Agency

Question 1

What is agency?

Answer 1

The fiduciary relation arising when one person (the principal) manifests assent to another (the agent) to act on their behalf and under their control.

Question 2

What consent is necessary to establish an agency relationship?

Answer 2

Mutual consent of both the principal and the agent (either express or implied).

Question 3

How must the agent act?

Answer 3

The agent must act primarily for the principal’s benefit

The agent must act subject to the principal’s control

Question 4

What capacity is required for the formation of the agency relationship?

Answer 4

A principal must have contractual capacity but the agent need only have minimal mental capacity.

Question 5

What disqualifies someone from being an agent?

Answer 5

(1) An agent cannot represent both parties to an agreement unless both parties give informed consent.
(2) If the law requires them to have a license (e.g., brokers), they are disqualified if they don’t have one.

Question 6

Is consideration necessary for the creation of an agency relationship?

Answer 6

No.

Question 7

Is a writing required for the formation of an agency relationship?

Answer 7

Agency law does not require a writing, but the statute of frauds might. Agency agreements must be in writing when the agent is to enter into certain contracts within the statute of frauds (the equal dignities rule) or when the agency agreement itself would fall under the statute of frauds.

Question 8

In what ways can an agency relationship be created by act of the parties?

Answer 8

(1) The agent and principal can agree to an agency (actual authority)
(2) The principal may hold someone out as their agent (apparent authority)
(3) The principal may ratify the previously unauthorized acts of another.

Question 9

How may an agency be created by operation of law?

Answer 9

(1) Estoppel –the principal may be estopped from denying the existence of an agency. This is essentially apparent authority. The difference is that estoppel only protects against loss to the third party but apparent authority makes the principal a party to the contract.
(2) Agency may be created by statute.

Question 10

What are the agent’s duties to the principal?

Answer 10

The duties of loyalty, obedience and care, in addition to the duties expressed in the agreement.

Question 11

What is the agent’s duty of loyalty?

Answer 11

The agent owes the principal a duty of undivided loyalty, including the obligations to account for profits, act solely for the benefit of the principal and not themselves or a third party, refrain from dealing with the principal as an adverse party or on behalf of an adverse party, compete with the principal concerning the subject matter of the agency, or use the principal’s property for the agent’s own purposes or the purposes of a third party.

Question 12

What is the agent’s duty of obedience?

Answer 12

An agent must obey all reasonable directions of the principal.

Question 13

What is the agent’s duty of reasonable care?

Answer 13

An agent owes a duty to carry out the agency with reasonable care (determined in light of community standards and on a sliding scale with respect to any special skills or expertise the agent uses). A modern trend holds gratuitous agents to a standard customary for someone doing the task without compensation, which usually is no different.

The duty includes a duty to notify the principal of all matters coming to the agent’s knowledge affecting the subject of the agency. A

Question 14

What are the principal’s remedies against the agent for breach of duty?

Answer 14

(1) Action for damages: (a) breach of contract for compensated agents and (b) tort for any category of agent
(2) Action for secret profits – a principal may recover profits
(3) Accounting – an action in equity to determine the amount that must be returned
(4) Withholding compensation if the agent commits an intentional tort or intentional breach of fiduciary duty
(5) Breach of fiduciary duty is cause for termination

Question 15

What is a subagent?

Answer 15

A person appointed by the agent to perform functions assigned to the agent by the principal.

Question 16

What is a coagent?

Answer 16

Another agent appointed by the principal.

Question 17

What duties does a subagent owe the principal?

Answer 17

An authorized subagent owes the same duties to the principal as the agent does. An unauthorized one owes no duties to the principal. The agent remains liable for breaches of the authorized subagent.

Question 18

What is the liability of the subagent to the agent?

Answer 18

As a general rule, the subagent owes the agent the same duties they owe the principal and will be liable to the agent for their breaches.

Question 19

What are the duties of the principal to the agent?

Answer 19

(1) Reasonable compensation, unless the agent has agreed to act gratuitously
(2) Reimbursement for reasonable losses and expenses
(3) Contractual duties established by the agreement
(4) Cooperation in carrying out agency functions

Question 20

What are the agent’s remedies for a breach by the principal?

Answer 20

(1) Breach of contract (but has a duty to mitigate)

(2) Agent’s lien - a possessory lien for any money due to the agent unless the contract provides otherwise

Question 21

What are the three types of agency power (to bind the principal)?

Answer 21

(1) Actual
(2) Apparent
(3) Ratification

Question 22

What is actual authority?

