Agency

Question 1

Agency?

Answer 1

Agency concerns the relationship that exists between an agent and principal whereby the agent acts on principal’s behalf and is subject to the principal’s control

Question 2

Agency Creation

Answer 2

Agency relationship is created when:

1. Consent - parties expressly or impliedly agree to enter an agency relationship; and
2. Control - agent is subject to the principal’ s control (I.e., agent is at least supervised by principal)

Question 3

Methods of creation

Answer 3

Agency can be created by:

• Agreement by parties - writing not required
• Apparent authority - principal holds another out as her agent to a third party
• Ratification - principal agrees retroactively to be bound by previously unauthorized acts of an agent

Question 4

Termination of Agency

Answer 4

An agency relationship can end by act or agreement of the parties or by operation of law

Question 5

Termination by parties (Agency)

Answer 5

Agency can be terminated by parties where:

• Party: desire - either party manifests to the other the desire to terminate the agency relationship (termination effective when notice is received)
• Expiration - express terms of the agency expire
• Purpose fulfilled - the purpose of the agency relationship has been fulfilled

Question 6

Termination by operation of law

Answer 6

Can occur where:

• Agent or principal dies
• Agent or principal loses capacity
• Agent materially breaches a fiduciary duty owed to principal

Question 7

Rights and Duties of Principal and Agent

Answer 7

In the absence of anything contrary in their agreement, agent and principal owe the following duties to each other:

Agent to Principal:

• Loyalty
• Obedience
• Care

Principal to Agent

• Compensation
• Reimbursement
• Cooperation

Question 8

Duties of agent to principal

Answer 8

• loyalty;
• obedience;
• care

Question 9

Duty of Loyalty

Answer 9

DUTY OF AGENT

Loyalty - agent has a fiduciary duty of undivided loyalty to principal

» Agent breaches duty if he has adverse interests and fails to disclose such interests; agent cannot act on behalf of two different principals with adverse interests

Question 10

Duty of Obedience

Answer 10

DUTY OF AGENT

Obedience - agent must obey principal’s lawful instructions

» Agent’s interpretation of principal’s instructions must be reasonable under the circumstances

Question 11

Duty of Care

Answer 11

DUTY OF AGENT
Care - agent must carry out his agency with reasonable care

» Reasonable care judged in light of local community standards

» Dut to notify - included in duty of care; agent must notify principal of all agency-related matters that come to agent’s attention; all such matters are imputed to principal

Question 12

Duties of principal to agent

Answer 12

• Compensation;
• Reimbursement;
• Cooperation

Question 13

Duty of Compensation

Answer 13

DUTY OF PRINCIPAL

Compensation - Unless agent agrees to act gratuitously, principal owes agent a duty to compensate him reasonably

Question 14

Duty of Reimbursement

Answer 14

DUTY OF PRINCIPAL

Reimbursement - Principal must indemnify agent for all expenses and losses reasonably incurred in carrying out agent’s duties

>>Includes legal liability incurred by agent)

Question 15

Duty of Cooperation

Answer 15

DUTY OF PRINCIPAL

Cooperation - Principal must cooperate with agent to help agent carry out agency functions

Question 16

Agent Liability and authority

Answer 16

One is generally not liable for the acts of another unless they have made the other person their representative and given the other person the power to bind them

• Such power to bind can arise through actual authority, apparent authority, or ratification authority

Question 17

How to determine if the principal is bound by the agent? (usually arises in the context of whether a principal is bound by a K entered into by agent with a third party)

Answer 17

Ask: Did agent have actual authority?

• Yes - principal will be bound regardless of whether third party knew of agent’s authority
  
  • Agent cannot be held liable to principal as long as agent acted within the scope her authority
• No - look at whether agent had apparent authority
  
  • Apparent authority will bind principal to K, but agent may be held liable to principal for acting beyond scope of her authority

Question 18

Actual Authority

Answer 18

An agent acts with actual authority when, at the time of taking an act having legal consequences for the principal, the agent reasonably believes that the principal wishes the agent to act.

• I.e ., actual authority is the authority the agent reasonably believes he possesses based on his dealings with principal.

Question 19

Express vs. implied actual authority

Answer 19

• Express actual authority - authority expressly provided to agent by principal (i.e., provided in writing or orally from principal to agent)
  
  • E.g., principal directs agent to engage in a precise task; in doing so, agent has express actual authority
• Implied actual authority - authority agent reasonably believes he has based on the principal’s actions (i.e., words or conduct)
  
  • Includes incidental acts taken by agent that are reasonably necessary to complete a task or transaction on principal’s behalf
  • E.g., if principal tells agent to “hire a receptionist,” agent has authority to take actions reasonably necessary to do so (e.g., place a job posting, interview candidates, etc.)

Question 20

Termination of Actual Authority

Answer 20

Actual authority of any kind can terminate due to:

• Lapse of time (specified or unspecified);
• Happening of an agreed-upon event,
• Change of circumstance, etc.

