Law midterm 3 Flashcards
agency law
large body of common law that governs agency - mixture of contract law and tort law
AGENCY IS FIDUCIARY RELATIONSHIP
- -and anyone with CAPACITY can contract and appoint an agent in their behalf
- -can only be created to accomplish a LAWFUL purpose
Principal - party who employs another person to act on his/her behalf
Agent - party who agrees to act on behalf of another
MUTUAL CONSENT on both sides to form agency agreement
independent contractors - outside contractors who are employed by a principal to conducted limited activities for principal (ex. attorney hired for client, real estate broke)
principal-agent relationship
principal-employee relationship
principal-independent contractor relationship
Principal-agent relationship
—employer hires an employee and gives employee authority to act and enter into contracts on employer’s behalf (Ex. President of corp. entering contracts in corp. behalf)
Employer-employee relationship
- –employer hires an employee to perform some task/service but the employee has not been authorized to enter into contracts in behalf of employer
- —-Employee does not have contracting authority but principal IS STILL LIABLE for tortious conduct by his/her employees within scope of their employment
- -NOT AN AGENT unless empowered to ENTER INTO CONTRACTS on their behalf
Principal-independent contractor relationship
- —Principals hiring an outsider to perform certain tasks in their behalf
- –Ex. Doctors, dentists, consultants, stockbrokers, architects, public accountants, real estate brokers, plumbers, etc.
- – Principal can authorize independent contractors to enter into contracts (ex. Client authorizes attorney to settle a case w/ binding contract)
4 ways to form agency
1. express agency
authority expressly given by principal to agent - both principal and third party are BOUND to contract
—-MOST COMMON - agency occurs when a principal and an agent expressly agree to enter into an agency agreement with each other - oral or written (unless statute of frauds says it must be written - ex. In most states hiring a real estate broker must be in writing)
Exclusive agency contract - contract where the principal can’t employ anyone else except the exclusive agent - he can sue for damages if he/she hires someone else
Power of attorney - one of the most formal types of express agency agreements - power to sign legal documents on behalf of the principal (agent is called an attorney-in-fact)
- —Two kinds of powers of attorney
1. General power of attorney - broad powers on agent to act in any matters on principal’s behalf (ex. Going on trip and gives brother power to make decisions while gone - power to purchase/sell stock or real estate, pursue/defend lawsuits, make other decisions)
2. Special power of attorney - confers limited powers on an agent to act in behalf of principal - agent is restricted to ONLY powers listed in the contract - limited powers (ex. Leaving out of town and gives sister power to make decisions only on selling her house)
4 ways to form agency
2. implied agency
authority implied by conduct - principal and third party both BOUND to contract
- —Don’t explicitly create contract, but agency is implied by conduct of the parties - extent of agent’s authority is determined from facts and circumstances of situation
- —Ex. Homeowner hires real estate broker - water pipe breaks and can’t contact homeowner - broker has implied agency to hire a plumber to come fix the leak
INCLUDING IN EMERGENCY BASED - if agent has to do something in an emergency situation that they are not expressly appointed to do they can do it bc it would be implied they have that authority
–conduct, business norms, your position/title
4 ways to form agency
3. agency by ratification
acts of agent are committed outside scope of his/her authority - principal and third party are not bound unless principal ratifies the contract
1. A person misrepresents him or herself as another's agent when in fact he/she is not 2. The purported principal ratifies the unauthorized act - --- In these cases principal is bound to perform and agent is relieved of liability for misrepresentation - --Ex. Bill sees a house for sale and thinks his friend Sherry would want to buy it - he enters in contract to purchase and signs "Bill, agent for Sherry" - Sherry is not bound bc he is not her agent…but if she agrees to purchase then there is agency by ratification - then she would be obligated to purchase
4 ways to form agency
4. Apparent agency
principal and third party are BOUND to contract
—-Also called agency by ESTOPPEL - when a principal creates the appearance of an agency that doesn’t actually exist - the principal is estopped (stopped from denying the agency relationship and is bound to contracts entered into by the apparent agent while acting in the scope of the apparent agency
agency arises when PRINCIPAL creates appearance of agency that does not exist - principal is estopped form denying and both principal and third party are bound
The PRINCIPAL’S ACTIONS not the agent’s - create an apparent agency
—-Ex. Georgia Pacific interviewed Albert Iorio for sales rep. position - Jane Franklin, national sales manager, accompanies Iorio - while visiting one sales store, Franklin tells the store manager “I wish I had more sales reps like Albert” - but Iorio did not get hired - if Iorio later enters into contracts with that specific store on behalf of Georgia Pacific and Franklin has not controverted the impression of Iorio that she left with that store’s manager, the company will be bound to the contract
