Agency Law

Question 1

How are agency relationships created?

Answer 1

1) two parties
2) with necessary legal capacity
3) mutually consent to a relationship
4) in which one will act on behalf of the other and is subject to the other’s control

1) A principal manifests assent to an agent;
2) The agent acts on the principal’s behalf;
3) The agent’s actions are subject to the principal’s control; and
4) The agent manifests assent or otherwise consents.

Question 2

Agency relationships are generally based on ____ but can also be imposed by ____

Answer 2

a) consent
b) operation of law

Question 3

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:

Answer 3

1) Expressed orally or in a writing;
2) Implied by a principal’s conduct; or
3) Misinterpreted by a third party.

Question 4

What is sufficient control of an agent by a principal?

Answer 4

It is sufficient that the principal has the right to control the result or the ultimate objectives of the agent’s work.

Full control not needed; agents can have discretion.

Key word is control when identifying a principal

Question 5

Courts usually determine a principal’s status as a master/employer based upon the control that the principal asserts over the servant/employee. Several factors contribute to this analysis, such as whether:

Answer 5

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 6

Who can be a principal?

Answer 6

1) individual
2) master/employer
3) entrepreneur
4) corporation
5) partnership

Question 7

who can be an agent?

Answer 7

Any person with minimum capacity, including minors, incompetents

Types: individual, employee, independent contractor, gratuitous agent, general/special agent, trustee as agent, subagent

Question 8

Consensual nature of agency relationship means that agents must…

Answer 8

i) Have minimal capacity;

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 9

Creating an agency relationship is relatively easy because

Answer 9

i) An agent need not receive consideration (a gratuitous agent); and

ii) A principal’s appointment of an agent generally need not be in writing or comply with other formalities.

Question 10

what are legal consequences to agency relationship?

Answer 10

Once an agency relationship has been created, the principal potentially can be bound to contracts by the agent and subject to vicarious liability for the agent’s tortious conduct.

Question 11

A principal is subject to liability on a contract that the agent enters into on the principal’s behalf if

Answer 11

if the agent has the power to bind the principal to the contract.

Question 12

An agent has the power to bind the principal to a contract when:

Answer 12

i) The agent has actual authority (express or implied);

ii) The agent has apparent authority; or

iii) The principal is estopped from denying the agent’s authority.

iv) even if no power, it is valid if principal ratifies

Question 13

For express (actual) authority to exist, the principal’s manifestation must cause the agent to believe that

Answer 13

the agent is doing what the principal wants (subjective standard), and the agent’s belief must be reasonable (objective standard).

Question 14

Effect of third party awareness of agency authority on agency power?

Answer 14

none – does not determine extent or nature of agency authority

Question 15

The authority to make purchases on behalf of the principal may create implied authority in an agent to:

Answer 15

i) Make payments for goods and services purchased;

ii) Accept deliveries; and

iii) Collect funds.

Question 16

What are the ways agency authority can be implied?

Answer 16

1) customary implied authority
2) implied authority by position
3) implied by acquiescence
4) Implied authority due to emergency
5) Implied authority to delegate (generally none)

Question 17

What are the ways agency authority can be implied?

Answer 17

1) customary implied authority

Question 18

what is doctrine of apparent authority?

Answer 18

Apparent authority, also known as the doctrine of “ostensible agency,” derives from the reasonable reliance of a third party on that party’s perception of the level of authority granted to the agent by the principal. The perception is based on the principal’s behavior over a period of time.

Question 19

Implied authority vs. apparent authority

Answer 19

Implied authority results when the principal’s words or actions cause an agent to reasonably believe in the agent’s authority to act.

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

Apparent authority, unlike estoppel, does not require the third party to establish that she acted in reliance on the principal’s manifestations or that she suffered a detriment as a consequence of such reliance.

Question 20

Implied authority vs. apparent authority

Answer 20

Implied authority results when the principal’s words or actions cause an agent to reasonably believe in the agent’s authority to act.

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

Question 21

what are factors for reasonable belief for apparent authority?

Answer 21

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 22

apparent authority: agent’s position

Answer 22

Information, known by a third party, that a person is an agent for an organization without knowledge of the person’s position in the organization (e.g., president) is an insufficient basis to support a belief in the agent’s authority to act for the organization.

Question 23

Agent’s actual authority may be terminated by

Answer 23

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 24

when is a revocation or renunciation effective?

Answer 24

As soon as other party has notice

Question 25

effect of death of principal on termination

Answer 25

traditional common-law rule: principal’s death terminates all power of agent to act

Modern trend: principal’s death does not terminate until agent has notice of death

also does not terminate if: special circumstances like some durable powers of attorney and power coupled with interest

Question 26

effect of death of agent on termination

Answer 26

death of agent automatically terminates the agent’s actual authority

Question 27

principal’s loss of capacity on termination

Answer 27

The common-law rule is that an individual principal’s loss of capacity terminates the agent’s actual authority.
There is a modern trend holding that actual authority does not terminate until the agent has notice that the principal has been adjudicated to lack capacity or that the principal’s loss of capacity is permanent.

