Agency

Question 1

What is agency?

Answer 1

Legal relationship whereby one person (“principal”) manifests assent that another person (“agent”) shall act on her behalf and under her control, and the agent consents to so act.

Question 2

Creation of the agency relationship: 3 broad requirements

Answer 2

Capacity, consent, writing (if required)

Question 3

Capacity requirements of agency creation

Answer 3

Principal must have contractual capacity (no minors)

Agent must have minimal capacity (minor fine, only problem is if agent has effectively no capacity)

Question 4

Consent requirement of agency creation

Answer 4

Consent of both parties required

Question 5

Writing requirement of agency creation

Answer 5

Generally no writing required; writing mostly needed in Statute of Frauds transactions (mainly land transactions)

Question 6

Modes of creating agency relationship

Answer 6

Act of the parties (agreement between parties - actual authority; holding out by principal - apparent authority; ratification)
Operation of law: estoppel - apparent authority; statute

Question 7

Agent’s duties

Answer 7

Duty of loyalty
Duty of reasonable care
Duty of obedience to lawful instruction

Question 8

Principal’s remedies against agent

Answer 8

Contract actions (against compensated agents)
Tort actions
Actions for secret profits
Equitable actions for an accounting
Withholding compensation for intentional torts or breaches of duty

Question 9

Subagent

Answer 9

person appointed by an agent to perform functions that the agent has consented to perform on behalf of the agent’s principal

Question 10

Liabilities and duties of subagents

Answer 10

Agent has absolute liability to principal for breaches by subagent; subagent owes same duties as agent if proper appointment, if improper appointment, only owes duty to the agent

Question 11

Principal’s duties to agent

Answer 11

Owes agent duties imposed by contract, reasonable compensation, reimbursement for expenses (also, generally cooperate with agent and not unreasonably interfere with the agent’s work)

Question 12

Agent’s remedies against principal

Answer 12

Compensated agent has usual contract remedies against principal; right to a possessory lien for any money due from principal (including compensation owed for services)

Question 13

Real estate broker’s contracts

Answer 13

Nonexclusive contract: generally entitle agent to compensation upon his production of a ready, willing, and able buyer even though sale not consummated

Exclusive contract: get commission if anyone produces a ready, willing, and able buyer

Question 14

Actual authority

Answer 14

authority that the agent reasonably believes she possesses based on the principal’s dealings with her; may be expressed or implied

Question 15

Express actual authority

Answer 15

what is contained within the four corners of the agency agreement; effective even if granted mistakenly or because of misrepresentation

Question 16

Implied actual authority

Answer 16

what the agent reasonably believes she has a result of the principal’s action.

Includes authority: incidental to express authority, arising out of custom known to agent, resulting from prior acquiescence of principal, emergency measures, delegation of authority for ministerial acts, pay for and accept delivery of goods, give general warranties, collect payments, deliver, manage investments

Question 17

Termination of actual authority

Answer 17

Lapse of specified or reasonable time
Happening of a specific event
Change in circumstances - insolvency of either party, destruction of subject matter, change of law
Agent’s breach of fiduciary duty
Either party’s unilateral termination
Operation of law (death, loss of capacity unless durable power of attorney present)

Question 18

Irrevocable agency

Answer 18

Agency coupled with interest
Power given as a security

cannot be terminated by principal if agency was given to protect agent’s rights an is supported by consideration (also no termination by operation of law)

Question 19

Apparent authority

Answer 19

Arises from reasonable belief of third parties (Principal holds out directly or indirectly another as possessing certain authority, causing reasonable reliance, apparent authority exists)

Question 20

Types of apparent authority

Answer 20

Agent has no actual authority
Agent exceeds actual authority
Inherent authority

Question 21

Lack apparent authority: Impostors

Answer 21

Principal negligently permits impostor to be in positions to appear to have agency authority; can be held liable

Question 22

Lack apparent authority: Lingering apparent authority

Answer 22

Agent will have apparent authority until the third party receives actual or constructive notice of termination;
Actual authority terminated but 3rd party relies on a written authority of the agent, apparent authority not terminated;
Death or incompetence of principal does not automatically terminate apparent authority

Question 23

Lack apparent authority: agent exceeds actual authority

Answer 23

Prior act: previously permitted action and third party is aware of this, principal bound
Position: agent’s position customarily carries certain responsibilities, principal liable for acts within those responsibilities

Question 24

Lack apparent authority: Inherent authority

Answer 24

arises solely from agency relationship, binding even if no actual or apparent authority; court wants to protect the innocent third party
Respondeat superior: torts within scope of employment
Conduct similar to that authorized: exceeds actual authority but conduct similar to acts authorized

Question 25

Improper disposition of goods

Answer 25

Principal liable for disposition if agent given some indicia of ownership or if the goods disposed were sold by an agent who is a dealer in those particular goods

