Agency Flashcards
BUSINESS – Agency
Creation of Agency Relationship
BUSINESS – Agency
Creation of Agency Relationship
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- Assent/Consent – P assents and A consents that
- Behalf/Benefit – A will act on P’s behalf for P’s benefit
- Control – A is subject to P’s control
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An agency relationship is a consensual fiduciary relationship created when a principal manifests assent that an agent shall act on P’s behalf and subject to P’s control, and A manifests consent so to act. Both consent and control are necessary elements.
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An agency relationship is a fiduciary relationship arising when a principal manifests assent to an agent that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act.
Key Elements:
- Manifestation of Assent by Principal: The principal must manifest their intent that the agent act for them. This can be express (written or oral agreement) or implied from conduct.
- Agent’s Consent: The agent must consent to act on the principal’s behalf. This can also be express or implied.
- Control by Principal: The principal must have the right to control the agent’s actions, at least in a general sense. This does not require constant supervision, but the principal must have the right to direct the result or ultimate objectives of the agent’s work.
- Capacity: The principal must be of contractual capacity. The agent must be of minimal capacity.
Methods of Creation:
- Express Agency: Created by a clear agreement, either written or oral.
- Implied Agency: Inferred from the conduct of the parties and the surrounding circumstances.
- Apparent Agency: Created when the principal’s words or conduct lead a third party to reasonably believe that the agent has authority, even if no actual authority exists. The principal is then estopped from denying the agency.
- Ratification: A principal can ratify an act performed by someone who was not an agent, or who exceeded their authority, by affirming the act after the fact.
Non-Delegable Duties: Certain duties are considered so important that they cannot be delegated to an agent (eg, voting in public elections, making a will).
Policy: Agency law facilitates commerce and allows individuals and businesses to act through others. However, it also creates potential liability for principals based on the acts of their agents.
BUSINESS – Agency
Agent Actual Authority
BUSINESS – Agency
Agent Actual Authority
- An agent has actual authority to act on behalf of a principal when
- the principal’s words or conduct
- would cause a reasonable person in the agent’s position
- to believe that the principal wishes the agent so to act.
- Actual authority can be either
- express
- by oral or written words
- implied
- agent’s reasonable belief
- based on principal’s conduct
- express
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CA defines actual authority as ‘such as a principal intentionally confers upon the agent, or intentionally, or by want of ordinary care, allows the agent to believe himself to possess.’ This authority can be either express or implied.
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Express Actual Authority: This is authority explicitly granted by the principal to the agent, either orally or in writing. The scope of authority is determined by the plain meaning of the principal’s words. Examples:
- A written power of attorney authorizing the agent to sell a specific piece of property.
- An oral instruction from an employer to an employee to order office supplies.
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Implied Actual Authority: This is authority that is not expressly stated, but is reasonably inferred from the principal’s conduct, the nature of the agency, customs of the trade, or prior dealings between the principal and agent. It’s the authority a reasonable agent in that position would believe they possess, based on the principal’s manifestations. Examples:
- A manager of a store likely has implied authority to hire and fire employees, even if not explicitly stated in their job description.
- An agent authorized to sell a car likely has implied authority to accept payment and provide a receipt.
- Authority can also be implied by the principal’s acquiescence to the agent’s actions.
Limitations: An agent cannot have actual authority to do something illegal or against public policy, even if the principal instructs them to do so.
Policy: Actual authority is based on the principal’s manifestations to the agent. It protects the reasonable expectations of the agent, who is acting on behalf of the principal. It’s distinct from apparent authority, which focuses on the reasonable belief of a third party.
BUSINESS – Agency
Agent Apparent Authority
BUSINESS – Agency
Agent Apparent Authority
- Apparent authority exists when a principal, intentionally or by want of ordinary care, causes a third party to reasonably believe that an agent has authority to act on the principal’s behalf, even if the agent does not have express or implied actual authority.
- The principal is then bound by the agent’s acts within the scope of that apparent authority.
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- CA Apparent Authority: such as a principal, intentionally or by want of ordinary care, causes or allows a third person to believe the agent to possess.
- Apparent authority is not actual authority, but rather a form of estoppel.
- The principal is bound by the agent’s acts, even if unauthorized, if the principal’s conduct led a third party to reasonably believe the agent had authority.
Elements:
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Principal’s Manifestation: The principal, not the agent, must be the source of the representation of authority. This can be through:
- Words: Express statements by the principal to the third party.
- Conduct: Actions by the principal that suggest the agent has authority (e.g., giving the agent a title, business cards, allowing them to occupy a position of apparent authority).
- Acquiescence: The principal’s knowing silence or failure to object when the agent acts in a way that suggests authority, if a reasonable person would have objected.
- Reasonable Belief by Third Party: The third party must actually and reasonably believe that the agent has authority. This is an objective standard, based on what a reasonable person in the third party’s position would believe, given the principal’s conduct. The third party must act in good faith.