Question 28

agent’s breach of fiduciary duty (effect on authority?)

Answer 28

terminates, but estoppel may apply if third party is justifiably induced to make a detrimental change

Question 29

ratification: what is it?

Answer 29

A principal can ratify an act performed by another person, whether or not the person is an actual agent of the principal. Ratification occurs when a principal affirms a prior act that was done or purported to be done on the principal’s behalf.

Question 30

ratification requirements

Answer 30

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 31

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

Answer 31

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, which in turn is a) performing work assigned by employer or b) engaging in a course of conduct subject to the employer’s control

Question 32

scope of employment vs. agent is careless/makes a mistake/breaks the law?

Answer 32

An employee does not act outside the scope of employment merely because he performs the work carelessly, makes a mistake in performing the work, or fails to perform assigned work. Moreover, an employee who disregards an employer’s instructions or violates a generally applicable law, such as a speed limit, is not necessarily acting outside the scope of employment when the employee believes that compliance would jeopardize the employee’s timely completion of his assigned task.

Question 33

scope of employment vs. intentional torts

Answer 33

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 34

frolic vs detour

Answer 34

frolic = significant deviation = outside scope of employment

detour = inside scope of employment

Question 35

Effect of an agent’s motivation or lack of benefit to a principal

Answer 35

The fact that an agent’s conduct is not beneficial to the principal does not protect the principal from liability for such conduct.

Question 36

A principal is directly liable to a third person harmed by an agent’s conduct if:

Answer 36

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 37

A principal has a duty to a third party with respect to actions by an agent

Answer 37

if there is a special relationship between a principal and the third party, such as that between a common carrier and a passenger.

Question 38

Non delegable duties: definition

Answer 38

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.

Principal cannot avoid liability by delegating

e.g. duty of LL to keep premises safe, duty to use care in inherently dangerous activities like explosives

Question 39

agent’s liability in contractual dealings – what are possible situations?

Answer 39

1) disclosed principal
2) partially disclosed principal (knows existence but not identity)
3) undisclosed principal (no notice whatsoever)

Question 40

does agent become party to deal with

1) disclosed principal
2) partially disclosed principal
3) undisclosed principal

Answer 40

1) no
2) yes
3) yes (but: election of remedies doctrine)

Question 41

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

Answer 41

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 42

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

Answer 42

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 43

Agent’s warranty of authority

Answer 43

An agent or actor purporting to be an agent for a principal gives an implied warranty of authority to a third person with whom the agent enters into a contract on the principal’s behalf. If the agent or actor lacks the power to bind the principal, then a breach of the implied warranty has occurred, and the agent is liable to the third party for breach.

An agent is treated as giving an implied warranty of authority when the principal is disclosed or partially disclosed, but not when the principal is undisclosed.

Question 44

Fraudulent concealment

Answer 44

For fraudulent concealment to apply, either the principal or the agent must have notice that the third party would not have dealt with the principal. Mere suspicions or doubts about the third party’s willingness to deal with a principal are insufficient to give the principal or agent notice. When the agent does not make an affirmative misrepresentation to the third party, the third party may be able to avoid the contract by establishing a unilateral mistake.

Question 45

Agent’s tort liability

Answer 45

An agent is subject to liability to a third party harmed by the agent’s tortious conduct. An agent’s individual tort liability extends to negligent acts and omissions as well as intentional conduct. An agent is not liable for torts committed by the principal.

Question 46

Principal’s rights and duties

Answer 46

rights

1) control of agent
2) agent’s duty of care
3) agent’s duties of loyalty and obedience
4) notification
5) accounting

duties
1) deal fairly and in good faith
2) contractual duties
3) duty to pay comp
4) duty to not interfere with agent’s work
5) duty to indemnify

Question 47

principal’s remedies for breach

Answer 47

i) An injunction;

ii) A breach-of-contract action for monetary damages;

iii) A tort action for harm suffered, including punitive damages;

iv) Avoidance or rescission of a contract or a transaction;

v) Restitution;

vi) An accounting to the principal for the value of the agent’s use of the principal’s property;

vii) Termination of the agency relationship;

viii) Forfeiture of commission or other compensation paid or payable; and

ix) Disgorgement of profits earned by the agent without the principal’s consent.

Question 48

agents’ rights

Answer 48

right
1) right to receive compensation
2) right to have principal not interfere with agent’s work
3) right to indemnification and reimbursement
4) right to work in a safe environment
5) can sue in contract or tort

Question 49

agents’ duties

Answer 49

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.