Agency

Question 1

Creation of Agency Relationship

Answer 1

An agency relationship is created when:

i) A principal manifests assent to an agent;
ii) The agent acts on the principal’s behalf;
iii) The agent’s actions are subject to the principal’s control; and
iv) The agent manifests assent or otherwise consents.

–

Generally, a principal’s appointment of an agent need not comply with specific formalities (for example, a writing) to be effective. However, many states require an agent’s appointment to be in writing when the agency relates to interests in property (e.g., a power of attorney).

The principal will generally be bound by any contract created on the principal’s behalf, by an agent with the power to bind the principal, whether the power to bind is:

i) Expressed orally or in a writing;
ii) Implied by a principal’s conduct; or
iii) Misinterpreted by a third party.

Question 2

Factors for evaluating whether Employee/Employer Relationship Exists

Answer 2

i) The principal exercises significant control over the details of the worker’s day-to-day activities;
ii) The principal supplies the tools at the place of employment;
iii) The principal pays the worker on a structured pay period;
iv) The worker’s skill level is specialized; and
v) The principal directs the work to completion.

Question 3

Requirements to be an Agent

Answer 3

i) Have minimal capacity (minors CAN be agents);
ii) Manifest assent and consent to act on the principal’s behalf; and
iii) Manifest assent to be subject to the principal’s control.

Question 4

Characteristics of an Independent Contractor

Answer 4

i) Bears the risk and benefits from good management;
ii) Maintains a high level of independence;
iii) Is free to work for others;
iv) Agrees to be paid a fixed fee;
v) Receives payment based on results;
vi) Is liable for work performed; and
vii) Accepts responsibility to remedy defects at her own expense.

Question 5

Subagents

Answer 5

A subagent is a person appointed by an agent to perform functions that the agent has agreed to perform on behalf of a principal. The agent is liable to the principal for the conduct of the subagent. When an appointing agent hires employees, those employees are presumed to be subagents of the appointing agent, acting on behalf of the appointing agent’s principal.

1) Power to appoint a subagent

An agent may appoint a subagent only if the agent has actual or apparent authority to do so.

2) Duties of a subagent

A subagent owes a duty of loyalty to the principal as well as to the appointing agent.

3) Contractual liability
a) Agent

The agent is responsible to the principal for the subagent’s conduct. Thus, the agent may be liable for a loss incurred by the principal as a consequence of the subagent’s misconduct.

b) Principal

A principal is bound by the subagent’s acts to the same extent as if the agent had undertaken the acts. Notice received by a subagent is treated as notice to the principal; knowledge possessed by the subagent is imputed to the principal. The principal is not obligated to compensate the subagent when the subagent and the agent create an agreement between them concerning compensation or other duties.

Question 6

Unincorporated Associations

Answer 6

An unincorporated association is a non-legal entity in which two or more persons voluntarily associate with mutual consent or purpose. Examples of unincorporated associations include religious, literary, professional, charitable, or social associations; they each lack the capacity to form agency relationships.

Question 7

Writing Requirement

Answer 7

A writing is generally not necessary to create an agency relationship. In some jurisdictions, statutes require that the principal’s authorization of the agent be in writing and comply with specific requirements. The most common example is when the agent contracts to sell or buy real property.

When a statute requires the principal’s authorization to be in writing, the requirement is often referred to as the “equal-dignities rule,” i.e., the authorization must be of equal dignity to the underlying transaction. The equal-dignities rule operates to protect the principal against third-party actions. Therefore, a principal can raise the lack of written authorization as a defense. It does not apply in a contract action brought by a principal against a third party or in an action brought by an agent against the principal.

Question 8

Contractual Liability requirements

Answer 8

1. ) Principal has AUTHORIZED agent to enter into the K;

2. ) Agent acted with legal authority.

Question 9

Types of authorization

Answer 9

1.) Actual express authority (oral or written, clear, direct and definite language, or specific detailed terms and instructions)

For express (actual) authority to exist, the principal’s manifestation must cause the agent to believe that the agent is doing what the principal wants (subjective standard), and the agent’s belief must be reasonable (objective standard).

2.) Actual implied authority

CUSTOMARY: In the absence of instructions to the contrary, an agent has implied authority to act within accepted business customs or general trade usage within an industry. The agent must be aware of the normal business customs or usage before she acts.

BY POSITION: A principal may manifest assent to the actions of his agent by placing the agent in a position that customarily has certain authority, such as vice president or treasurer.

