Agency Flashcards
Steps for agency analysis
- Is there an agency relationship?
- Is the principal bound?
- Is the principal liable for the agent’s torts?
- Did the agent breach their fiduciary duties to the principal?
- Is there an agency relationship?
An agency relationship arises when
(1) a principal and agent each manifest assent that the agent will
(2) act on the principal’s behalf and
(3) be subject to the principal’s control.
Ex. Employees and officers of a corporation. NOT independent contractors.
- Is the principal bound?
- Actual auth
- Express
- Implied
- Apparent auth
- Estoppel
- Ratification
- Inherent agency power
Entity specific rules
- Partnership: Ordinary course of business
- Corporation: Officers
- LLC: State specific
- principal liable for agent torts?
- direct liability, or
- respondeat superior
- Did the agent breach their fiduciary duties to the principal?
The principal-agent problem
Agents have a duty of loyalty and performance
Another issue: the principal’s duties to the agent
- duty to deal in good faith (disclose risks of physical harm or pecuniary loss that principal knows, has reason to know, or should know)
- duty to indemnify
- when agent makes a payment within actual authority (unless otherwise agreed)
Priceline
Rule: No agency exists in an arm’s-length contract absent interim control over performance.
Actual authority exists when . . .
The agent
(1) reasonably believes the principal wishes the agent to so act
(2) as a result of the principal’s manifestations.
Difference between express and implied actual authority
Express: Authority the principal expressly (explicitly) gives the agent.
Implied: Authority the agent has for acts necessary or incidental to an express objective
Apparent authority exists when . . .
a third-party
(1) reasonably believes the actor has authority, and
(2) that belief is traceable to the principal’s manifestations.
H.H. Taylor - The tracing requirement for Apparent Authority
Rule: An agent may be found to have acted with apparent authority even if the principal did not communicate directly to a third party regarding the scope of the agent’s authority.
“Lingering authority”
apparent authority after the agency relationship has ended
“imputed knowledge”
businesses are treated as possessing the knowledge of their agents that is material to the agent’s duties
Estoppel
Principal is bound despite the agent lacking authority, if
(1) the third party detrimentally changes their position, and
(2) the principal
(a) intentionally or carelessly caused the reasonable belief of authority, OR
(b) having notice of such belief, the principal fails to notify agent lacks authority
Inherent agency power
Fairness doctrine holding principal liable despite lack of authority
Ex. An employer is bound to a contract where an employee acts in furtherance of the employer’s business and the employee’s conduct harms a third party.
Ratification
Where a principal ratifies (authorizes) a prior unauthorized act of an agent. Occurs where:
(A) The principal manifests assent to be bound by a prior act, or
(B) The principal’s conduct justifies a reasonable assumption the principal consented to the conduct.
In effect, it retroactively creates actual authority
Does a ratification bless off on future acts?
The ratification could be argued to justify a reasonable belief of authority (actual and apparent element), but it does not ratify the future act(s).
Default agency rules for partnerships
(1) Each partner is an agent of the partnership.
(2) Each partner can bind the partnership to contracts in the ordinary course of business.
(3) Each partner has authority for a non-ordinary course act only if all the partners authorize it.
Ratification of an act requires . . .
Actual knowledge of it.
A partner has notice when
(1) it comes to their attention, or
(2) it is duly delivered at
(a) the person’s place of business, or
(b) any other place held out by the person as a place for receiving communications
Are shareholders agents?
No
Agent authority for directors and offices
The board of directors appoints officers, but a single director can NOT grant authority
Officers are agents of the corporation and can typically grant authority to employees
officer authority is specified in the bylaws or board resolutions
Are members of LLC agents of that LLC?
Maybe. “A member is not an agent of an LLC solely by reason of being a member.”
When will a principal’s inaction count as ratification?
A principal’s inaction will constitute ratification only if he is on notice that third parties will infer assent from his silence.
If an agent acts without authority, is the action voidable?
an unauthorized action is not merely voidable, but void
How can you firm up the authority for big decisions?
- Secretary’s certificate (doc from corp secretary certifying actions)
- Opinion letters (from law firm on a matter)
- Statement of authority—document filed with DFI specifying the actual authority of partners
some third parties require this for a transaction
Standard signature block structure
Name of entity
By: Signature line
Name of person
Title
How can a principal be directly liable for an agent’s torts?
negligence
Ex. negligent hiring results in an accident
Respondeat superior
A principal is liable for the torts of
(1) an employee, when
(2) they are acting within the scope of employment
Principal is generally not liable for torts of . . .
non employee agents, and
independent contractors
What makes someone an employee?
when the principal has the right to control the (1) manner and the (2) means of the work
What is in the scope of employment?
(A) Performing work assigned by employer, or
(B) Engaging in conduct subject to employers control
Duty of loyalty that an agent owes the principal
A duty not to
(1) acquire a material benefit arising out of the agent’s position
(2) Not to act on behalf of adverse party
(3) Not to compete
(4) Not to use principal’s property for own purposes
(5) Not to breach confidentiality
Duty of performance in an agency relationship
a duty to
(1) Follow written contract
(2) Act with care, competence, and diligence
(3) Act within scope of actual authority
(4) Provide information principal would want to have
Can a principal every consent to an act that would normally be considered a breach?
Yes. So long as the agent:
(1) Acts in good faith, and
(2)Discloses all material facts
what are some restrictive covenants?
- NDAs
- Non-competes
- Non-solicitation agreements
Who owes fiduciary duties to a company?
(1) directors
(2) officers
(3) majority shareholders, and
(4) agents, particularly those with wide latitude and discretion
