Agency Law - Chapter 14 Flashcards
What is an agency relationship?
A relationship where a principal authorizes an agent to act on their behalf in dealings with a third party.
What are the three parties in an agency relationship?
Principal,
Agent,
and Third Party.
What are the four ways an agency relationship can be formed?
Agreement,
Ratification,
Estoppel,
Operation of Law.
What is actual authority?
Authority explicitly given to the agent by the principal, either oral or written.
What is implied authority?
Authority inferred from the agent’s duties or conduct, even if not explicitly stated.
What is apparent authority?
(Estoppel)
When a principal’s actions make a third party believe an agent has authority, even if they don’t.
What is ratification?
When a principal approves an agent’s unauthorized act, making it legally valid as if it was authorized from the start.
What is estoppel in agency law?
When a principal’s conduct leads a third party to reasonably believe an agency exists, preventing the principal from denying it.
What are the principal’s duties to the agent?
Cooperation,
Compensation,
Reimbursement,
Indemnification,
Duty to Warn of Risks.
What are the agent’s duties to the principal?
Obedience,
Diligence,
Accounting,
Informing,
Fiduciary Duty.
What is fiduciary duty?
The agent’s obligation to act in the best interest of the principal, avoiding conflicts of interest.
How can an agency be terminated?
Acts of the Parties (mutual agreement, revocation, renunciation, fulfillment of purpose, lapse of time) or Operation of Law (death, incapacity, bankruptcy, subject matter loss, illegality, war, disloyalty).
What is an irrevocable agency?
An agency that cannot be terminated by the principal because the agent has a financial interest in it.
Who is liable in a contract when the principal is disclosed?
Only the principal is liable.
Who is liable in a contract when the principal is partially disclosed?
Both the agent and principal may be liable.
Who is liable in a contract when the principal is undisclosed?
The agent is liable, but the principal may become liable if discovered.
What is vicarious liability (respondeat superior)?
A principal is liable for an agent’s actions if the agent was acting within the scope of their employment.
When is a principal directly liable for an agent’s actions?
When the principal authorized the wrongful act or negligently hired or supervised the agent.
When is a principal NOT liable for an agent’s tort?
When the agent was acting outside their job duties (frolic/detour) or was an independent contractor (unless doing dangerous work).
What is the difference between an employee and an independent contractor?
Employees work directly under the principal’s control, and the principal is liable for their actions. Independent contractors control their own work, and only they are liable.
When is a principal liable for an independent contractor’s negligence?
When the work is inherently dangerous or the principal negligently hired the contractor.
What is an Agency Relationship?
A relationship where a principal authorizes an agent to act on their behalf in dealings with a third party.
Who is the Principal?
The person or entity who gives authority to an agent to act on their behalf.
Who is the Agent?
The person or entity authorized to act on behalf of a principal in dealings with a third party.
What is a Third Party?
The outside person or entity with whom the agent interacts on behalf of the principal.
What is Actual Authority?
Authority explicitly given to the agent by the principal, either oral or written.
What is Implied Authority?
Authority inferred from the agent’s duties, conduct, or customary practice, even if not explicitly stated.
What is Apparent Authority?
When a principal’s actions lead a third party to reasonably believe the agent has authority, even if they don’t.
What is Ratification?
When a principal approves an agent’s unauthorized act, making it legally valid as if it was authorized from the start.
What is Estoppel?
When a principal’s conduct makes a third party reasonably believe an agency exists, preventing the principal from later denying it.
What is Fiduciary Duty?
The agent’s obligation to act in the best interest of the principal, avoiding conflicts of interest and self-dealing.
What is Vicarious Liability (Respondeat Superior)?
A principal is liable for an agent’s actions if the agent was acting within the scope of their employment.
What is Direct Liability?
When a principal is personally liable due to negligent hiring, supervision, or directly instructing the agent to commit a wrongful act.
What is Frolic and Detour?
A frolic occurs when an agent acts entirely outside the scope of their job for personal reasons, making the agent liable. A detour is a minor deviation from work duties, often still making the principal liable.
What is a Disclosed Principal?
A principal whose identity is known to the third party. Only the principal is liable in contracts.