Question 26

Ratification of agency relationship

Answer 26

agent purports to act on behalf of a principal without any authority at all, but the principal subsequently validates the act and becomes bound;
gives contract retroactive effect unless principal lacked contractual capacity at time agent entered into contract (deemed to have adopted contract) or retroactivity interferes with third party rights; once ratified, agent relieved of liability for breach of duty and implied warranty of authority

Question 27

Ratification requirements

Answer 27

principal must know or have reason to know all material facts;
accept the entire transaction;
have capacity (competent and legal age)

Question 28

Express and implied ratification

Answer 28

Express: writing to confirm it
Implied: acceptance of transaction benefits, silence if a duty to disaffirm, suing on transaction

Question 29

What is ratified and by whom?

Answer 29

Principal may ratify unless: illegal performance, third party withdraws, material change in circumstances.
Second Restatement (followed by most states): no ratification by an undisclosed principal, only by disclosed or unidentified
Third Restatement: any principal may ratify

Question 30

Third party v. Principal liability

Answer 30

principal liable if agent had authority to act

Question 31

Third party v. agent liability

Answer 31

Disclosed principal (existence and identity known): principal liable on the contract and agent generally is not (unless liable under the contract; or implied warranty of principal with contractual capacity)
Unidentified principal (existence known, identity absent) or undisclosed principal (neither known): principal and agent liable
Note: third party may have to choose who to be held liable, judgment against agent that is unsatisfied allows third party to sue principal once identity of principal discovered

Question 32

Third party liability to BOTH principal and agent

Answer 32

Disclosed principal: only principal may enforce contract and hold third party liable
Unidentified and Undisclosed principal: either principal or agent may hold third party liable by enforcing contract. Note: if agent sues, principal entitled to all rights and benefits under the agent’s suit

Principal may not enforce contract if there has been a misrepresentation as to who the principal is or unforeseen increased burden on third party because performance due to principal

Question 33

Employee or independent contractor determination?

Answer 33

Generally only liable for torts committed by agents, not independent contractors.

Right to control (MOST IMPORTANT): employee - principal exercises control over the employee, independent contractor - unable to control manner and method of work

Factors:
characterization by parties
whether business is distinct (IC has own business)
customs of locality regarding supervision
degree of skill required (IC has higher skill)
whose tools and facilities used (IC would have own)
period of employment (IC has short term or completing a set task)
understand of the parties
basis of compensation (IC paid by job)
furthering the principal’s business (IC is working for non-business purpose)

Question 34

Liability for subservants and borrowed employees

Answer 34

Subservant - RS applies to them too. Authorization to hire them can be express or implied. Principal generally not liable for torts if engaged without authority.
Borrowed employees: original employer generally liable for borrowed employee. Main question: is the borrowing or loaning principal the one that has the primary right to control the actions of the employee

Question 35

Employer-Employee by estoppel

Answer 35

create appearance of employer-employee relationship and third party reasonably relies; estopped from denial, liable under RS

Question 36

Liability for acts of independent contractors

Answer 36

1. Inherently dangerous activities are involved
2. nondelegable duties have been delegated
3. principal knowingly selected incompetent independent contractor (negligence only applies to principal’s selection)

Question 37

Scope of employment

Answer 37

Employer liable for employee’s torts in the scope of the job.
Serious criminal acts normally considered outside scope.
Conduct need not actually be authorized, nor does prohibition by the principal remove the conduct from the scope. If nature is similar or incidental to that which was authorized, probably within scope of employment

Question 38

Detour v. Frolic

Answer 38

Detour: small deviation from employer’s direction, within scope
Frolic: major deviation requiring a substantial departure from employment, out of scope
If left scope of employment, must show proof of return before employer liable. Ownership of vehicle used by employee by the employer does not automatically impose liability on employer.

Question 39

Conduct to serve the employer / motivation to serve employer

Answer 39

Passengers of employee: outside scope of employment, not liable for injuries to the passenger
Unauthorized instrumentalities: not liable for torts caused by the use of substantially different from those authorized
Trips with two purposes: will be within scope if any substantial purpose of employer served

Question 40

Employees and intentional torts

Answer 40

Generally: not normally within scope of employment.
Exceptions: natural incident of employee’s duties, promoting employer’s business, where the nature of the work gives rise to hostilities. P liable for misrepresentations if agent had actual, apparent, or inherent authority

Question 41

Ratification of torts

Answer 41

Ratification if normal requisites of ratification met. Biggest question: did the employer have knowledge of all material facts.

Question 42

Principal liability under apparent authority

Answer 42

agent appears to deal or communicate on behalf of the principal and the agent’s apparent authority enables the agent to commit a tort or conceal a commission (must be a close link between tortious conduct and apparent authority)