BY ACQUIESCENCE: Implied authority based upon acquiescence commonly results from:

i) A principal’s acceptance of the agent’s acts as they occur; or
ii) The principal’s failure to object to the unauthorized actions of the agent that:
a) Affirm the agent’s belief that those actions further the principal’s objectives; and
b) Support the agent’s perceived authority to act in the future.

Agents have implied authority to take all reasonably necessary measures in cases of emergency, in the absence of the principal and/or specific instructions to act.

By delegation (sometimes)

3.) Apparent authority: results when the principal causes a third party to reasonably believe that the agent has authority to act.

To determine if a third party has a reasonable belief of apparent authority, look for a principal’s manifestation that reaches the third party and could reasonably cause the third party to believe that the agent is authorized. The key is the principal’s behavior, not the agent’s, and the third party’s perception that results from it.

To determine whether a third party’s belief is reasonable, look to:

i) Past dealings between the principal and the agent of which the third party is aware;
ii) Trade customs regarding how a similar transaction is normally accomplished;
iii) Relevant industry standards;
iv) The principal’s written statements of authority;
v) Transactions that do not benefit the principal; or
vi) Extraordinary or novel transactions for the principal or similar types of principals.

Question 10

Authority to delegate

Answer 10

In general, agents are prohibited from delegating either express or implied authority to a third person without the principal’s express authorization. The rationale for the rule is that the agency relationship is consensual, and the principal has not agreed to a third party acting in the place of the known agent. Yet, in certain cases, a principal may be shown to have granted implied authority to the agent to delegate his duties to a third person or subagent.

a) Mechanical or ministerial acts

An agent generally has the implied authority to hire a subagent to perform mechanical acts (such as clearing debris from a work site).

b) Specific to situation or circumstance

An agent has the authority to employ a subagent for a specific situation when it is required by law that an individual have a professional perform a specific task.

Example: A surgeon hires the anesthesiologist and surgical nurses. The surgeon is the agent of the patient, hiring professional staff to assist as needed.

c) Custom or usage

An agent may delegate duties to a subagent to facilitate a transaction because of business or industry customs or trade usage.

Example: Lawyers hire notaries, paralegals, and legal secretaries to help administer client cases.

d) Impossibility

The agent may delegate acts that she could not perform for a variety of reasons.

Question 11

Termination of authority

Answer 11

An agent’s actual authority may be terminated by:

i) The principal’s revocation;
ii) The principal’s agreement with the agent;
iii) A change of circumstances;
iv) The passage of time;
v) The principal’s death or suspension of powers;
vi) The agent’s death or suspension of powers;
vii) The principal’s loss of capacity; or
viii) A statutorily mandated termination.

Question 12

Issue: Power to Revoke Coupled with an Interest

Answer 12

A principal cannot revoke the authority of an agent if the agent’s power is coupled with an interest in the subject matter of the power. For example, if a borrower conveys an interest in real property to a lender under a deed of trust, and also confers on the lender the power to sell the property in the event of default, then the lender’s interest is coupled with an interest in the property. Therefore, the borrower cannot revoke the lender’s authority to sell.

Termination of an agency relationship is unilateral; either party may assert the right to terminate the agreement.

Question 13

Termination of Agency Agreement

Answer 13

• mutual agreement
• changed circumstances
• passage of time (when P and A do not specify the duration of authority)
• Death of principal (once A learns)
• Death of A (automatically)
• P’s loss of capacity (modern: Once A has notice)
• statutorily mandated termination
• Agent’s breach of fiduciary duty

Question 14

Estoppel

Answer 14

Applies when a 3P is justifiably induced to make a detrimental change in position because the 3P believed the transaction was entered into for the P, AND either (i) P intentionally or carelessly caused the belief or (ii) having notice of such belief and possibility of of reliance, failed to take reasonable steps to notify

Question 15

Authority by Ratification

Answer 15

When P affirms a prior act done or purported to be done on P’s behalf. Can be implied or express.

ELEMENTS:
i) The principal must ratify the entire act, contract, or transaction (either by express manifestation of assent or conduct that justifies a reasonable assumption of consent);

ii) The principal must have the legal capacity to ratify the transaction at the time it occurs; the third party must also have the legal capacity to engage in the transaction;
iii) The principal’s ratification must be timely (before the third party withdraws from the transaction); and
iv) The principal must have knowledge of the material facts involved in the original act.

Question 16

Vicarious Liability

Answer 16

A principal is vicariously liable to a third party harmed by the agent’s conduct when:

i) The agent is a servant (often referred to as an “employee”); and
ii) The agent commits a tort while acting within the scope of employment.