Question 21

Apparent Authority

Answer 21

Even when an agent lacks actual authority, principal can be held liable for agent’s acts if agent acted with apparent authority

• Agent’s acts will be binding on principal if a third party can show that agent acted with apparent authority
• Note - if a third party knows that the agent does not have actual authority, apparent authority does not exist

Question 22

Requirements for Apparent Authority

Answer 22

Requirements - agent acts with apparent authority if:

1. Principal holds agent out as having authority to act on principal’s behalf; and
2. Principal’s conduct causes a third party to reasonably rely on the agent’s appearance of authority

Question 23

“Holding out” (Apparent Authority)

Answer 23

Principal must affirmatively act or fail to act in a way that causes the third party’s reasonable belief (mere assertion of authority by agent is insufficient to bind principal)

• Affirmative act - can be words or conduct by principal that causes third party’s reasonable belief in agent’s authority
• Inaction - can be inaction by principal, where a duty to act exists, that causes third party’s reasonable belief in agent’s authority (e.g., where principal knows third party wrongly believes agent has authority to act, principal

Question 24

Apparent vs. Actual authority

Answer 24

Apparent authority arises from the reasonable belief of third parties, whereas actual authority arises from the reasonable belief of the agent herself.

Question 25

Ratification

Answer 25

Where an agent purports to act on behalf of a principal but lacks authority to do so, principal may still be bound by the agent ‘s acts if she subsequently ratifies the acts

Question 26

Requirements for Ratification

Answer 26

1. Agent purported to act on principal’s behalf » E.g., entered into K with third party without authority to do so.
2. Principal has knowledge of material facts of the act (e.g., K terms) » Principal must know or reasonably should know of material facts when agent’s act is affirmed/ratified.
3. Principal affirmed (i.e., ratified) agent’s conduct
   
   1. » Affirmance can be express or implied (i .e., conduct by principal consistent with approval of the otherwise unauthorized act)
   2. » If principal accepts benefits of the agent’s act when it is still possible to decline, principal will be deemed to have ratified agent’s act

Question 27

Effect of ratification

Answer 27

Principal who ratifies an agent’s unauthorized act becomes liable to third parties for those acts

• E.g., if principal ratifies a K agent un authorized ly entered into with third party, principal is bound to the K and can be held liable to third party.

Question 28

Liabilities of Agents and Principal to third parties

Answer 28

Upon establishment of a valid K entered by agent with a third party on principal’s behalf, the liabilities of principal and agent to third party depend on whether principal was disclosed to the third party

Question 29

Liabilities: Third Party vs. Principal - Third Party vs. Agent

Answer 29

• Third party vs. principal - if agent had authority, principal is liable to the third party
• Third party vs. agent - depends on whether principal is disclosed:
  
  • Disclosed principal - where third party knows of principal’s existence and identity
    
    • » Principal is liable, agent is not liable
    • » Only principal, not the agent, can enforce the K
  • Undisclosed and/or unidentified principal - both agent and principal are liable to third party and either can enforce the K
    
    • » Note - if agent enforces the K, principal is entitled to all rights and benefits under the K
    • » Undisclosed principal = third party does not know of principal’s existence or identity
    • » Unidentified principal = third party knows that a principal exists, but does not know her identity

Question 30

Respondeat Superior (Agency)

Answer 30

Principals may be held liable to third parties for torts committed by their agents acting as employees or servants

• Respondeat superior - doctrine under which principal liability arises for torts committed within the scope of agency/employment
• For torts committed outside that scope (i.e., respondeat superior does not apply) principal can be liable if agent acted with authority

Question 31

Respondeat Superior (Agency) Requirements

Answer 31

Requirements - principal will be liable where:

1. Employer-employee relationship exists between principal and party who caused the injury
   
   • Principal generally not liable for independent contractors
2. Tortious conduct was committed within the scope of employment
   
   • ​​Tort is within the scope of employment if:
     
     1. Conduct was the same or similar in nature to that which the employee was hired to perform, and/or
     2. Tort was committed in service of employer and/or to further employer’s goals

Question 32

Respondeat Superior (Agency) Intentional Torts

Answer 32

Intentional torts - employer is usually not liable b/c intentional torts are usually outside the scope of employment

• Exception - employer can be held liable where intentional tort occurs as a natural incident to carrying out employer’s business

Question 33

Principal Liability for Independent Contractors (Agency)

Answer 33

Principals are generally not liable for acts committed by independent contractors (“ICs”) b/c their work is outside the scope of an employment/ servant -type agency relationship

Question 34

Distinction between IC from employment/servant relationship

Answer 34

Distinction turns on principal/employer’s right to control the manner and method by which a person performs their job

• Employment relationship - employee is compensated on a time basis (e.g., per hour, per year, etc.); employer has a right to control the manner and method by which employee performs the job
• IC relationship - IC hired to do a particular job; paid a given amount for the particular job; principal has limited rights to control the manner and method in which IC performs

Question 35

Events when principals are liable for IC’s acts

Answer 35

Public policy dictates that principals should be liable for certain torts committed by ICs

• Princials can be held liable for IC torts where:
  
  • a. Inherently dangerous activities- acts performed by IC that are, by nature, inherently dangerous, or
  • b. Principal knowingly hires an incompetent IC