Agency (MEE)

Question 1

Creation of an Agency Relationship

Answer 1

Three components of an agency relationship (ABC):
* Assent: Both parties manifest assent or otherwise consent to work with one another
* Benefit: Agent agrees to work on behalf and for the benefit of the principal
* Control: Agent’s actions are subject to principal’s control

Note: Consideration is NOT required to form an agency relationship. A writing is generally not necessary.

Question 2

Types of Principals: Individual

Answer 2

Person’s status as P is established by person’s intent to delegate an act and control way in which act is performed by another

Question 3

Types of Principals: Employer

Answer 3

P who employs an employee to perform services and has right to control the physical conduct of the employee’s performance
* Examples: P’s control over day-to- day activities, supplying tools of trade, structured pay period, specialized skill level, and P directs work to completion

Question 4

Principals: Who Can Be One?

Answer 4

• Any person that has legal capacity can be a principal
• No legal capacity: Minors, anyone incapacitated by intoxication or illness, and unincorporated associations

Question 5

Agents: Who Can Be One?

Answer 5

Any person or entity who has minimal capacity can be an agent. To have minimal capacity, an agent must be able to:
* Assent to the agency relationship
* Perform the tasks on behalf of and for the benefit of the principal; and
* Be subject to the principal’s control

Question 6

Types of Agents: Employees

Answer 6

Employer has the right to control agent employee’s physical conduct of work

Question 7

Types of Agents: Independent Contractor

Answer 7

Principal does not have control or have right to control independent contractor agent’s physical conduct of work. Characteristics of an independent contractor:
* Maintain a high level of independence;
* Free to work for other people
* Paid a fixed fee
* Typically owns his own tools

Question 8

Types of Agents: Subagent

Answer 8

A person appointed by an agent to perform the functions that the agent has agreed to perform for the principal

Question 9

Principal’s Contractual Liability

Answer 9

• Principal’s liability depends on whether the agent acted with authority
• Authority can be derived from: express actual authority, implied actual authority, or apparent authority, or ratification

Question 10

Actual Authority

Answer 10

Based on P’s communications with A

Question 11

Actual Authority: Delegation

Answer 11

Generally A is prohibited from delegating either express or implied authority to a third party without P’s express authorization

Question 12

Actual Express Authority

Answer 12

Exists when P directly tells A that he has the authority to take certain actions, which can be created by specific detailed terms and instructions
* Intent: P’s manifestation must cause A to believe that A is doing what P wants (subjective) and A’s belief must be reasonable (objective)
* Dissent: P must give clear notice if P disagrees with A’s actions

Question 13

Implied Actual Authority

Answer 13

• P creates implied actual authority by using words or other conduct to convey authority to A to take whatever actions are necessary to achieve P’s objectives
• Absent contrary express instructions, A has implied actual authority to act within accepted business custom or general trade usage within industry

Question 14

Implied Actual Authority: Acquiescence

Answer 14

Implied by P’s acceptance of A’s acts or P’s failure to object to unauthorized actions of A that affirm A’s belief regarding P’s objectives and support A’s perceived authority to act in future

Question 15

Apparent Authority

Answer 15

• Based on P’s manifestations to a third party
• If third party reasonably believes A has authority to act (based on P’s conduct), A will have power to bind P based on apparent authority

Question 16

Apparent Authority: Bases for Reasonable Belief

Answer 16

• Past dealings between P and A
• Trade customs
• Relevant industry standards
• P’s written statements of authority
• Transactions that do not benefit P
• Extraordinary transactions fror P

Question 17

Apparent Authority: Based on A’s position

Answer 17

By appointing A to a specific position (e.g., VP or GM), P makes a manifestation to public that A has customary level of authority of that position

Question 18

Agency by Estoppel

Answer 18

P may be estopped from denying existence of agency relationship or an agent’s authority w/r/t a transaction entered into by A if he failed to take reasonable steps and use ordinary care to inform third party of the lack of authority, and the third party was justifiably induced to make a detrimental change in position

Question 19

Ratification

Answer 19

A P can ratify (affirm) an act performed by an A, even if A did not have authority to act. Ratification requires that:
* P ratify entire contract;
* P and third party have legal capacity to contract;
* Ratification occurs before third party withdraws from contract; and
* P must know the material facts of transaction

Question 20

Agent’s Contractual Liability: Disclosed Principal

Answer 20

• A doesn’t become a party to contract if he enters into it on behalf of P, and third party has notice of both the existence and identity of P
• Parties to contract: P, Third Party

Question 21

Agent’s Contractual Liability: Partially-Disclosed Principal

Answer 21

• A becomes party to contract when third party only has notice of P’s existence, not P’s identity
• Parties to contract: P, A, Third Party

Question 22

Agent’s Contractual Liability: Undisclosed P

Answer 22

• If A binds P to the contract, and third party has no notice of P’s existence, then both P and A are parties to the contract
• Parties to contract: P, A, Third Party

Question 23

Undisclosed P: Third-Party Liability to Undisclosed P

Answer 23

Third party is liable to P unless P is excluded by contract terms or P’s existence was fraudulently concealed