Question 17

Right to Control

Answer 17

A servant or employee is an agent whose principal controls or has the right to control the manner and means of the agent’s performance of work. Because of the level of control of their employers, bus drivers, food servers, and corporate officers would all be classified as employees.

When a lent employee, also known as a “borrowed servant,” commits a tort, the employee’s initial employer or the employer for whom the employee is currently working, or both, may be liable to a third party harmed by the lent employee’s conduct. Recent court decisions have assessed liability based upon a determination as to which of the employers controlled the agent’s actions at the time the harm occurred.

Question 18

Vicarious Liability: Use of Physical Force and Intentional torts

Answer 18

a) An employee’s use of physical force against another

Although most jobs do not include the use of physical force against another person, an employee’s assigned work may contemplate the necessity of using physical force to complete the assigned task, such as a “runner” for a bail bondsperson, who tracks down individuals who have jumped bail and returns them to custody.

b) Intentional torts

Intentional torts are not automatically excluded from the scope of employment. They may fall within the scope of employment when (i)the conduct is within the space and time limits of the employment; (ii)the agent was motivated in part to act for the employer’s benefit; and (iii) the act was the kind of act that the employee was hired to perform.

Question 19

Frolic and Detour

Answer 19

i) Frolic

When an employee’s personal errand involves a significant deviation from the path that otherwise would be taken for the purposes of performing work, the errand is a frolic. Once a frolic begins, an employee is outside the scope of his employment until he resumes performance of his assigned work.

ii) Detour

Travel by an employee during the workday that involves a personal errand may be within the scope of employment when the errand is merely a detour (i.e., a de minimis departure from an assigned route).

Question 20

Vicarious Liability: Apparent Authority

Answer 20

A principal is vicariously liable for a tort committed by an agent with apparent authority when the agent’s appearance of authority enables him to commit a tort or conceal its commission. Such torts include fraudulent and negligent misrepresentation, defamation, tortious institution of legal proceedings, and conversion of property.

Question 21

P’s Direct Liability for Torts

Answer 21

i) The principal authorizes or ratifies the agent’s conduct;
ii) The principal is negligent in selecting, supervising, or otherwise controlling the agent; or
iii) The principal delegates to an agent performance of a non-delegable duty to use care to protect other persons or their property, and the agent breaches the duty.

Question 22

Non-Delegable Duties

Answer 22

A principal who has a non-delegable duty cannot avoid liability by delegating the duty to another person. Generally, a duty is non-delegable when the responsibility is so important to the community that a person should not be permitted to transfer it to another person. Examples include the duty of a landlord to keep premises in a safe condition and the duty to use care in inherently dangerous activities such as the use of explosives.

Question 23

A’s Liability for Ks

Answer 23

Depends on terms and degree to which P is disclosed.

DISCLOSED: A does not become party unless agreed otherwise.

PARTIALLY DISCLOSED: A becomes a party unless agreed otherwise.

UNDISCLOSED: A is party.

Once the third party discovers the existence of the principal, however, the election of remedies doctrine requires the third party to choose to hold liable either the principal or the agent.

Question 24

Liability of an undisclosed principal to a 3P

Answer 24

Generally, an undisclosed principal is liable to a third party if:

i) The third party is induced to make a detrimental change in position by an agent without actual authority;
ii) The principal knew of the agent’s conduct and that it might induce others to change positions; and
iii) The principal did not take reasonable steps to notify the third party of the facts.

Question 25

Liability of a 3P to an undisclosed principal

Answer 25

Generally, a third party is liable to an undisclosed principal on a contract made with an agent on behalf of the principal unless:

i) The principal or undisclosed principals are excluded by the form or terms of the contract; or
ii) The principal’s existence is fraudulently concealed, i.e., the agent falsely represents to the third party that the agent does not act on behalf of the principal.

Question 26

Rights and Duties of P

Answer 26

a. Control of the agent

The agency relationship is, by definition, one in which the agent acts on the principal’s behalf and is subject to the principal’s control. Therefore, a principal has the right to control the acts of an agent working on the principal’s behalf, including third-party negotiations. However, a principal cannot require agents to perform illegal acts or acts against public policy.

d. Notification

The principal is entitled to notice from the agent of all issues relevant to the subject matter of the agency relationship. Generally, the law of agency assumes that the principal is aware of all relevant knowledge of and information provided to the agent. A core tenet of agency law is that knowledge of or notice to the agent is notice to the principal.

e. Accounting

The principal has the right to receive an accounting from the agent of all property and funds received or paid on behalf of the principal. The agent is obligated to maintain the principal’s funds separate from his personal funds.

