Agency Law

Question 1

What are the three types of agency problems?

Answer 1

1. Liability of Principal to 3rd Parties for Torts of an Agent
2. Liability of Principal to 3rd Parties for Contracts entered into by Agent
3. Duties which Agents owe to Principals

Question 2

What are the other terms for the liability of a principal for the torts of an agent?

Answer 2

Respondeat superior

Vicarious liability

Question 3

What is the two-part test for whether the principal will be vicariously liable for the torts of its agent?

Answer 3

A Principal will be liable for torts committed by its Agent IF:

1. There is a principal-agent relationship, AND
2. The tort was committed by the agent within the scope of that relationship.

Question 4

What three elements are required for there to be a principal-agent relationship?

(ABC)

Answer 4

1. Assent
2. Benefit
3. Control

Question 5

What constitutes ASSENT in the context of forming the principal-agent relationship?

Answer 5

Informal agreement between a principal who has capacity and an agent

Consent to the relationship must be manifested by BOTH the P and the A

Question 6

What constitutes BENEFIT in the context of forming the principal-agent relationship?

Answer 6

The agent’s conduct must be for the principal’s benefit

Question 7

What constitutes CONTROL in the context of forming the principal-agent relationship?

Answer 7

Principal must have (1) the right to control the agent by (2) having the power to supervise (3) the means of the agent’s performance

Question 8

What is the consequence for principal’s liability if the tort is committed by a sub-agent?

Answer 8

If there is AB&C between the principal and sub-agent, then principal is still liable.

If there is not AB&C between the principal and sub-agent, then principal is not liable.

Question 9

What is the typical status of a principal and sub-agent relationship?

Answer 9

Generally, principal does not assent to sub-agent’s help, so does not have right to control. NO LIABILITY.

Question 10

What is the consequence for principal’s liability if the tort is committed by an agent borrowed from another principal?

Answer 10

If there is AB&C between the principal and sub-agent, then principal is still liable.

If there is not AB&C between the principal and sub-agent, then principal is not liable.

Question 11

What is the typical status of a principal and borrowed-agent relationship?

Answer 11

Generally, principal assets to and is benefited by borrowed agent’s help, but does not assume the right to control. NO LIABILITY.

Question 12

What is the key distinction between Agents and Independent Contractors?

Answer 12

Principal has no right to control an IC because there’s no power to supervise the manner of performance

Question 13

What is the vicarious liability rule for torts committed by independent contractors?

Answer 13

Principal generally has no vicarious liability for IC torts

see exceptions!

Question 14

What are the two exceptions to the general rule that a principal has no vicarious liability for the torts of independent contractors?

Answer 14

1. IC commits a tort while engaged in carrying out an inherently dangerous activity
2. Estoppel – If Principal holds out his IC with the appearance of an agency relationship, P will be estopped from (denied) non-liability

Question 15

What are “inherently dangerous activities” that may subject a Principal to vicarious liability for IC torts?

Answer 15

Context-dependent; must assess on the facts (“In this case, …”)

e.g., Brake repair

Question 16

What are the three factors (“three-factor test”) to consider when determining the scope of a Principal-Agent relationship?

Answer 16

1. Was A’s conduct “of the kind” that A was hired to perform? (Was A’s conduct within his job description?)
2. Did the tort occur “on the job”? (Detour vs. Frolic)
3. Did the agent intend to benefit the principal?

Question 17

What is Frolic?

Answer 17

An Agent’s “new and independent journey” outside the scope of the agency agreement

Question 18

What is Detour?

Answer 18

A mere departure from an assigned task that is still within the scope of agency

Question 19

How do you assess whether the agent intended to benefit the principal for the purposes of the three-factor Principal-Agent weighing test?

Answer 19

If the agent even in part intended to benefit the principal, it’s enough to qualify as in-scope

Question 20

What is the general rule for vicarious liability w/r/t the INTENTIONAL torts of Agents?

Answer 20

In general, intentional torts are not within the scope of the Principal-Agent relationship

(see exceptions!)

Question 21

What are the three exceptions to the general rule that intentional torts are not in the scope of the P-A relationship?