What is a Partially Disclosed Principal?
A principal whose existence is known, but their identity is not disclosed. Both the agent and principal may be liable.
What is an Undisclosed Principal?
A principal whose existence and identity are completely hidden. The agent is liable, but the principal may become liable if discovered.
What is an Independent Contractor?
A person hired to perform work but not under the direct control of the principal. The principal is usually not liable for their actions unless the work is inherently dangerous.
What is an Irrevocable Agency?
An agency that cannot be terminated by the principal because the agent has a financial interest in it.
What is Negligent Hiring?
When a principal hires an unqualified or dangerous agent, making the principal directly liable for the agent’s misconduct.
What is Rescission?
A legal remedy where a contract is canceled, returning both parties to their original positions.
What is Restitution?
A remedy that requires returning money, property, or benefits gained unlawfully or through fraud.
What is a gratuitous agent?
An agent who acts without receiving payment but still owes legal duties to the principal.
Does an agency relationship require payment (consideration)?
No. An agency can exist even if the agent is unpaid, as long as there is mutual consent.
What duties does a principal owe to a gratuitous agent?
✅ Reimbursement for expenses
✅ Indemnification for authorized losses
✅ Cooperation to help the agent fulfill their role
What duties does a gratuitous agent owe to the principal?
✅ Fiduciary duty (loyalty, honesty, no conflicts of interest)
✅ Obedience (follow lawful instructions)
✅ Diligence (act carefully & competently)
Can a gratuitous agent be held liable for negligence?
✅ Yes, if they fail to act with reasonable care and cause harm to the principal.
What is an example of a gratuitous agent?
A friend helps sell a house for a homeowner without taking a commission. The friend is still legally considered an agent.
Does a principal have to compensate a gratuitous agent?
❌ No, but they must reimburse expenses and cover authorized losses.
Can a principal fire a gratuitous agent?
✅ Yes, unless the agency is irrevocable (e.g., the agent has a financial interest in the relationship).
What is an irrevocable agency?
An agency that cannot be terminated because the agent has a financial interest in it.
What is vicarious liability?
A principal is liable for an agent’s wrongful acts if the agent was acting within the scope of employment.
What is the difference between implied authority and apparent authority?
✅ Implied authority: Authority inferred from the agent’s duties or industry norms.
✅ Apparent authority: Authority perceived by a third party due to the principal’s conduct.
What is ratification?
When a principal approves an agent’s unauthorized act, making it legally valid as if it was originally authorized.
What is estoppel in agency law?
When a principal’s actions cause a third party to believe an agency exists, the principal cannot deny it later.
What is the difference between revocation and renunciation?
✅ Revocation: The principal ends the agency.
✅ Renunciation: The agent quits the agency.
When is a principal not liable for an agent’s torts?
❌ When the agent acts on a personal frolic (outside job duties).
❌ When the agent is an independent contractor (unless doing dangerous work).
When is an independent contractor’s negligence the principal’s responsibility?
✅ If the contractor was hired for inherently dangerous work.
✅ If the principal negligently hired or supervised the contractor.
What happens if an agent makes a contract but does not disclose the principal?
✅ The agent is liable, but the principal may also be liable if discovered later.
Who is liable in a contract when the principal is disclosed?
✅ Only the principal is liable.
Who is liable in a contract when the principal is partially disclosed?
✅ Both the principal and agent may be liable.
Who is liable in a contract when the principal is undisclosed?
✅ The agent is liable, but the principal can also be held liable if discovered.
What is a subagent?
A person appointed by an agent to assist in performing duties for the principal, with the principal’s approval.
When can an agent delegate authority to a subagent?
Only when the principal allows it or when customary in the industry.
Who is liable for a subagent’s actions?
✅ The principal (if the subagent was properly authorized).
✅ The agent (if they improperly delegated authority).
What duties does a subagent owe?
The same fiduciary duties to both the agent and principal (loyalty, obedience, diligence, etc.).
Can an agent appoint a subagent without the principal’s consent?
❌ No, unless the delegation is expected or necessary to complete the task.
What happens if an agent improperly delegates to a subagent?
The agent is personally liable, and the principal is not bound unless they later ratify the subagent’s actions.