in all 4 methods both principal and third party are BOUND except in ratification until principal accepts and ratifies
PRINCIPAL must comm. to third party - if not the court will hold you as principal led third party believe agent had certain authority even if you think he doesn’t
duties of the PRINCIPAL
- Duty to COMPENSATE
- —Contingency fee - principal owes a duty to pay agent on agreed-on contingency fee only if agency is completed (real estate brokers, finders, lawyers, salespersons) - ex. If lawyer does not win case he does not get paid - Duty to REIMBURSE
- —In carrying out duty, agent may spend his/her own money - principal must reimburse if 1. authorized by principal, 2. within scope of agency, 3. necessary to discharge the agent’s duties in carrying out the agency - Duty to INDEMNIFY
- — Indemnify agent for any losses the agent suffers bc of principal’s conduct - ex. if agent gets sued for something while doing agency - Duty to COOPERATE
- –With and assist agent in performance of duties and accomplishment of agency
- – Ex. Real estate agent - homeowner has responsibility to clean and show house to prospects
agent’s duties
- Duty to PERFORM
- —lawful duties expressed in contract and to meet standards of reasonable care, skill and diligence implicit in contract (that another agent in same field would do if he/she were hired)
- –Ex. Brain surgeon in rural area has same standard as brain surgeon in another rural area
- — If does not perform is liable to principal for damages
- –reasonable care and skill - Duty to NOTIFY
- –Notify principal of any imp. Information concerning the agency (third parties or other sources)
- –Agent is liable to principal for any injuries resulting from them breaching this duty
- –Imputed knowledge - info. Learned by agent in course of agency - means principal is assumed to know what the agent knows
- – Ex. Sonia owns piece of land and hires Matthew (Real estate broker) - neighbor tells broker that a chemical plant polluted the property…but does not tell Sonia the info. - she sells property to Macy who later discovers - info. That Matthew was told about possible pollution of property is imputed to Sonia and Sonia will be held liable - Duty to account/accountability
- –Duty to maintain an accurate accounting of all transactions undertaken on principal’s behalf
- –CONSTRUCTIVE TRUST
4 ways to terminate agency
1. acts of parties
- Mutual assent of parties - agree it ends upon completion…then once completed it ends
- —-If stated time has lapsed - ex. Say it terminates Aug. 1, 2018
- – If specified purpose is achieved
- —Occurrence of a stated event —ex. Take care of dog until return from trip - ends when comes home
Ends with notice of termination
- —if principal fails to notify…then agent still has apparent authority to bind principal to contracts w/ third parties - to avoid liability principal needs to:
- –Direct notice - of termination to all persons with whom agent dealt with - oral/written
- –Constructive notice - of termination to any third party who has knowledge of the agency but w/ whom agent has not dealt (bc they could claim apparent agency) - PUBLICATION
4 ways to terminate agency
2. Unusual change of circumstances
This leads agent to believe that principal’s original instructions are no longer valid
—Ex. Owner of farm employs real estate agent to sell farm for $1M - if agent learns after that oil has been discovered on property making it worth $5M…the agency terminates bc of change of circumstances
4 ways to terminate agency
3. Impossibility of performance
○ Situation where agency terminates bc a situation arises that makes fulfillment of agency impossible
1. Loss or destruction of subject matter (ex. Hire someone to sell horse, then horse dies) 2. Loss of required qualification (real estate agent's license is revoked before he sell's principal's house) 3. Change in law (employs agent to trap alligators…then law is passed that makes that illegal)
4 ways to terminate agency
4. Operation of law
• Terminates bc of legally specified events
1. Death of either principal or agent 2. Insanity of either principal or agent 3. Bankruptcy of principal 4. Outbreak of war btwn principal's country and agent's country
wrongful termination
— • Termination of agency contract in violation of terms of agency contract - nonbreaching party may recover damages from breaching party
crucial factor in determining whether person is employee or independent contractor is
THE DEGREE OF CONTROL THAT PRINCIPAL HAS OVER THAT PERSON
- –two reasons distinction is so critical
1. principal can authorize indep. contractor to enter into contracs (Ex. authorize attorney to enter settlement on client’s behalf)
2. principal liable for authorized acts of indep. contractors
indep. contractor usually NOT an agent – bc principal has no control over details of their contract
good or bad things about agency relationship
- –authority of someone to represent you and bind you to contractual obligations
- -negative side they can bind you with tort liability
employees have 2 consequences
–you owe employment taxes as employer and you are subject to liability for them
independent contractors - no liability
The MOST IMP. factor in deciding whether someone is I.C. or employee is - THE DEGREE OF CONTROL THAT IS EXERCISED BY THE PRINCIPAL/EMPLOYER
formed with
–MUTUAL assent - usually some consideration or compensation but not required
terminating agency 4 ways
- Act of parties - mutual agreement to end it
- lapse of time - agreed that at certain time it would end - or if you hired them to sell house and it gets sold…then done!)
