Chapter 23 Notes

Question 1

A relationship betwen two parties in which on party (the agent) agrees to represent or act for the other (the principal).

Answer 1

Agency

Question 2

Agrees to represent or act for the other person in an agency relationship. Must exercise his or her powers “for the benefit of the principal only.”

Answer 2

Agent

Question 3

Has the right to control the agent’s conduct in matters entrusted to the agent.

Answer 3

Principal

Question 4

As a noun, a person having a duty created by his or her undertaking to act primarily for another’s benefit in matters connected to the undertaking. As an adjective, a relationship founded on trust and confidence.

Answer 4

Fiduciary

Question 5

• Employer-Employee Relationships
• Employer-Independent Contractor Relationships

Answer 5

Examples of Agency Relationships

Question 6

Normally, all employees who deal with third parties are deemed to be agents.

• Salespeople
• Representations of fact
• Agency law and employee law overlap

Answer 6

Employer-Employee Relationships

Question 7

Can exist outside an employer-employee relationship so agency law has a broader reach than employment law.

• Agency law is based on common law

Answer 7

Agency Relationships

Question 8

Both state and federal apply only to the employer-employee relationship.

• Based on statutory law
• Social security, withholding taxes, workers’ compensation, unemployment compensation, workplace safety, employment discrimination are only applicable if employer-employee status exist.

Answer 8

Employment Laws

Question 9

One who works for, and receives payment from, an employer but whose working conditions and methods are not controlled by the employer. Not an employee but may be an agent.

Answer 9

Independent Contractor

Question 10

1. How much control can the employer exercise over the details of the work?
2. Is the worker engaged in an occupation or business distinct from that of the employer?
3. Is the work usually done under the employer’s direction or by a specialist without supervision?
4. Does the employer supply the tools at the place fo work?
5. For how long is the person employed?
6. What is the method of payment? By time period or at the completion of the job?
7. What degree of skill is required of the worker?

Answer 10

Determining Employment Status- Criteria Used by Courts

Question 11

If an employer can exercise considerable control over the details of the work, this indicates employee status. The employer’s degree of control is perhaps the most important factor weighed by the courts in determining employee status.

Answer 11

How Much Control can the Employer Exercise Over the Details of the Work?

Question 12

If so, this points to independent-contractor status.

Answer 12

Is the Working Engaged in an Occupation or Business Distinct from that of the Employer?

Question 13

If the work is usually done under the employer’s direction, this indicates employee status.

Answer 13

Is the Work Usually Done Under the Employer’s Direction or by a Specialist Without Supervision?

Question 14

If so, this indicates employee status.

Answer 14

Does the Employer Supply the Tools at the Place of Work?

Question 15

If the person is employed for a long, continuous period, this indicates employee status.

Answer 15

For How Long is the Person Employed?

Question 16

Regular payment by time period, such as one month, indicates employee status.

Answer 16

What is the Standard Method of Payment- by Time Period or at the Completion of the Job?

Question 17

Independent contractors are more likely to be highly skilled or to have unique skills than to be unskilled, so these types of skills may indicate independent-contractor status.

Answer 17

What Degree of Skill is Required of the Worker?

Question 18

• Workers may benefit from having employee status– for tax purposes and to be protected under certain employment laws.
• Federal statutes governing discrimination apply only when an employer-employee relationship exists.
• Protection under antidiscrimination statutes provide a significant incentive for workers to claim that they are employees rather than independent contractors.

Answer 18

Disputes Involving Employment Law

Question 19

An employer is normally not responsible for the actions of idependent contractors.

Answer 19

Disputes Involving Tort Liability

Question 20

• The degree of control the business exercises over the worker (most important)
• IRS tends to closely scrutinize a firm’s classification of its workers because employers can avoid certain tax liabilities by hiring independent contractors instead of employees.
• When listed as an independent contractor and the IRS determines they are an employee- the employer is responsible to pay for social security, withholding, and unemployment taxes.