Question 24

Undisclosed P: Undisclosed P’s Liability to Third Party

Answer 24

Liable if third party detrimentally changes position because of A without actual authority, and P knew of A’s conduct and did not take reasonable steps to notify third party

Question 25

Agent’s Contractual Liability: A’s Implied Warranty of Authority

Answer 25

• If A lacks power to bind P, a breach has occurred
• If A does bind P, then A is not liable under this implied warranty even if A exceeded authority

Question 26

Agent’s Contractual Liability: Fraudulent Concealment

Answer 26

P or A must have notice that third party would not have dealt with P

Question 27

Termination of Authority: Revocation/Renunciation

Answer 27

Effective as soon as either party gives notice to other
party,unless A’s power is coupled with an interest in subject matter of power

Question 28

Termination of Authority: Actual Authority

Answer 28

Tell agent that authority is revoked

Question 29

Termination of Authority: Apparent Authority

Answer 29

Must tell the third party that authority is revoked

Question 30

Termination of Authority: Change of Circumstances

Answer 30

A reasonably believes that P no longer consents to A acting on P’s behalf (e.g., change in law, insolvency, dramatic change in business conditions, destruction of subject matter, disaster)

Question 31

Termination of Authority: Passage of Time

Answer 31

A reasonable period of time

Question 32

Termination of Authority: P’s Death, Suspension of Powers, or Loss of Capacity

Answer 32

• Agency relationship does not terminate automatically
• Modern trend is A’s actual authority terminates upon A’s notice of P’s death or suspension of powers

Question 33

Termination of Authority: A’s Death or Suspension of Powers

Answer 33

Automatically terminates A’s actual authority

Question 34

Termination of Authority: By Statute or Court

Answer 34

A’s authority may be terminated by a statutorily mandated termination or A’s breach of fiduciary duty

Question 35

P’s Vicarious Liability for A’s Torts: Respondeat Superior

Answer 35

P is vicariously liable to a third party harmed by employee A if following requirements are met:
* P has sufficient control over A’s physical conduct such that agency relationship is employer-employee; and
* Tort was committed by A while A was acting within the scope of employment

Question 36

Scope of Employment: Intentional Torts

Answer 36

May fall within scope of employment when conduct is:
* within space and time limits of employment,
* employee was motivated to act for employer’s benefit, and
* act was of kind employee was hired to perform

Question 37

Scope of Employment: Work-Related Travel

Answer 37

• Commuting: Not within scope of employment
• Traveling to work/employer errands: Within scope of employment

Question 38

Scope of Employment: Frolic vs. Detour

Answer 38

• Frolic: Employee’s personal errand involving significant deviation from performing work is outside scope of employment
• Detour: Employee’s personal errand involving minor deviation from assigned path is within scope of employment

Question 39

Respondeat Superior: Independent Contractors

Answer 39

Not employees and therefore no vicarious liability except when:
* P retains control;
* P hires IC for nondelegable duties;
* IC has apparent authority;
* P negligent in selecting, training, or supervising IC

Question 40

Respondeat Superior: A’s Apparent Authority

Answer 40

If a third party reasonably believes A acted with actual authority and it is traceable to P’s manifestation, P is vicariously liable for A’s tort (e.g., misrepresentation, defamation, conversion), even if A’s conduct isn’t beneficial to P

Question 41

Respondeat Superior: Reliance Upon Care and Skill

Answer 41

One who represents that another is an A and causes a third party to justifiably rely on the care and skill of such apparent A is subject to liability for harm caused by lack of care or skill

Question 42

P’s Direct Liability to Third Parties for A’s Torts

Answer 42

• A has actual authority or P’s ratification: P authorizes conduct or intended its consequences, or P affirms a prior act done or purportedly done on P’s behalf
• Negligence in hiring, training, supervising, or controlling A
• Non-delegable duties: When responsibility is so important to community that a person should not be permitted to delegate it (e.g., inherently dangerous activities)

Question 43

A’s Tort Liability

Answer 43

A is liable to third party for negligent and intentional conduct, but is not liable for P’s torts

Question 44

A’s Duties to P: Duty of Care

Answer 44

A must follow P’s instructions and perform duties, tasks, and transactions with reasonable care, diligence, and judgment

Question 45

A’s Duties to P: Duty of Loyalty/Obedience

Answer 45

A must act solely for the benefit of P, including not:
* Dealing with P as an adverse party without P’s knowledge,
* Acquiring a material benefit in actions on P’s behalf,
* Usurping business opportunities or Competing with P, and
* Using P’s confidential information

Question 46

A’s Duties to P: Duty to Provide Notice and Accounting

Answer 46

A must provide notice of all relevant issues to P, and an accounting of property or funds used on behalf of P

Question 47

Duties of P to A

Answer 47

• Deal fairly and in good faith per contract terms
• Compensate A if P expressly or impliedly agreed to pay A
• Duty not to interfere with A’s completion of agency work
• Duty to indemnify A against pecuniary loss suffered in connection with agency relationship and within scope of A’s actual authority (not for A’s negligence, illegal, or wrongful conduct)