Question 27

Agent’s Duties

Answer 27

b. An agent’s duty of care

Principals have the right to expect an agent to follow instructions and to perform duties, tasks, and transactions with reasonable care, diligence, and judgment. Uncompensated agents are expected to perform in an acceptable manner and are subject to the same standard of care as a compensated agent.

c. An agent’s duties of loyalty and obedience

Agency is a special relationship that gives rise to fiduciary duties on the part of the agent. A principal has the right to expect good faith, loyalty and obedience from her agent. A principal is entitled to expect the agent to avoid acts in the agent’s self-interest in matters connected with the agency and to refrain from secretly profiting from transactions on behalf of the principal. The fiduciary duty owed by the agent to the principal implies that the agent will not breach the trust imposed by the agency relationship.

Question 28

Duties of P to A

Answer 28

a. Deal fairly and in good faith

A principal is obligated to treat the agent fairly and in good faith and to provide the agent with information concerning risks of physical or financial harm or loss that the principal knows or should know are present in the agent’s work but that are unknown to the agent. In addition, although a principal does not owe an agent a duty of loyalty, a principal has a duty to refrain from conduct likely to injure an agent’s business reputation or reasonable self-respect.

b. Contractual duties

A principal has a duty to act in good faith in accordance with the terms of the contract between the agent and the principal.

c. Duty to pay compensation

Whether a principal is obligated to compensate an agent depends on the terms of their agreement. To recover compensation, an agent must show that the principal expressly or impliedly agreed to pay compensation. If a principal has promised to pay compensation, then the agent can maintain an action for damages if the principal fails to pay.

d. Duty not to interfere with an agent’s work

If a principal has agreed to furnish an agent with an opportunity for work, then a principal has a duty not to interfere with the agent’s completion of that work.

e. Duty to indemnify

Subject to an agreement to the contrary, a principal has a duty to indemnify the agent against pecuniary loss suffered in connection with the agency relationship and within the scope of the agent’s actual authority. The principal’s duty to indemnify includes expenses and other losses incurred by an agent (such as attorney’s fees) in defending an action brought by a third party.

A principal is not obligated to indemnify losses that result from an agent’s own negligence, illegal acts, or other wrongful conduct.

Question 29

Rights of An agent

Answer 29

In general, an agent has a right to be compensated, allowed to work without interference, reimbursed for losses, provided with a safe work environment, and indemnified for working on behalf of a principal.

Question 30

Duties of an Agent

Answer 30

1) Duty not to deal with the principal as an adverse party

Unless the principal and agent have agreed otherwise, the agent has a duty not to deal with the principal as an adverse party in any transaction connected with the agency without the principal’s knowledge. For example, an agent cannot, without the principal’s knowledge, purchase goods from the principal if the principal has retained the agent to sell those goods.

2) Duty to refrain from acquiring a material benefit

The agent’s duty of loyalty requires her to refrain from acquiring a material benefit in connection with transactions or other actions undertaken on the principal’s behalf, unless the principal consents to the agent acquiring the benefit.

3) Duty not to usurp a business opportunity

The agent’s duty not to usurp a business opportunity is a component of the duty of loyalty. It arises when either the nature of an opportunity or the circumstances under which the agent learned of it require the agent to offer the opportunity to the principal.

Thus, the agent may not seek or accept monetary or beneficial gain from a third party during the course of the agency without the principal’s consent. The prohibition on the agent benefitting monetarily from transactions conducted for the principal is often referred to as the “agent’s duty to account for profits.”

4) Duty not to compete

An agent has a duty to refrain from competing with the principal concerning the subject matter of the agency and from assisting the principal’s competitors.

5) Duty to disclose—multiple principals

An agent who acts for more than one principal in a transaction between or among them owes duties of disclosure, good faith, and fair dealing to each.

6) Duty not to use the principal’s confidential information

An agent has a duty to refrain from using the principal’s confidential information for the benefit of anyone other than the principal, including the agent. This duty survives termination of the agency relationship.

“MUST HAVE DUTIES”:
i) Duty of care to perform with reasonable diligence and skill;

ii) Duty to provide information to the principal regarding all matters relating to the agency relationship;
iii) Duty of loyalty to the principal and to work only for his benefit;
iv) Duty of obedience to the principal; and
v) Duties not to usurp a business opportunity from the principal; not to take financial gain from the principal; to provide an accounting; and not to commingle the principal’s property with that of a third party.