable to bind the third party, unless the third party chooses to be bound; …”
RS §4.02(2): “Ratification not effective … (c) to diminish the rights or other interests of persons, not parties to the transaction, that were acquired in the subject matter prior to the ratification.”

Question 10

Agent’s Liability to Third Parties in Contract- actual or apparent authority, disclosed principal

Answer 10

RS §6.01: “When an agent acting with actual or apparent authority makes a contract on behalf of a disclosed principal,
the principal and the third party are parties to the contract; and
the agent is not a party to the contract unless the agent and third party agree otherwise.”

Question 11

Agent’s Liability to Third Parties in Contract- actual or apparent authority, unidentified principal

Answer 11

RS §6.02: “When an agent acting with actual or apparent authority makes a contract on behalf of an unidentified principal,
the principal and the third party are parties to the contract; and
the agent is a party to the contract unless the agent and the third party agree otherwise.”

Question 12

Agent’s Liability to Third Parties in Contract- undisclosed principal

Answer 12

“When an agent acting with actual authority makes a contract on behalf of an undisclosed principal,
Unless excluded by the contract, the agent is a party to the contract;
The principal and the third party are parties to the contract; …
Note: When P and A are both parties to contract
Third party must elect to get a judgment against P or A
Third party also cannot sue one and later sue the other
Note: A may also have liability to P

Question 13

Agent’s Implied Warranty of Authority

Answer 13

“A person who purports to make a contract [i.e., purported agent] … with a third party on behalf of another person, lacking power to bind that person, gives an implied warranty of authority to the third party and is subject to liability to the third party for damages for loss caused by breach of that warranty … unless
the principal or purported principal ratifies the act …; or
the [purported agent] gives notice to the third party that no warranty of authority is given; or
the third party knows that the [purported agent] acts without actual authority.”

Question 14

Agent’s Representations disclosed/unidentified principal

Answer 14

“When an agent for a disclosed or unidentified principal makes a false representation about the agent’s authority to a third party, the principal is not subject to liability unless the agent acted with actual or apparent authority … and the third party does not have notice that the agent’s representation is false.
A representation by an agent made incident to a contract … is attributed to a disclosed or unidentified principal as if the principal made the representation directly when the agent had actual or apparent authority … unless the third party knew or had reason to know that the representation was untrue or that the agent acted without actual authority in making it.”

Question 15

Agents Representations Undisclosed principal

Answer 15

A representation by an agent made incident to a contract … is attributed to an undisclosed principal … when a) the agent acted with actual authority …, or b) the agent acted without actual authority … but had actual authority to make true representations about the same matter. The agent’s representation is not attributed to the principal when the third party knew or had reason to know it was untrue.
When an agent who makes a contract … on behalf of an undisclosed principal falsely represents to the third party that the agent does not act on behalf of a principal, the third party may avoid the contract … if the principal or agent had notice that the third party would not have dealt with the principal.”

Question 16

Agent’s Liability to Third Parties in Tort

Answer 16

RS §7.01: “An agent is subject to liability to a third party harmed by the agent’s tortious conduct. Unless an applicable statute provides otherwise, an actor remains subject to liability although the actor acts as an agent or employee, with actual or apparent authority, or within the scope of employment.”

Question 17

Analyzing Principal’s Liability for Torts of Employees

Answer 17

RS §7.07(1): “An employer is subject to vicarious liability for a tort committed by its employee acting within the scope of employment.” – see also RS §2.04
Sequential analysis of tort liability:
Is there an agency relationship between the purported P and A?
If so, is A the P’s employee?
If so, was employee’s conduct within the scope of employment?

Question 18

Employee definition

Answer 18

RS §7.07(3):
“an employee is an agent whose principal controls or has the right to control the manner and means of the agent’s performance of work, and
the fact that work is performed gratuitously does not relieve a principal of liability.”

Question 19

Nonemployee agent (agent-type IC)

Answer 19

Satisfies agent definition, but not employee definition
Subject to limited control by P; P specifies end result

Question 20

Independent contractor

Answer 20

Does not satisfy agent definition

Question 21

factors for deciding if agent is employee:

Answer 21

extent of control that A and P have agreed P may exercise over details of the work, and extent of control that P has exercised in practice over details of A’s work;
whether A is engaged in a distinct occupation or business;
whether the type of work done by A is customarily done under a P’s direction or without supervision;
the skill required in A’s occupation;
whether A or P supplies the tools and other instrumentalities required for the work and the place in which to perform it;
the length of time during which A is engaged by P;
whether A is paid by the job or by the time worked;
whether A’s work is part of P’s regular business; and
whether P is or is not in business.

Question 22

Scope of Employment

Answer 22

RS §7.07(2): “An employee acts within the scope of employment when performing work assigned by the employer or engaging in a course of conduct subject to the employer’s control. An employee’s act is not within the scope of employment when it occurs within an independent course of conduct not intended by the employee to serve any purpose of the employer.”
May include intentional torts

Question 23

Analyzing Principal’s Liability for Torts of Agent (Nonemployee or Employee not acting in scope of employment)

Answer 23

If agency relationship exists, but A is not an employee or A’s conduct was not within scope of employment, then P may be liable to third party harmed by A’s conduct when:
A acts within scope of actual authority or P ratifies, and A’s conduct is tortious or A’s conduct, if that of P, would subject P to tort liability (RS 7.04).
A’s actions taken with apparent authority constitute a tort or enable A to conceal its commission (RS 7.08).
P is negligent in selecting, supervising, controlling A, or P has special relationship with T (RS 7.05).

Question 24

Principal’s Liability for Torts of Independent Contractors

Answer 24

General Rule: Principal is not liable for torts committed by an independent contractor (a non-agent)
Case law exceptions:
Principal engages an incompetent contractor
Activity contracted for is “nuisance per se” or “inherently dangerous”
Principal retains control over aspect of work in which tort occurs (RS 3d = agent for that part)

Question 25

Agent’s Duty of Loyalty

Answer 25

General Duty of Loyalty (RS §8.01)
Duty not to benefit from use of position(RS 8.02)
No kickbacks, bribes, tips, secret profits (Reading)
Duty to act solely for P’s benefit (RS §8.03-8.04)
No taking P’s business opportunities (Rash)
Duty not to use P’s property (RS §8.05)
Includes confidential information (Town & Country)

Question 26

Avoiding loyalty breach by agent

Answer 26

RS §8.06:
A avoids loyalty breach by getting P’s consent if
A acts in good faith, discloses all material facts, and otherwise deals fairly with the P; and
P’s consent concerns a specific act or transaction within ordinary course of agency relationship.
A acting for more than one P in a transaction has a duty to deal in good faith and fairly with each P, and to disclose to each P the conflict and all other facts.

Question 27

Agent’s Other Duties

Answer 27

Comply with Contract (RS §8.07)
Care, Competence & Diligence (RS §8.08)
Act Within Actual Authority and Comply with Instructions (RS §8.09)
Good Conduct (RS §8.10)
Provide Information (RS §8.11)

Question 28

Principal’s Duties

Answer 28

Indemnify Agent (RS §8.14)
in accordance with agency contract; and
unless otherwise agreed,
for payment made by A within actual authority or that is beneficial to P
for loss suffered by A that fairly should be born by P in light of their relationship
Deal Fairly and in Good Faith (RS §8.15)

Question 29

Implied actual authority

Answer 29

act of putting agent in a
position leads agent to reasonably believe agent has
authority

Question 30

Implied apparent authority

Answer 30

act of putting agent in a
position leads third party to reasonably believe agent
has authority