Answer 22

The authority the agent reasonably thinks she possesses based on the principal’s dealings with her (would a reasonable person in the agent’s position believe the agent had the authority to act on the principal’s behalf?).

Question 23

What is express authority?

Answer 23

Authority conveyed in words by the principal.

Question 24

How is the language of express authority construed?

Answer 24

Grants of authority that appear to give extremely broad powers to the agent are generally limited by courts. Specific language prevails over general. The agent is free to act upon what they reasonably believe the principal intended.

Question 25

Can express authority exist mistakenly or by misrepresentation?

Answer 25

Yes, express authority can exist where the principal mistakenly conveyed authority. The fact that the agent induced the principal to grant authority through misrepresentation does not affect the extent of the authority actually granted.

Question 26

What is implied authority?

Answer 26

The authority the agent reasonably believes she has as a result of the principal’s actions.

Question 27

What can imply agent authority?

Answer 27

(1) Express authority to accomplish a particular result implies authority to use all means reasonably necessary to accomplish this.
(2) An agent has implied authority to act in accord with custom and usage which they have actual knowledge of
(3) Acquiescence by the principal reasonably leading agent to believe they had the authority to do the same acts in the future
(4) Absent specific instructions, an agent has implied authority to take reasonably necessary measures until she can contact the principal.

Question 28

Generally, can the agent delegate their authority?

Answer 28

In general, an agent’s authority will not be construed to permit delegation of any authority (assuming that would not be consented to by the principal).

Question 29

Under what circumstances may an agent delegate their authority?

Answer 29

(1) An agent may employ a subagent to execute ministerial (purely mechanical) acts.
(2) Circumstances may indicate that the delegation is necessary and authority to delegate will be implied.
(3) If it is the custom of the particular business
(4) If the principal has notice that the acts could not, by definition, be performed by the agent herself (impossibility), then there is implied consent to sub delegate.

Question 30

What implied authorities are generated by the authority to purchase on the principal’s behalf?

Answer 30

The authority to pay for the goods (out of the principal’s budget or on credit if funds unavailable) and to accept delivery

Question 31

What implied authorities are generated by the authority to sell on the principal’s behalf?

Answer 31

(1) to give general warranties respecting quantity and quality and the normal covenants in real property
(2) Authority to deliver the goods
(3) if the agent has possession, then she has the authority to collect payment
* * an agent may not accept a check or extend credit. unless the agreement or implication indicates otherwise, she can only take cash

Question 32

How is an agent’s authority to manage investments construed?

Answer 32

In accordance with the prudent investor standard. Further, an agent investing for the principal should take title to investments in the principal’s name or clearly designate her position as the principal’s agent

Question 33

How is actual authority terminated?

Answer 33

(1) Lapse of time – specified in the contract, or within a reasonable time period
(2) Happening on an agreed upon event
(3) Change of circumstances causing an agent to realize the principal would no longer want her to exercise her authority
(4) Breach of fiduciary duty by the agent
(5) Unilateral declaration of termination by either party
(6) By operation of law as a result of death or incapacity of either party

Question 34

What kinds of changes in circumstance are sufficient to bring about termination?

Answer 34

(1) destruction of the subject matter of the agent’s authority
(2) drastic change in business conditions
(3) change in relevant laws
(4) if relevant, insolvency of either party

Question 35

What is the effect of a state durable power of attorney statute?

Answer 35

A regular power of attorney terminates upon incapacity or death of the principal but a durable power of attorney does not terminate on incapacity of the principal. It terminates at death.

Question 36

Which two types of agencies are irrevocable?

Answer 36

(1) An agency coupled with interest (the agent has been given immediately exercisable rights in the property)
(2) A power given as a security (usually exercisable only on default)

Question 37

What is the Restatement view of irrevocable agencies?

Answer 37

Both types of irrevocable agency are treated as powers given as security and is absolutely irrevocable other than in accord with the agreement. Under the Restatement, the power must have been given in order to protect a debt, duty or title of the agent or third party and must be supported by consideration.

Question 38

What is apparent authority?

Answer 38

Apparent authority exists when the principal holds another outs as possessing authority and the third party reasonably believes that the authority exists.

Question 39

How may a principal sufficiently “hold out” another as an agent for purposes of creating apparent authority?

Answer 39

The principal must have done (words or conduct) or failed to do something causing the other party’s belief. The agent cannot bootstrap their own authority. v

Question 40

What are the main types of apparent authority?