Answer 20

Criteria Used by the IRS

Question 21

Copyright Act of 1976- Any copyrighted work created by an employee within the scope of his or her employment at the request of the employer is a “work for hire” and the employer owns the copyright to the work. When an employer hires an independent contractor- a freelance artist, writing, or computer programer (for example)- the independent contractor owns the copyright unless the parties agree in writing that the work is a “work for hire” and the work falls into specified categories, including audiovisual and other works.

Answer 21

Employee Status and “Works for Hire”

Question 22

Agency relationships normally are consentual. They come about by voluntary consent and agreement between the parties. Generally, the agreement need not be in writing, and consideration is not required.

• A person must have contractual capacity to be a principal.
• An agency relationship can be created for legal purpose.

Answer 22

Formation of an Agency

Question 23

Those who cannot legally enter into contracts directly should not be allowed to do so indirectly through an agent. Any person can be an agent, though, regardless of whether he or she has teh capacity to enter a contract (including minors).

Answer 23

Principal Must Have Contractual Capacity

Question 24

Any agency relationship that is created for an illegal purpose or that is contrary to public policy is unenforceable. It is also illegal for physicans and other licensed professionals to employ unlicensed agents to perform professional actions.

Answer 24

Agency Relationship Created for Any Legal Purpose

Question 25

• Agency by agreement
• Agency by ratification
• Agency by estoppel
• Agency by operation of law

Answer 25

Formation of an Agency- Types

Question 26

Most agency agreements are based on an express or implied agreement that the agent will act for the principal and that the principal agrees to have the agent so act.

• Can take the form of an express written contract or be created by an oral agreement.
• Can also be implied by conduct

Answer 26

Agency by Agreement

Question 27

On occasion, a person who is in fact not an agent (or who is an agent acting outside the scope of her or his authority) may make a contract on behalf of another (a principal). If the principal affirms that contract by word or action, an agency relationship is created by ratification.

Answer 27

Agency by Ratification

Question 28

When a principal causes a third person to believe that another person is his or her agent, and the third person deals with the supposed agent, the principal is “estopped to deny” to agency relationship. The principals actions create the appearance of an agency that does not in fact exist.

• Third person must prove that he or she reasonably believed that an agency relationship existed.
• Deeds and statements of the principal create the agency by estoppel (not the agent).

Answer 28

Agency by Estoppel

Question 29

• The courts may find an agency relationship in the absence of formal agreement in the family setting.
• May also occur in emergency situations, when the agent’s failure to act outside the scope of his or her authority would cause the principal substantial loss. Courts will grant if the agent cannot contact the principal.

Answer 29

Agency by Operation of Law

Question 30

Because an agency is fiduciary each party owes the other the duty to act with the utmost good faith. In general, for every duty of the principal, the agent has a corresponding right, and vice versa.

Answer 30

Duties of Agents and Principals

Question 31

1. Performance
2. Notification
3. Loyalty
4. Obedience
5. Accounting

Answer 31

Agents Duties to the Principal

Question 32

Agents agreement to use reasonable diligence and skill in performing the work. When an agent fails to perform his or her duties, liability for breach of contract may result. The degree of skill or care required of an agent is usually that expected of a reasonable person under similar circumstances. If an agent claimed to possess a special skill, failure to exercise that degree of skill constitutes breach of that agent’s duty.

• A gratuitous agent cannot be liable for breach of contract, but he or she may be subject to tort liability. Once this kind of agent has begun to act in an agency capacity, they have the duty to continue to perform in that capacity. Must perform in an acceptable manner and is subject to the same standards of care and duty to perform as other agents.

Answer 32

Performance

Question 33

An agent is required to notify the principal of all matters that come to her or his attention concerning the subject matter of the agency.

• Generally, the law assumes that the principal knows of any information aquired by the agent that is relevant to the agency- regardless of whether the agent actually passes on this information to the principal. It is the basic tenet of angecy law that notice to the agent is notice to the principal.