- changed circumstances - hired agent to sell your house and during course of agency before sale has gone through you discover oil or gold on property that changes circumstances/value and terminates the contract
- Impossibility - loss of qualification of agent (loses bar license), illegality change in the law), or destruction of subject matter (house burns down)
must give notice TO AVOID APPARENT AUTHORITY
- -direct, contstructive
- -if no notice is given and agent goes out and binds principal to contract the principal could be liable bc apparent authority - BUT then they could come around and sue agent for acting outside of scope of authority
Agents duty of LOYALTY
–a fiduciary duty owed by an agent not to act adversely to the interests of the principal
• If breached agent is liable to principal
- self-dealing —work w/ own assets w/ principal w/o their knowledge – faking invoices, setting up fake corp. so principal doesn’t know he is dealing w/ you in another form
- usurping an opp.
- competing w/ principal - conflict of interest
- misuse of confidential info. - customer lists, trade secrets
- dual agency – cannot meet duty of loyalty to two parties of conflicting interests - unless BOTH parties agree
tort liability of principals and agents and third parties
Principal and agent are each personally liable for their own tortious conduct - principals are also held liable for tortious acts of agents while they are acting w/in scope of authority given to them by principal
—However - the agent is only liable for tortious conduct of principal if he/she directly or indirectly participates or aids the principal’s conduct
tort liability - negligence
- Negligence - principals are liable for negligent conduct of agents acting w/in the scope of their employment
RESPONDEAT SUPERIOR - rule stating that employer is liable for tortious conduct of its employees/agents while they are acting w/in scope of employer’s authority
- —Vicarious liability - liability w/o fault - occurs where a principal is liable for agent’s tortious conduct bc of the employment contract btwn the principal and the agent…not bc the principal was personally at fault
- —Doctrine of negligence - if someone expects certain benefits from acting through others, that person should also bear the liability for injuries caused to third persons by the negligent conduct of the agent
- —-Ex. Business Unlimited hires Harriet in marketing - on her way to attend client meeting, she is in an accident caused by her negligence and people are injured - she is liable for the accident as well as Business Unlimited bc she was acting w/in scope of her employment when she caused the accident
frolic and detour
- -coming and going rule
- -dual purpose
Frolic and detour - a situation in which an agent does something during the course of employment to further his/her own interests rather than the principal’s
- —Ex. Agent taking detour to run a personal errand while on assignment from employer
- —Negligent actions stemming from a frolic and detour are examined on a case-by-case basis - agents are always liable and principals are usually not
- —Ex. Agent goes home for lunch break while on assignment and on way back to work he hits a pedestrian - the principal would be liable of agent’s home was close to work, but if it is extremely far away maybe not
- -must be a SIGNIFICANT DEPARTURE
Principal is LIABLE if employee is on DETOUR but not liable if employee is on a FROLIC
—DETOURS ALWAYS BOTH but frolics ONLY EMPLOYEE
Coming and going rule
- —Rule stating that a principal is generally not liable for injuries caused by agents and employees on their way to or from work
- —Rule applies EVEN IF the employer pays for the vehicle or vehicle expenses of the employee
Dual purpose mission - situation that occurs when a principal requests an employee or agent to run an errand or do another act for the principal while the agent is on his/her own personal business
- —The agent is partly acting for himself and partly for principal - usually both are liable in these cases
- – Ex. Employer asks employee to drop off package to client on way home from work - if gets in an accident on way home then both would be liable
tort liability - 2. intentional torts
- intentional torts
- –assault, battery, false imprisonment - acts that cause injury
- —-Principal is NOT liable for intentional torts of agents/employees that are committed OUTSIDE principal’s scope of business
- —Ex. Employee attends a sporting event after working ours and gets into fight = employer not liable
- —-However - principal IS LIABLE under doctrine of vicarious liability for intentional torts of agents/employees committed w/in agent’s scope of employment
In this case the court apply 2 tests
- —1. Motivation test - test determines whether an agent’s motivation in committing an intentional tort is to promote the principal’s business - if so principal is liable