- Reliance (Detriment): The third party must rely on the agent’s apparent authority to their detriment (eg, by entering into a contract, changing their position).
Examples:
- A company gives an employee the title “Sales Manager” and allows them to negotiate contracts with customers, even though the employee lacks actual authority to bind the company to contracts over $10,000. A customer who reasonably believes, based on the title and the employee’s conduct, that the employee has authority to sign a $15,000 contract may be able to bind the company under apparent authority.
- A homeowner stands by silently while a person claiming to be their contractor negotiates with a supplier for materials. The homeowner’s silence, in this context, could create apparent authority.
Policy: Apparent authority protects third parties who reasonably rely on the appearance of authority created by the principal. It prevents principals from benefiting from their agents’ actions while denying responsibility for those actions. It is based on fairness and the principle that a principal should be responsible for the reasonable impressions they create.
BUSINESS – Agency
Ratification of Agent’s Contracts
BUSINESS – Agency
Ratification of Agent’s Contracts
- A principal can ratify an act performed by someone who was not their agent, or by an agent who exceeded their authority.
- Ratification occurs when the principal, with full knowledge of all material facts, affirms the act, either expressly or impliedly through conduct.
- The effect of ratification is to retroactively authorize the act, as if the agent had authority from the beginning.
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- Ratification is a doctrine in agency law that allows a principal to become bound by an act performed by someone who lacked actual or apparent authority at the time of the act.
- It is based on the principle that a principal should be able to adopt and benefit from an unauthorized act if they choose to do so, with full knowledge of the circumstances.
Requirements for Valid Ratification:
- Act Capable of Ratification: The act must be one that the principal lawfully could have authorized at the time it was performed. Illegal acts generally cannot be ratified.
- Principal’s Existence and Capacity: The principal must have been in existence and legally competent both at the time of the unauthorized act and at the time of ratification. (This is particularly relevant for corporations and other entities).
- Full Knowledge of Material Facts: The principal must have full knowledge of all material facts relating to the unauthorized act at the time they ratify it. This includes knowledge of the terms of the transaction, the identity of the parties involved, and any other facts that would reasonably influence the principal’s decision.
- Affirmance of the Entire Act: The principal must ratify the entire act; they cannot pick and choose which parts to accept and which to reject.
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Manifestation of Affirmance: The principal must manifest their intent to ratify, either:
- Expressly: Through clear words (oral or written) indicating approval of the act.
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Impliedly: Through conduct that is inconsistent with repudiating the act. Examples of implied ratification include:
- Accepting the benefits of the unauthorized transaction.
- Remaining silent when there is a duty to speak, after learning of the act.
- Suing to enforce the unauthorized contract.
- Same Capacity: The principal ratifies in the same capacity they would have needed to authorize.
Effect of Ratification: Ratification is retroactive. It relates back to the time of the original act, as if the agent had actual authority from the beginning. This binds the principal to the contract or transaction.
Limitations:
- Ratification cannot prejudice the intervening rights of innocent third parties.
- Cannot ratify if don’t have capacity.
Policy: Ratification promotes fairness and efficiency by allowing principals to take advantage of beneficial transactions, even if initially unauthorized, while also protecting principals by requiring full knowledge of the material facts.
BUSINESS – Agency
Vicarious Liability: Respondeat Superior
BUSINESS – Agency
Vicarious Liability: Respondeat Superior
Respondeat superior (‘let the master answer’) is a form of vicarious liability in which an employer is held liable for the tortious acts of their employee, if those acts were committed within the scope of employment.”
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California follows the doctrine of respondeat superior (‘let the master answer’), which imposes vicarious liability on an employer for the tortious acts of their employee committed within the scope of employment. This means the employer is liable regardless of whether the employer was personally at fault.
“Scope of Employment”: The crucial question is whether the employee’s tortious act was within the scope of their employment. This is a fact-specific inquiry, but generally, conduct is within the scope of employment if:
- Kind of Work: It is the kind of work the employee was hired to perform, or it is reasonably incidental to that work;
- Time and Space: It occurs substantially within the authorized time and space limits of the employment; and
- Purpose to Serve Employer: It is motivated, at least in part, by a purpose to serve the employer’s interests (even if the employee’s conduct is also motivated by personal reasons).
“Going and Coming” Rule: Generally, an employee’s commute to and from work is not considered within the scope of employment. However, there are exceptions, such as:
- Special Errand Exception: If the employee is performing a special errand or mission for the employer.
- Required-Vehicle Exception: If the employer requires the employee to use their own vehicle for work.
Frolic vs. Detour:
- Frolic: A substantial deviation from the employee’s duties for purely personal reasons; the employer is not liable.
- Detour: A minor deviation from the employee’s duties; the employer may still be liable.