Answer 40

(1) Agent has no actual authority at all – including impostors, lingering apparent authority
(2) When an agent has some present actual authority
(3) Inherent authority

Question 41

When is a principal bound by an impostor agent’s acts?

Answer 41

When the principal negligently permits an impostor to be in a position to appear to have the authority to act for the principal.

Question 42

What must a principal do to terminate an agent’s apparent authority upon the termination of the agent’s actual authority?

Answer 42

If the principal knows of dealings between a past agent and a third party, he must give notice to the third party that the agent’s actual authority is terminated. The agent’s apparent authority will continue if the principal does not do this.

Question 43

What is the effect of a writing manifesting an agent’s authority if shown to third parties after the expiration of the agent’s actual authority?

Answer 43

The agent’s apparent authority will not be terminated with respect to third parties who see and rely on such a writing.

Question 44

Does death or incompetency of the principal terminate the agent’s apparent authority?

Answer 44

Restatement view: Death/incompetency does not automatically terminate apparent authority
Traditional view: It does terminate apparent authority without notice to agent or third parties

Question 45

When do prior acts create additional apparent authority in an agent with some present actual authority?

Answer 45

When the principal has previously allowed the agent to act beyond her authority and the principal knows a third party is aware of this, the principal is bound by the agent’s unauthorized act.

Question 46

What apparent authority comes from a “power of position”?

Answer 46

Apparent authority may be established through an agent’s title or position if it creates a reasonable belief in the third party that the agent was authorized to act for the principal in a way typical of someone holding that position

Question 47

What is the difference between a general and a special agent?

Answer 47

A general agent is one authorized to engage in a series of transactions involving a continuity of service. A special agent is authority to engage in one or more transactions not showing a continuity of service and thus have more limited apparent authority.

Question 48

What is the consequence of secret limiting instructions given by the principal to the agent regarding the scope of their authority?

Answer 48

When a principal secretly limits an agent’s actual authority and the agent acts beyond the scope of this limitation in dealing with a third party, the principal will be bound.

Question 49

What is inherent authority?

Answer 49

Recognized by a few courts – this is authority derived solely from the agency relationship. A principal will sometimes be bound to an innocent third party on a balance of interests rationale. E.g., respondeat superior attaches without regard to actual authority.

Question 50

When does an agent have the power to transfer the principal’s property?

Answer 50

Generally, the fact that agent has possession of the principal’s goods does not entitle them to sell or transfer it. They must have some indicia of ownership like a document of title or be a dealer in the goods to transfer good title.

Question 51

How may an agent bind a principal even where they acted without actual or apparent authority?

Answer 51

Where the principal subsequently ratifies the unauthorized transaction

Question 52

What is the effect of ratification on an agent’s liability?

Answer 52

Ratification relieves the agent of liability for breach of duty to the principal.

Question 53

When is ratification effective?

Answer 53

If ratified, a transaction will be treated as if it had been originally entered into with authority (it relates back to the date of the transaction).

Question 54

When is a principal deemed to have adopted rather than ratified an agent’s act?

Answer 54

If the principal had capacity at the time of ratification but not at the time of the act, there will be no retroactive effect but the contract will be considered valid from the time of adoption.

Ratification also does not have retroactive validity if it would operate to the prejudice of third parties who in the meantime acquired rights now in jeopardy

Question 55

What constitutes ratification?

Answer 55

Ratification can only exist if the principal knows or reasonably should know of the material facts, and must ratify the entirety of the transaction. The principal must have capacity. No consideration is needed.

Question 56

What are the methods of ratification?

Answer 56

(1) Express affirmance
(2) Implied affirmance by (a) accepting the benefits of the transaction if possible to decline them; (b) staying silent where there would be a duty to disaffirm; (c) bringing a lawsuit involving the transaction

Question 57

What may be ratified?

Answer 57

As a general rule anything that the principal could have legally done or authorized at the time of the transaction. Exceptions: (1) where performance of the contract would be illegal at the time of ratification; (2) the third party withdraws; (3) there has been a material change in circumstances making inequitable to bind the third party

Question 58

Who may ratify?

Answer 58

Under the majority rule, only the principal. In most states an undisclosed principal cannot ratify a contract. The restatement allows ratification by an undisclosed principal to be effective.

Question 59

When is a principal liable to a third party?

Answer 59

If the agent had authority.

Question 60

What does an agent’s liability to a third party on a contract they entered into on behalf of the principal depend on?