Answer 33

Notification

Question 34

One of the most fundamental duties in a fiduiary relationship. The agent has a duty to act solely for the benefit of the principal and not in the interest of the agent or a third party.

• Any information or knowledge acquired through the agency relationship is considered confidential (during and after the relationship).
• Loyalty must be undivided

Answer 34

Loyalty

Question 35

When acting on behalf of a principal, an agent has a duty to follow all lawful and clearly stated instructions fo the principal.

• During emergency situations, when the principal cannot be consulted, the agent may deviate from the instructions without violating this duty.
• When instructions are not clearly stated, the agent may act in good faith and in a manner reasonable under the circumstances to fulfill this duty.

Answer 35

Obedience

Question 36

Unless an agent and principal agree otherwise, the agent has a duty to keep and make available to the principal an account of all property and funds received and paid out on behalf of the principal.

• This includes gifts from third parties in connection wtih the agency.

Answer 36

Accounting

Question 37

• Compensation
• Reimbursement
• Idemnification
• Cooperation
• Safe working conditions

Answer 37

Principal’s Duties to the Agent

Question 38

In general, when a principal requests services from an agent, the agent reasonably expects payment. The principal also has a duty to pay that compensation in a timely manner.

• Unless the agency is gratuitous and the agent does not act in exchange for payment, the principal must pay the agreed-on value for the agent’s services.
• If no amount has been agreed on, the principal owes the agent the customary compensation for such services.

Answer 38

Compensation

Question 39

Whenever an agent disburses funds at the requests of the principal or to pay for necessary expenses in the reasonable performance of his or her agency duties, the principal has a duty to reimburse the agent for these payments.

• Agents cannot recover for expenses incurred through their own misconduct or negligence

Answer 39

Reimbursement

Question 40

Subject to the terms of the agency agreement, the principal has a duty to compensate (indemnify) and agent for liabilities incurred because of authorized acts and transactions.

• Principal must indemnify the agent for the value of benefits that the agent confers on the principal.
• Applies to acts by gratuitous agents as well

Answer 40

Indemnification

Question 41

The principal has a duty to cooperate with the agent to assist the agent in performing his or her duties. The principal must do nothing to prevent that performance.

Answer 41

Cooperation

Question 42

A principal is required to provide safe working premises, equipment, and conditions for all agents and employees.

• Has a duty to inspect the working conditions and warn agents and employees about any hazards.

Answer 42

Safe Working Conditions

Question 43

• Express authority
• Implied authority
• Apparent authority
• Ratification
• If an agent contracts outside the scope of his or her authority, the principal may still become liable by ratifying the contract.

Answer 43

Agent’s Authority

Question 44

Authority declared in clear, direct, and definite terms. Can be given orally or in writing.

• Equal dignity rule
• Power of attorney

Answer 44

Express Authority

Question 45

A rule requring that an agent’s authority be in writing if the contract to be made on behalf of the principal must be in writing.

• Failure to do so can make the contract voidable at the option of the principal. The law regards the contract at that point as a mere offer.

Answer 45

Equal Dignity Rule

Question 46

• An executive officer of a corporation normally is not required to obtain written authority from the corporation to conduct ordinary business transactions.
• When an agent acts in the presence of a principal
• When an agent’s act of signing is merely perfunctory (routine).

Answer 46

Exceptions to the Equal Dignity Rule

Question 47

Authorization for another to act as one’s agent or attorney either in specified circumstances (special) or in all situations (general).

• Normally a written document and is usually notarized.
• Can be special or general

Answer 47

Power of Attorney

Question 48

A public official authorized to attest to the authenticity of signatures.

Answer 48

Notary Public

Question 49

Permitting the agent to do specified acts only.

Answer 49

Special Power of Attorney

Question 50

Permitting the agent to transact all business for the principal.

• Should be used with great caution

Answer 50

General Power of Attorney

Question 51

Ordinarily, a power of attorney termins on the ____ or ____ of the person giving the power.

Answer 51

Incapacity or Death

Question 52

Doing what is reasonably necessary to carry out his or her express authority an accomplish the objectives of the agency.

