Agency Law

Question 1

Define agency relationship

Answer 1

A fiduciary relationship when the principal appoints the agent to act on the principal’s behalf and the agent consents to act. The agent must be subject to the principal’s control

Question 2

How can consent to an agency relationship be established?

Answer 2

Expressly (through written or oral statements) or by implication from the parties’ conduct

Question 3

What is required to create an agency relationship?

Answer 3

• Principal must have contractual capacity
• Agent needs minimal capacity
• Consent of both parties
• An act of the parties OR operation of law

Note: Consideration is not required. A writing is only required if Statute of Frauds is implicated

Question 4

How is an agency relationship created by operation of law?

Answer 4

• Estoppel: An agency may be created through estoppel if there is third-party reliance on the principal’s communication (virtually the same as apparent authority)
• Statute: Statutes can create agencies

Question 5

What are the agent’s duties to the principal?

Answer 5

• Duty of Care
• Duty of Loyalty
• Duty of Obedience

Question 6

What is the duty of care?

Answer 6

An agent owes a duty to their principal to carry out their agency with reasonable care. The degree of care is a sliding scale depending on any special skills that the agent may have.

Question 7

What is the duty of loyalty?

Answer 7

The agent owes a duty of undivided loyalty to the principal. This is a fiduciary duty that includes the following obligations

• An agent may not use their position as agent to profit for themselves
• An agent must act solely for the benefit of the principal and not to benefit themselves or a third party
• An agent must refrain from dealing with their principal as an adverse party or from acting on behalf of an adverse party
• An agent may not compete with their principal concerning the subject matter of the agency
• An agent may not use the principal’s property for the agent’s own purposes or a third party’s purpose

Question 8

Define Subagent

Answer 8

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

Question 9

Define Coagent

Answer 9

A coagent is another agent of the principal. An agent may appoint a coagent. Employees of a single organization are presumed to be coagents, not subagents.

Question 10

What are the principal’s duties to the agent?

Answer 10

• All duties imposed by the contract
• Reasonable compensation
• Reimbursement for expenses

Note- not fiduciary duties!

Question 11

What are the three types of authority?

Answer 11

• Actual
• Apparent
• Ratified

Question 12

What is actual authority?

Answer 12

Actual authority is authority that the agent reasonably believes they possess based on the principal’s dealings with them

May be express (conveyed in words) or implied (based on agent’s reasonable belief)

Question 13

How can you terminate actual authority?

Answer 13

• By an event specified in the contract
• Lapse of reasonable time if a time for termination is not specified in the agreement
• A change in circumstances
• Agent’s breach of fiduciary duty
• Either party’s unilateral termination OR
• Operation of law

Question 14

Define apparent authority

Answer 14

Apparent authority exists when the principal “holds out” another as possessing authority and based on this holding out, a third party is reasonably led to believe that authority exists

Question 15

If there is apparent authority and the agent exceeds their authority, when is the principal bound?

Answer 15

• Where the principal previously permitted the agent to exceed their express or implied authority and knows the third party is aware of this
• Where the agent’s title/position creates apparent authority
• Where the principal negligently permits an imposter to be in a position to appear to have agency authority
• Lingering apparent authority, which remains even after actual authority has ended

Question 16

When is the principal NOT bound by an agent who did not have actual authority?

Answer 16

• If the only statement of authority comes from the purported agent’s claim that they have authority
• If the principal ratifies the contract

Question 17

Requirements for Ratification

Answer 17

The principal must

• Have knowledge of (or reason to know of) all material facts regarding the contract
• Accept the entire transaction (meaning the “principal” cannot merely ratify a portion of the transaction) AND
• Have capacity

Note- No consideration required

Question 18

When is the principal liable to third parties? (General rule)

Answer 18

A principal will be liable to the third party on a contract entered into by their agent if the agent had valid authority (actual, apparent, or through ratification) to act

Question 19

If the principal is unidentified or undisclosed, who is liable?

Answer 19

Either the principal or the agent

Question 20

Define respondeat superior

Answer 20

A doctrine by which an employer (principal) is liable for the torts on an employee committed within the scope of employment.

Note- an employer is generally not liable for torts committed by an independent contractor

Question 21

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

Answer 21

• Employee- the principal retains the right to control the manner in which an employee performs their work
• Independent contractor- a principal does not reserve/have the right to control the manner in which work is performed

Question 22

Factors to consider in determining whether the principal has the right to control the method and manner of work

Answer 22

• The degree of skill required (>skill → IC)
• Whose tools and facilities are used (IC brings their own tools)
• Basis of compensation (IC paid by job, employee paid by time)
• The business purpose (employee furthers principal’s business)
• Whether the person has a distinct business (IC has own business)
• The characterization and understanding of the parties
• The customs of the locality

Question 23

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

Answer 23

When the torts are committed in the scope of employment

Question 24

Factors to determine if acting in the scope of employment

Answer 24

• Was the conduct of the kind that the agent was hired to perform?
• Did the tort occur “on the job”?
• Was the conduct actuated at least in part to benefit the principal?

Question 25

Are employers liable for the intentional torts of their employees? (General rule)

Answer 25

No

Question 26

When are employers liable for the intentional torts of their employees?

Answer 26

Torts within the scope of employment

Question 27

When is a tort within the scope of employment?

Answer 27

• Where the conduct is a natural incident of the employee’s duties
• Where the employee is promoting the employer’s business or is motivated to serve the employer
• Where the tort is specifically authorized or ratified by the employer

Question 28

If the employee commits a tort in the scope of their employment, who is liable?

Answer 28

Employer and employee are jointly and severally liable to the third party