Answer 60

Whether the principal was disclosed, unknown, or undisclosed.

Question 61

What is a disclosed principal situation and what is the effect on principal and agent liability?

Answer 61

A disclosed principal is one whose existence and identity are known to the third party. A disclosed principal is always liable on a contract entered into by an authorized agent. A third party generally has no action against the agent.

Question 62

When may an agent be held liable in a disclosed principal situation?

Answer 62

(1) Where the intent of the parties is that the agent shall be a party to the contract.
(2) Where the agent acted without authority, they may be liable to the third party on the contract for breach of an implied warranty of authority.

Question 63

What is an unidentified/undisclosed principal situation?

Answer 63

An unidentified principal is one whose existence, but not identity, is known to the third party. An undisclosed principal is one whose existence and identity are unknown to the third party. Both the agent and principal are liable for contracts entered into by an authorized agent.

Question 64

Who may the third party sue in an unidentifiable/undisclosed principal situation?

Answer 64

Both the agent and the principal. Upon objection of either defendant, the third party must elect prior to judgment which to hold liable.

Question 65

Who may enforce the contract against the third party in a disclosed principal situation?

Answer 65

Only the principal.

Question 66

Who may enforce the contract against the third party in an undisclosed/unidentified principal situation?

Answer 66

Either the principal or the agent. But if the agent enforces it, the principal remains entitled to all the rights and benefits.

Question 67

In what situations will an undisclosed/unidentified principal be unable to enforce the contract against a third party?

Answer 67

(1) Where the agent has fraudulently concealed the principal’s identity. Most courts require there to have been an affirmative misrepresentation. The third party can get rescission.
(2) Where performance by the principal would impose an undue burden on the third party (by virtue of the fact it is the principal and not the agent to whom performance must be made), the contract may not be specifically enforced and the third party has a right to rescission. [example: a requirements contract where the principal’s requirement are substantially greater than the agent’s]

Question 68

Under what two theories may a principal be vicariously liable for an agent’s torts?

Answer 68

(1) Respondeat superior

(2) Apparent authority

Question 69

When may a principal be held liable under respondeat superior?

Answer 69

A principal may be liable for the torts of her agent if:

(1) there is an employer-employee relationship, and
(2) the wrongful conduct must have been committed within the scope of the employer-employee relationship

Question 70

When may a principal be held liable even absent the elements of respondeat superior?

Answer 70

Where the elements of respondeat superior aren’t met, a principal may still be vicariously liable in certain instances where the agent acted with apparent authority.

A principal may also be held directly likable if she gave the agent actual authority to commit the tort, or ratified it, or for her own negligence in hiring, retaining, or supervising the agent.

Question 71

What is the nature of the principal’s tort liability for the agent?

Answer 71

It is derivative of the agent’s liability (though personal defenses of the agent not going to liability do not bar recovery against the principal).
It is joint and several (victim may recover in full from either).

Question 72

Is a principal generally liable for the torts committed by an independent contractor?

Answer 72

Generally not liable for torts of an agent functioning as an independent contractor (not an employee/servant).

Question 73

How do you distinguish between an independent contractor and an employee?

Answer 73

An independent contractor is one who is hired to do a particular job, paid a given amount, and follows her own discretion in carrying it out without a right to control the manner and method by the principal.

An employer has the right to control the manner and method of how an employee does their job. The clearest example of an employee is one who works full time for the employer, is compensated on a time basis,, and is supervised in the details of their work.

Question 74

Where it is unclear whether the agent is an independent contractor or an employee, what is the single overriding factor in making the determination?

Answer 74

Whether the principal has the right to control the manner and method by which the person performs their tasks.

Question 75

What factors determine right to control?

Answer 75

(1) The way the parties characterize their relationship
(2) An agent with a distinct business/occupation of their own is more likely to be an IC
(3) the custom in the locality with regard to whether that type is usually performed under supervision
(4) the greater the degree of skill required, the more likely to be an IC
(5) who supplies the tools and facilities
(6) The shorter and/or more definite the employment period, the more likely to be an IC
(7) Compensation on the basis of time is more likely to be an employee but on the basis of a job is more likely to be an IC
(8) A contract giving the principal the right to control is conclusive
(9) Someone hired to do an act not in furtherance of the principal’s own business is more likely an independent contractor

Question 76

When may a principal be liable for torts committed by a subservant?

Answer 76

A principal may be liable for the acts of a duly authorized subservient. A subservient is duly authorized where the person hiring them had authority to do so. Bar exam analysis should focus on the existence/absence of this authority.