• Can also be by custom or inferred from the position the agent occupies.

Answer 52

Implied Authority

Question 53

Authority that is only apparent, not real. This agent’s authority arises when the principal causes a third party to believe that the agent has authority, even though she or he does not.

• If the third party changes his or her position in reliance on the principal’s representations, the principal may be estopped (prevented) from denying that the agent had authority.
• Usually comes into existence through a principal’s pattern of conduct over time.

Answer 53

Apparent Authority

Question 54

Occurs when the principal affirms an agent’s unauthorized act. When this occurs, the principal is bound to the agent’s act, and the act is treated as if it had been authorized by the principal from the outset.

• Can be express or implied
• If the principal does not ratify the contract, they are not bound, and the third party’s agreement with the agent is viewed merely as an unaccepted offer. The third party can revoke the offer at any time, without liability, before the principal ratifies the contract.

Answer 54

Ratification

Question 55

1. The agent must have acted on behalf of an identified principal who subsequently ratifies the action.
2. The principal must know of all material facts involved in the transaction. If a principal ratifies a contract without knowing all of the facts, the principal can rescind (cancel) the contract.
3. The principal must affirm the agent’s act in its entirety.
4. The principal must have the legal capacity to authorize the transaction at the time the agent engages n the act and at the time the principal ratifies. The third party must also have the legal capacity to engage in the transaction.
5. The principal’s affirmation must occur before the third party withdraws from the transaction.
6. The principal must observe the same formalities when approving the act done by the agent as would have been required to authorize it initially.

Answer 55

Requirements for Ratification

Question 56

• Liability for contracts
  
  • disclosed principal
  • Partially disclosed principal
  • Undisclosed principal
• Liability for torts and crimes

Answer 56

Liability in Agency Relationships

Question 57

Depends on how the principal is classified and on whether the actions of the agent were authorized or unauthorized.

• Disclosed
• Partially Disclosed
• Undisclosed

Answer 57

Liability for Contracts

Question 58

A principal whose identity is known to a third party at the time the agent makes a contract with the third party.

Answer 58

Disclosed Principal

Question 59

A principal whose identity is unknown by a third party, but the third party knows that the agent is or may be acting for a principal at the time the agent and the third party form a contract.

Answer 59

Partially Disclosed Principal

Question 60

A principal whose identity is unknown by a third party, and that person has no knowledge that the agent is acting for a principal at the time the agent and the third party form a contract.

Answer 60

Undisclosed Principal

Question 61

If an agent acts within the scope of her or his authority, normally the principal is obligated to perform the contract regardless of whether the principal was disclosed, partially disclosed, or undisclosed. Whether the agent must also be held liable under the contract depends on the status of the principal.

Answer 61

Authorized Acts

Question 62

Principal is liable to a third party for a contract made by an agent who is acting within the scope of her or his authority.

• Disclosed- An agent has no contractual liability for the nonperformance of the principal or the third party.
• Partially disclosed- in most states the agent is also treated as a party to the contract, and the third party can hold the agent liable for contractual nonperformance.

Answer 62

Authorized Acts- Disclosed or Partially Disclosed Principal

Question 63

Principal is bound to perform just as if the principal had been fully disclosed at the time the contract was made.

• Agent is also liable as a party to the contract.
• If agent is forced to pay the third party, the agent is entitled to indemnification by the principal. The principal had a duty to perform, and failure to do so would make the principal ultimately liable.
• Once identity of principal is revealed, the third party can elect to hold either the principal or the agent liable on the contract. At the same time, the undisclosed principal can require the third party to fulfill the contract.

Answer 63

Authorized Acts- Undisclosed Principal

Question 64

1. The undisclosed principal was expressly excluded as a party to the contract.
2. The contract is a negotiable instrument signed by the agent with no indication of signing in a representative capacity.
3. The performance of the agent is personal to the contract, allowing the third party to refuse the principal’s performance.

