Agency

Question 1

What are the requirements for binding an Agent’s actions to the Principal via contract?

Answer 1

1. Principal must have contractual capacity, but not the Agent
2. Agency law requires no writing, but the Statute of Frauds may.
3. Consideration is NOT required.

The agent acts as an intermediary.

Question 2

What methods/authorities may an agent’s actions bind the principal?

Answer 2

Actual Authority

Apparent Authority

Ratification

Adoption

Question 3

What is actual authority and how is it created?

Answer 3

Actual authority**: Principal’s **conduct towards the agent** that **empowers the agent to act on the principal’s behalf

• express authority: principal tells the agent to act on the principal’s behalf
• implied authority: principal’s conduct leads the agent to believe that the agent has authority to act on principal’s behalf (e.g., endorsement of previous behavior)

Question 4

How is actual authority terminated?

Answer 4

After a specified time or event** OR a **reasonable passage of time

By a change of circumstances

If the agent acquires an interest adverse to the principal

When the agent says so

When the principal says so** unless the agency power is **coupled with an interest (making it irrevocable)

By the death, incapacity, or bankruptcy of the principal unless the agency interest is coupled with an interest

NOTE: agency is coupled with an interest usually where the agency was created for the agent’s benefit (e.g., where P borrows money from A and subsequently gives A the power to sell collateral if P defaults)

Question 5

May an agent acting under actual authority delegate the agency to a third party?

Answer 5

Yes, provided the principal consents expressly or impliedly

Question 6

Define apparent authority

Answer 6

Where principal** leads a **third party** to **reasonably** and **mistakenly** believe that the **agent has authority to act and bind the principal

• Policy: protect innocent third party who relies on P’s holding out A as an agent

NOTE: The reasonable belief must be created at least in part by the principal (e.g., silence)

NOTE: apparent authority can linger after actual authority ends and is much more difficult to destroy

Question 7

How may a principal ratify an agent’s actions?

Answer 7

Even if the agent had no authority, principal may ratify by:

• expressly affirming the contract; or
• accepting the benefit of the contract; or
• suing the third party to perform the contract

Additional Requirements:

• principal** must have **knowledge of all the material facts
• principal must accept the entire transaction
• principal must have the capacity both:
• 1) at the time of ratification; and
• 2) at the time of the original contract

NOTE: ratification relates back and is retroactive to the time of the original contract

Question 8

What happens when ratification conflicts with the intervening rights of a bona fide purchaser?

Answer 8

Since the courts seeks to protect the bona fide purchaser, ratification is inappropriate.

Question 9

How does adoption differ from ratification?

Answer 9

Adoption is not retroactive; the corporation is liable only from the moment of adoption forward.

Question 10

What is the relationship between the principal and the agent?

Answer 10

The agent owes a fiduciary duty to the principal:

• duty of loyalty
• duty of care
• duty of obedience

The principal must compensate, reimburse, and indemnify the agent

Wide range of remedies available to the principal and agent for violations

Question 11

What is the relationship between the principal and a third party?

Answer 11

The principal is always liable to the third party

The third party is almost always liable to the principal

• exception: where the principal is undisclosed to the third party and the agent has special skills

Question 12

What is the relationship between the third party and the agent?

Answer 12

Generally, there is no liability between the agent and the third party

• agent is an intermediary between the principal and the third party
• exception: where the principal is undisclosed to the third party and the agent has special skills

Question 13

What is the terminology for a principal and agent in tort law?

Answer 13

Master and Servant

Question 14

How may a master be liable in tort for a servant’s actions?

Answer 14

Vicarious Liability: The Scope of Employment Test

Direct Liability

Question 15

What is the overarching policy in holding the master liable in tort for the actions of a servant?

Answer 15

Protect an “innocent” third party

Question 16

What is the test for holding the principal liable in tort for the servant’s actions?

Answer 16

Was the tort committed by a servant** **acting within the scope of employment?

If yes, the master and servant are jointly and severally liable

Question 17

How do you distinguish a servant from an independent contractor?

Answer 17

Did the employer** have the **right to control how the servant did the job

• MOST important factor

Who supplied the tools and workplace?

Was the job part of the employer’s regular business?

Was the relationship long-term?

How much skill was involved in the work?

Was payment in regular intervals or by the job?

Question 18

How can you determine when the servant is acting within the scope of employment?

Answer 18

If a usual task, the tort was within the scope of employment

Minor deviations** are **detours, still usually within the scope of employment

Substantial deviations** are **frolics and are generally not within the scope of employment

NOTE: Recall the policy in liability for tortious acts (innocent third party) to argue otherwise

Question 19

When will an independent contractor’s conduct be attributed to the employer/master for tort liability?

Answer 19

Generally outside the scope unless:

• force is used to further the master’s business; or
• the master ratifies the use of force; or
• the master authorized the servant to commit the tort

Question 20

May the actions of a borrowed servant be attributed to the master?

Answer 20

Only if the master had the right to control the borrowed servant when the tort occurred

Question 21

How may a master be directly liable for the servant’s actions?

Answer 21

Master is directly liable for its own negligence if

• the master fails to train or supervise employees; or
• fails to check on an employee’s criminal record or job history