Question 77

When may a principal be held liable by estoppel absent an employer-employee relationship?

Answer 77

Where the principal creates the appearance that an employer-employee relationship exists where it does not, and a third person relies on this, the principal may not deny the existence of the relationship and may be held liable under respondeat superior

Question 78

What are the liability consequences when a borrowed employee commits a tort?

Answer 78

It depends on whether the borrowing principal or the loaning principal had the primary right of control. Usually the employee remains under the right of control of the loaning principal. If the borrowing principal directs the employee’s tortious acts, they will be liable.

Question 79

When is a principal liable for torts of an independent contractor?

Answer 79

(1) Where the acts to be performed by the independent contractor are of an inherently dangerous nature
(2) Where the principal knowingly hires an incompetent independent contractor, they will be liable for the contractor’s negligence. (If the selection of an incompetent IC was merely negligent itself, the liability will be direct for negligent hiring.)
(3) Where the principal has a nondelegable duty to act (landowner’s duty to keep land safe for business invitees, e.g.)

Question 80

What are the three tests for whether the tort occurred within the employee’s scope of employment?

Answer 80

(1) Whether the conduct was of the same general nature as, or incident to, that which the employee was employed to perform
(2) Whether the conduct was substantially removed from authorized time and space limits of the employment
(3) Whether the conduct was actuated at least in part by a purpose to serve the employer

Question 81

Does an employee’s conduct have to be authorized to be within the scope of employment?

Answer 81

No, and the fact that an act was forbidden in some way does not automatically remove it from the scope of employment.

Question 82

When does an agent have authority to hire a subservient?

Answer 82

(1) Express authorization
(2) Implied from circumstances like (a) an emergency making it reasonably necessary to hire someone to protect the principal’s interests or (b) a direct order to the agent in which hiring a subservant is a reasonable means of accomplishing the principal’s desire result

Question 83

Are criminal acts usually within the scope of employment?

Answer 83

no

Question 84

What is a detour?

Answer 84

A small, minor deviation from the employer’s directions (usually within scope)

Question 85

What is a frolic?

Answer 85

A major deviation from the employer’s directions (usually outside scope). This includes instances where an employee engages in their own personal affairs at work in a manner constituting a substantial departure from employment

Question 86

Does the employer’s ownership of a vehicle (where the employee commits a tort while driving the vehicle) establish liability of the owner?

Answer 86

Not on its own (still must have occurred within scope of employment)

Question 87

What is the effect of evidence that an employee was driving their own vehicle while they committed the tort?

Answer 87

It raises a rebuttable presumption that they were not acting in the scope of employment

Question 88

Once an employer has left the scope of employment, what must be shown before the employee can be held liable?

Answer 88

Proof of return

Question 89

Is a employee’s invitation to third parties to ride in the employer’s vehicle within the scope of employment?

Answer 89

Generally it is outside the scope of the relationship unless expressly authorized by the employer. The employer is also not liable for a passenger’s injuries where the passenger was a trespasser.

Question 90

Is an employer liable for a tort caused by an employee’s use of an instrumentality substantially different from that authorized?

Answer 90

Usually no. The gauge of this is whether the instrument used creates a greater risk of harm.

Question 91

What is the employer’s liability for torts committed on a mixed purpose trip?

Answer 91

This is usually a question of whether any substantial purpose of the employer’s is being served

Question 92

Is an employer liable for an employee’s intentional torts?

Answer 92

Generally no, because they are deemed outside of the scope of employment, except where they are a natural incident of the employer’s business or a benefit runs to the employer.

Question 93

When is an employer liable for an employee’s intentional torts?

Answer 93

(1) Torts occurring as a natural incident of a job requiring/authorizing the use of force (e.g., bouncer)
(2) A tort arising from the employee’s intentional choice of a wrongful means of promoting the business
(3) Torts resulting from friction inherent in the business (e.g., debt collection)
(4) The intentional misrepresentations of the agent where the agent had authority to make them
(5) the employer ratified the tortious act (the same rules apply as in contracts, with particular attention to knowledge of all material facts)

Question 94

Under the apparent authority theory, when is a principal liable for an agent’s actions?

Answer 94

Even absent respondeat superior’s required elements, the principal is liable where an agent appears to deal or communicate on their behalf and that apparent authority enables the agent to (1) commit a tort or (2) conceal its commission. There must therefore be a close link between the tort and the apparent authority.