Answer 64

Exceptions- Undisclosed Principal Requiring the Third Party to Fulfill the Contract

Question 65

If an agent has no authority but nevertheless contract with a third party, the principal cannot be held liable on the contract. It does not matter whether the principal was disclosed, partially disclosed, or undisclosed.

• If the principal is disclosd or partially disclosed, the agent is liable to the third party only if the third party relied on the agency status. The agents liability is based on the breach of an implied warranty of authority.
• If the third party knows at the time the contract is made that the agent does not have authority- or if the agent expresses to the third party uncertainty as to the extent of her or his authority- then the agent is not personally liable.

Answer 65

Unauthorized Acts

Question 66

Any person, including an agent, is liable for his or her own torts and crimes. Whether a principal can be held liable for an agent’s torts and crimes depends on several factors. In some situations, a principal may be held liable for the torts of an agent.

Answer 66

Liability for Torts and Crimes

Question 67

A principal conducting an activity through an agent may be liable for harm resulting from the principal’s own negligence or recklessness. Thus a principal may be liable for giving improper instrutions, authorizing the use of improper materials or tools, or establishing improper rules that resulted in the agent’s committing a tort.

Answer 67

Principal’s Tortious Conduct

Question 68

A principal who authorizes an agent to commit a tort may be liable to persons or property injured thereby, because the act is considered to be the principal’s.

• An agent acting at the principal’s direction can be liable as a tortfeasor along with the principal, for committing the tortious act even if the agent was unware of the wrongfulness of the act.

Answer 68

Principal’s Authorization of Agent’s Tortious Conduct

Question 69

A principal is exposed to tort liability whenever a third person sustains a loss due to the agent’s misrepresentation.

• Principal’s liability depends on whether the agent was actually or apparently authorized to make representations and whether the representations were made within the scope of the agency.
• The principal is always directly responsible fo ran agent’s misrepresentation made within the scope of the agent’s authority.

Answer 69

Liability for Agent’s Misrepresentation

Question 70

• Respondeat superior
• Vicarious liability
• When an agent commits a negligent act, both the agent and the principal are liable.

Answer 70

Liability for Agent’s Negligence

Question 71

A doctrine under which a principal or an employer is held liable for the wrongful acts committed by agents or employees while acting within the course and scope of their agency or employment.

• Latin for “let the master respond”
• Imposes vicarious liability

Answer 71

Respondeat Superior

Question 72

Indirect liability imposed on a supervisory party (such as an employer) for the actions of a subordinate (such as an employee) because of the relationship between the two parties.

Answer 72

Vicarious Liability

Question 73

1. Whether the employee’s act was authorized by the employer.
2. The time, place, and purpoe of the act.
3. Whether the act was one commonly performed by employees on behalf of their employers.
4. The extent to which the private interest was advanced by the act.
5. Whether the employer furnished the means or instrumentality by which the injury was inflicted.
6. Whether the employer had reason to know that the employee would do the act in question and whether the employee had ever done it before.
7. Whether the act involved the commission of a serious crime.

Answer 73

Determining the Scope of Employment- Respondeat Superior- Key is to Determining Liability of Principal fpr agent’s torts

Question 74

A useful insight into the “scope of employment” concept may be gained from the judge’s classic distinction between these things.

Answer 74

The Distinction Between a “Detour” and a “Frolic”

Question 75

The time an employee spends going to and from work or to and from meals is usually considered outside the scope of employment.

• If travel is part of the person’s position, then travel time is normally considered within the scope fo employment unless there is a significant departure from the employer’s business.

Answer 75

Employee Travel Time

Question 76

The employer is charged with knowledge of any dangerous conditions discovered by an employee and pterinent to the employment situation.

Answer 76

Notice of Dangerous Conditions

Question 77

Under the doctrine of respondeat superior, the employer can be liable for an employee’s intentional torts that are committed within the course and scope of employment.

