Agency MEE Flashcards
Creation of an agency relationship
- Power to bind—may be expressed orally or in writing, implied by the principal’s (P’s) conduct, or misinterpreted by a third party
- Existence of a relationship
* P manifests assent to an agent (A)
* A acts on P’s behalf
* A’s actions are subject to P’s control, and
* A manifests assent or otherwise consents
Principal
- P’s control—P has the right to control the result or the ultimate objectives of A’s work
- Types of Ps
* Individual—a person’s status as P is established by the person’s intent to delegate an act and control the way in which the act is performed by another
* Employer—P who employs an employee to perform services and has the right to control the physical conduct of the employee’s performance (P’s control over day-today activities, supplying tools of trade, structured pay period, specialized skill level, and P directs work to completion)
* Entrepreneurs, corporations, and partnerships
Agent
- Consensual nature of relationship—A must have minimal capacity, and must manifest assent and consent to act on P’s behalf and to be subject to P’s control
- Types of A’s
* Individual
* Employee—paid hourly or for long time periods, the work is integral to that of P, and the tasks are completed under P’s direction
* Independent contractor—not subject to P’s control regarding the physical conduct of A’s performance
* Gratuitous agent—does not prevent the creation of an agency relationship, but does prevent an enforceable contract
* Trustee—subject to the control of the settlor or beneficiary
* Subagent—a person appointed by A to perform the functions that A has agreed to perform for P
Formation of an Agency Relationship
- Capacity
* P—must consent to enter into the relationship and the transaction to which A purports to bind P
* A—just needs physical/mental capability to do whatever he has been appointed to do (minors/incompetents can be As but minors cannot form contracts, and unincorporated associations cannot be As) - Consent—both P and A must consent, but A can manifest assent by performing acts on behalf of P
- Consideration—not necessary
- Writing—generally not necessary
Actual Authority
- Express actual authority—oral or written words; clear, direct and definite language; or specific, detailed terms and instructions
o Intent—P’s manifestation must cause A to believe that A is doing what P wants (subjective standard) and A’s belief must be reasonable (objective standard)
o Dissent—P must give clear notice if P disagrees with A’s actions - Implied actual authority—allows A to take whatever actions are properly necessary to achieve P’s objectives, based on A’s reasonable understanding of the manifestations and objectives of P
o Custom—absent contrary instructions, A has implied authority to act within accepted business customs or general trade usage within an industry
o Acquiescence—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
o Delegate—generally A is prohibited from delegating either express or implied authority to a third party without P’s express authorization
Apparent Authority
- P’s behavior—derives from the reasonable reliance of a third party on that party’s perception of the level of authority granted to A by P’s behavior (over a period of time)
- Third party’s reasonable belief based upon:
o Past dealings between P and A
o Trade customs
o Relevant industry standards
o P’s written statements of authority
o Transactions that do not benefit P
o Extraordinary transactions for P - A’s position—by appointing A to a specific position (e.g., VP or GM), P makes a manifestation to the public that A has the customary level of authority of that position
Termination of Authority
- Revocation/renunciation—effective as soon as either party gives notice to the other party (unless A’s power is coupled with an interest in the subject matter of the power)
- Agency agreement—P and A mutually agree to terminate A’s authority, or the occurrence of specified circumstances in agreement
- Change of circumstances—should cause A to reasonably believe 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)
- Passage of time—a reasonable period of time
- P’s death or suspension of powers—not automatic; modern trend is A’s actual authority terminates upon notice
- P’s loss of capacity—modern trend is A’s actual authority terminates upon notice
- A’s death or suspension of powers—automatically terminates A’s actual authority
- Statutorily mandated termination or A’s breach of fiduciary duty
Estoppel
—applies when a third party is justifiably induced to make a detrimental change in position because that third party believed the transaction was entered into for P and P failed to take reasonable steps and use ordinary care
Ratification
P must ratify the entire act/transaction, P must have legal capacity, ratification must be timely, and P must have knowledge of the material facts involved in the original act
Respondeat Superior
P is vicariously liable to a third party harmed by A who is an employee and who committed an act within the scope of employment
o Scope of employment (S/E)
An employee is within S/E when either performing work assigned by the employer or engaging in a course of conduct subject to the employer’s control
Intentional torts—may fall within S/E when conduct is within the space and time limits of employment, the employee was motivated to act for the employer’s benefit, and the act was of the kind that the employee was hired to perform
Criminal conduct and personal acts may fall within S/E
Work-related travel—commuting is not within S/E but travel to perform work and employer errands are within S/E
Frolic and detour
→ Frolic—the employee’s personal errand involving a significant deviation from performing work is outside S/E
→ Detour—travel for a personal errand may be within S/E if it is merely a detour
o Independent contractors (IC)—not employees and therefore no vicarious liability except when:
P retains control
P hires IC for nondelegable duties
IC has apparent authority
P is negligent in selecting, training, or supervising IC
P’s vicarious liability for A’s torts - A’s apparent authority
if a third party reasonably believes that A acted with actual authority and it is traceable to P’s manifestation, then P is vicariously liable for A’s tort (e.g., misrepresentation, defamation, conversion) even if A’s conduct isn’t beneficial to P
P’s vicarious liability for A’s torts - Reliance upon care and skill
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
P’s direct liability to third parties
- A has actual authority or P’s ratification—P authorizes the conduct or intended its consequences, or P affirms a prior act that was done or purportedly done on P’s behalf
- Negligence in selecting, training, supervising, or controlling A
- Non-delegable duties—when a responsibility is so important to the community that a person should not be permitted to transfer it to another person (e.g., inherently dangerous activities such as using explosives)
A’s Liability
- Contract liability
* A’s liability as a party to a contract
o Disclosed P—A doesn’t become a party to the contract if he enters into it on behalf of P, and the third party has notice of both the existence and identity of P
o Partially-disclosed P—A becomes party to contract when the third party only has notice of P’s existence (not P’s identity)
o Undisclosed P:
If A binds P to the contract, and the third party has no notice of P’s existence, then both P and A are parties to the contract
Third-party liability to undisclosed P—liable unless P is excluded by the contract terms or P’s existence was fraudulently concealed
Undisclosed P’s liability to third party—liable if the 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 the third party
o A’s implied warranty of authority—if A lacks power to bind P, then a breach has occurred; if A does bind P, then A is not liable under this implied warranty even if A exceeded authority
o Fraudulent concealment—P or A must have notice that the third party would not have dealt with P - Tort liability—A is liable to the third party for negligent and intentional conduct, but is not liable for P’s torts
Rights of P
(A can be liable in tort and contract)
- Control of A—right to control A’s acts on P’s behalf
- A’s duty of care—A must follow P’s instructions and perform duties, tasks, and transactions with reasonable care, diligence, and judgment
- A’s duty of loyalty/obedience—A should avoid acts in A’s self-interest in agency matters and refrain from secretly profiting from transactions on behalf of P
- Notice/accounting—P is entitled to notice of all relevant issues, and an accounting of property or funds used on behalf of P