Answer 21

1. The intentional tort was authorized by the P;
2. The intentional tort was natural from the nature of A’s employment; OR
3. The intentional tort was motivated by a desire to serve the principal

(e.g. Bouncer at a bar beats up a patron with owner’s consent)

Question 22

What is the rule for whether a Principal is liable for contracts entered into by its Agent?

Answer 22

A Principal is liable for contracts entered into by its Agent only if the Principal authorized the agent to enter into the contract

Question 23

What are the four types of authority that a principal can grant to an agent?

Answer 23

1. Actual express authority
2. Actual implied authority
3. Apparent authority
4. Ratification

Question 24

What is actual express authority to enter into a contract?

Answer 24

The P used words to express authority to his A.

Actual express authority can be oral and even private

Question 25

When must express authority be in writing?

Answer 25

Only when the contract itself must be in writing

Question 26

What two things will revoke express authority?

Answer 26

1. A unilateral act of either the P or the A; OR

2. The death of the P

Question 27

Does actual express authority survive the incapacity of the principal?

Answer 27

Generally, no; but it will survive P’s incapacity if P gave A the power of attorney, unless that power of attorney expressly terminates upon P’s incapacity

Question 28

How do courts interpret actual express authority?

Answer 28

Actual express authority is narrowly interpreted, i.e., limited to the words used to create it

Question 29

What is actual implied authority?

Answer 29

Authority that Principal gives to Agent through conduct or cinrcumstances

Question 30

What are the three types of conduct/circumstances that can give rise to actual implied authority?

Answer 30

1. Necessity: There is implied authority to to all tasks necessary to accomplish an expressly authorized task
2. Custom: There is implied authority to do all tasks customarily performed by persons with the agent’s title or position
3. Prior dealings: There is implied authority to do all tasks that the Agent believes he is authorized to do based on PRIOR acquiesence by the principal

Question 31

What is apparent authority?

Two-part test

Answer 31

If (1) the Agent is “cloaked” with the appearance of authority by the Principal and (2) a third-party reasonably relies on that appearance of authority

e.g., Store owner leaves a clerk in charge of the store while on break, and clerk agrees to a deal, and the buyer (1) had no reason to know that clerk did not have authority and (2) reasonably relied on the clerk’s apparent authority to enter into the deal

Question 32

What is ratification, and when does it grant authority?

Answer 32

Ratification grants authority to an Agent AFTER the contract has been entered, IF:

1. The Principal has knowledge of all material facts regarding the contract, AND
2. The Principal accepts the benefits of the contract.

(N.B. Ratification can’t alter the terms of the contract)

Question 33

What is the general rule for a principal’s liability on contracts?

Answer 33

Generally, “a principal is liable on its authorized contracts.”

Thus, an authorized agent is NOT liable on authorized contracts

Question 34

What is the exception to the general rule that an authorized agent is not liable for his P’s authorized contract?

Answer 34

The undisclosed principal rule.

If a Principal is “partially disclosed” (the P’s identity is concealed) or “undisclosed” (the fact of the P is concealed), P may elect that an authorized agent be nonetheless liable for authorized contract

Question 35

What is the rule for what duties Agents owe to Principals?

Answer 35

In (1) return for reasonable compensation and (2) reimbursement of expenses, (3) Agents owe their Principals:

1. Duty of care;
2. Duty of loyalty; AND
3. Duty to obey reasonable instructions

Question 36

What are the three prohibitions under an Agent’s duty of loyalty?

Answer 36

1. No self-dealing: A can’t receive a benefit to the detriment of his P
2. No usurping the P’s opportunity
3. No secret profits: A can’t make a profit at P’s expense without disclosure

Question 37

What are the two remedies available to a Principal for Agent’s breach of duty of loyalty?

Answer 37

1. P may recover losses caused by A’s breach; AND

2. P may disgorge profits made by the breaching A

Question 38

Is contractual capacity needed to establish an agency relationship?

Answer 38

For Principals, yes. Agents need not have capacity.

Question 39

What is the rule for agents w/r/t licenses?

Answer 39

If the law requires an agent to have a license (e.g., RE broker, insurance agent, etc), he can’t act without one.

(An unlicensed agent can’t recover commissions for his work)