• An employer who knows or should know that an employee has a propensity for committing tortious acts is liable for the employee’s act even if they ordinarily would not be considered within the scope of employment.
• May also be liable for permitting an employee to engage in reckless actions that can injure others.

Answer 77

Liability for Agent’s intentional Torts

Question 79

Generally, an employer is not liable for physical harm caused by a third person by the negligent act of an independent contractor in the performance of the contract.

• Exceptions: when unusually hazardous activities are involved. Strict liability is imposed on the employer-principal as a matter of law. Also, in some states, strict liability may be imposed by statute.

Answer 79

Liability for Independent Contractor Torts

Question 80

An agent is liable for his or her own crimes. A principal or employer is not liable for an agent’s crime even if the crome was committed within the scope of authority or employment, unless the principal participated by conspiricy or other action, in the course and scope of employment.

Answer 80

Liability for Agent’s Crimes

Question 81

• Lapse of time
• Purpose achieved
• Occurrence of a specific event
• Mutual agreement
• At the option of one party (recovation, if by principal; renunciation, if by agent.)

Answer 81

Termination of an Agency- Termination by Act of the Parties

Question 82

Agency terminates automatically at the end of the stated time.

Answer 82

Lapse of Time

Question 83

Agency terminates automatically on the completion of the purpose for which it was formed.

Answer 83

Purpose Achieved

Question 84

Agency normally terminates automatically on the even’t occurrence.

Answer 84

Purpose Achieved

Question 85

Agency normally terminates automatically on the even’t occurrence.

Answer 85

Occurrence of a Specific Event

Question 86

Agency normally terminates when both parties consent to end the agency relationship.

Answer 86

Mutual Agreement

Question 87

Either party normally has a right to terminate the agency relationship. Wrongful termination can lead to liability for breach of contract.

Answer 87

At the Option of One Party

Question 88

Although both parties have the power to terminate an agency relationship, they may not always posses the right to do so. This can subject the canceling party to a suit for breach of contract.

Answer 88

Wrongful Termination

Question 89

An angecy, created for the benefit of the agent, in which the agent has some legal right (interest) in the property that is the subject of the agency.

• The agent’s position cannot be terminated until the agent’s interest ends.
• Created for the agent’s benefit rather than the principal’s benefit.

Answer 89

Agency Coupled with Interest

Question 90

No particular form is required for this to be effective. If the agent’s authority is written, it normally must be revoked in writing. The principal can personally notify the agent, or the agent can learn of the termination through some other means.

• When terminated by act of the parties- principal’s duty to inform any third parties who know of the existence of the agency. If the principal knows that a third party was dealt with the agent, they are expected to notify that person directly.
• Although agent’s actualy authority ends, apparent authority continues until the third party recieves notice that such authority has been terminated.

Answer 90

Notice of Termination

Question 91

• Death or insanity
• Impossibility
• Changed circumstances
• Bankruptcy
• War

Answer 91

Termination by Operation of Law

Question 92

General rule is that the death of mental incompetence of either the principal or the agent automatically and immediately terminates an ordinary agency relationship. Knowledge of the death is not required.

Answer 92

Death or Insanity

Question 93

When the specific subject matter of an angecy is destroyed or lost, the agency terminates. Also, when it is impossible for the agent to perform the agency lawfully because of a change in the law, the agency terminates.

Answer 93

Impossibility

Question 94

When an event occurs that has such an unusual effect on the subject matter of the agency that the agent can reasonably infer that the principal will not want the agency to continue, the agency terminates.

Answer 94

Changed Circumstances

Question 95

If either the principal or the agent petitions for bankruptcy, the agency is usually terminated. In certain circumstances, as when the agent’s financial status is irrelevant to the purpose of the agency, the agency relationship may continue. Insolvency as distinguished by bankruptcy does not necessarily terminate the relationship.

Answer 95

Bankruptcy

Question 96

When the principal’s country and the agent’s country are at war with each other, the agency is terminated. In this situation, the agency is automatically suspended or terminated because there is no way to enforce the legal rights and obligations of the parties.

Answer 96

War