Intentional Torts: An employer can be liable for an employee’s intentional torts (e.g., assault, battery) if the tort is reasonably foreseeable in light of the employee’s duties or is otherwise characteristic of the employer’s enterprise.
Policy: Respondeat superior is based on the policy that employers should bear the risk of their employees’ torts as a cost of doing business, and that employers are in a better position to insure against such risks and spread the cost.
BUSINESS – Agency
Vicarious Liability: Employee vs. Independent Contractor
BUSINESS – Agency
Vicarious Liability: Employee vs. Independent Contractor
An employer is vicariously liable for the torts of their employee committed within the scope of employment (respondeat superior). However, a principal is generally not liable for the torts of an independent contractor. The key distinction is the principal’s right to control the manner and means of accomplishing the desired result. If the principal has the right to control how the work is done, the worker is likely an employee; if the principal only controls the result, the worker is likely an independent contractor.
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California applies the doctrine of respondeat superior, making employers vicariously liable for the torts of their employees committed within the scope of employment. However, a principal is generally not liable for the torts of an independent contractor. The distinction between these two relationships is crucial for determining vicarious liability.
Right to Control (Primary Test): The primary factor is the principal’s right to control the manner and means of accomplishing the desired result.
- Employee: The employer has the right to control both the result and the details of how the work is done.
- Independent Contractor: The principal controls only the result, leaving the method and details to the worker’s discretion.
Borello Multi-Factor Test (Secondary Factors): California courts, following S. G. Borello & Sons, Inc. v. Department of Industrial Relations, also consider numerous secondary factors, none of which is individually determinative:
- Right to Control: The most important factor.
- Skill Required: The extent the worker’s occupation or business is distinct.
- Who Supplies Instrumentalities: Whether the worker or principle supplies tools, and place of work
- Length of Time: The length of time for services to be preformed.
- Method of Payment: Whether by time or by the job.
- Work Part of Regular Business: Whether the work is part of the principle’s regular business.
- Belief of Parties: Belief by the parties that they are in an employee-employer relationship.
- Whether the principle is or is not in business.
Policy: The distinction is based on the idea that employers have greater control over their employees and can better supervise them to prevent torts. Independent contractors, on the other hand, are presumed to be responsible for their own actions.
Exceptions (Non-Delegable Duties): Even if a worker is an independent contractor, a principal may still be liable for certain non-delegable duties, such as maintaining property in a safe condition or performing inherently dangerous work.
Statutory Employees: Certain workers may be deemed employees for specific purposes (e.g., workers’ compensation) by statute, even if they would otherwise be considered independent contractors.
BUSINESS – Agency
Employee Liability for Negligent Conduct & Indemnification
BUSINESS – Agency
Employee Liability for Negligent Conduct & Indemnification
An employee is always personally liable for their own negligent acts or other torts, even if those acts were committed within the scope of their employment. While the employer is also liable to the injured third party under respondeat superior, this does not relieve the employee of their own liability. The employer, having paid the third party due to vicarious liability, may have a right of indemnification against the employee, allowing the employer to recover its losses from the employee.
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An employee is always personally liable for their own torts, including negligent acts and intentional torts, even if those acts were committed within the scope of their employment and the employer is also vicariously liable under respondeat superior.
Joint and Several Liability: The injured third party can sue both the employee (for their direct negligence or other tort) and the employer (under respondeat superior). The employee and employer are jointly and severally liable, meaning the third party can recover the full amount of damages from either one, or a portion from each. The third party cannot, however, recover more than the total amount of their damages (no double recovery).
Indemnification: An employer who is held vicariously liable for an employee’s tort generally has a right of indemnification against the employee. Indemnification is a right to reimbursement; it allows the employer to recover from the employee the amount the employer paid to the third party due to the employee’s tort.
Limitations on Indemnification:
- Contractual Limitations: Employment contracts or collective bargaining agreements may limit or waive the employer’s right to indemnification.
- Public Policy: Indemnification may be denied if it would violate public policy (e.g., if the employer was also negligent or engaged in intentional wrongdoing).
- California Labor Code § 2802: This section significantly limits the employer’s right to indemnification in California. It requires an employer to indemnify an employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of their duties, unless the loss was caused by the employee’s own gross negligence, willful misconduct, or actions outside the scope of employment. This means that for ordinary negligence within the scope of employment, the employer in California usually cannot seek indemnification from the employee.
Policy: While respondeat superior holds employers liable for their employees’ torts, the underlying principle of personal responsibility means that employees are also liable for their own wrongful actions. Indemnification, where permitted, shifts the ultimate financial burden back to the tortfeasor (the employee). However, California law (Labor Code § 2802) significantly protects employees from indemnification claims by their employers for ordinary negligence within the scope of employment.
Practical Considerations: In practice, employers rarely seek indemnification from employees for ordinary negligence, even where legally permissible, due to factors such as employee morale, the employee’s ability to pay, and the employer’s insurance coverage.