- —-Ex. Under motivation test, an employer (principal) is NOT LIABLE if an employee, motivated by jealousy, injures someone on the job who dated her boyfriend - motivation of employee is personal, not work related
- —2. Work-related test - test determines whether an agent committed an intentional tort w/in work-related time or space - if so principal is liable for injury
- —Ex. Committed during working hours = principal is liable (even if motivation test says it was personal…the motivation is immaterial)
- —Under this test, the principal IS LIABLE for employee who injures someone who dated her bf - motivation is not relevant…what is relevant is that it was committed on work premises and during working hours
tort liability - 3. intentional misrepresentation
- Intentional misrepresentation - fraud and deceit - occur when an agent makes stmt. That the agent knows are not true to a third party
- —Principal is liable if happens w/in scope of employment - third party can rescind contract and recover damages or affirm contract and recover damages
- —Ex. Car salesperson is employed to sell principal’s car and principal tells agent car was repaired after a sever accident - agent intentionally tells buyer that car was never involved in accident - both principal and agent are liable for this misrepresentation
PRINCIPAL IS LIABLE FOR BOTH INTENTIONAL AND INNOCENT MISREPRESENTATION if it happens within scope of employment
scope of employment - if I hire you to represent me and in the course of selling my product at the trade show you make fraudulent misrepresentations…then you are in the scope of representing me and you lie - I am liable for that! - BUT if at dinner later that night…you misrepresent me…it is outside and I am not liable
brief explanation of tort liability
• Agent is ALWAYS LIABLE in all cases
1. Negligence - principal is liable under doctrine of Respondeat superior if committed w/in scope of employment 2. Intentional tort - motivation test and work-related test determine if principal is liable 3. Misrepresentation - principal is liable by agent if he/she acts w/in scope of his/her authority
contract liability and disclosing agency
Contract liability - a principal who authorizes an agent to enter into a contract w/ a third party is liable and third party can enforce contract and recover damages from principal if he/she fails to comply
fully disclosed agency — contracting third party knows agency exists and identity of principal
- –principal is liable agent is NOT – agent’s signature imp.
- -agent is NOT unless 1. agent acts as principal and 2. guarantees performance of contract
partially disclosed
–knows agency but not identity of principal — Principal IS liable - agent usually IS unless third party relieves agent’s liability
undisclosed agency
- –both are liable
- –if agent has to pay bc principal does not perform then agent can recover INDEMNIFICATION - COMPENSATION for harm/loss against principal
nonexistent
- –agent acts outside scope of authority
- -if agent enters contract on behalf of another it implies he is agent’s implied warranty of authority
- –agent is liable and principal is NOT UNLESS CHOOSES TO RATIFY
- –also has right to indemnification if K is ratified and principal does not perform, agent can recover
independent contractor liability
—must determine the DEGREE OF CONTROL that principal has over party
Liability for independent contractor’s torts
—-A principal is NOT liable for torts of independent contractors - but indep. Contractors are liable for their own torts - bc the principal does not control the means of how the results are accomplished
Principals cannot avoid liability for inherently dangerous activities that they assign independent contractors (ex. Liable for injury if explosives, clearing of land by fire, or risky activities)
Liability for an independent contractor’s contracts
• Principal can authorize indep. Contractors to enter into contracts - principals are bound and liable to those contracts
• Ex. But if indep. Contractor enters contract with third party w/o express or implied authority from principal then principal is not liable
fiduciary duty in agency
fiduciary duty to not act adversely to interests of principal
• IMPORTANT - PRINCIPAL AND AGENT EACH PERSONALLY LIABLE FOR THEIR OWN TORTIOUS CONDUCT
—-Principal liable for tortious conduct of agent acting w/in scope of authority
—Agent liable for tort. Act of principal only if agent directly or indirectly participates or aids the principal
in the case of independent contractors and torts
right of indemnification
liable in 2 cases
- dangerous activities - principal is liable
- negligent selection - not an adequate background check then you are liable
right of indemnification - if the agent for ex. Gets held liable under partially disclosed…then he could pay upfront but then go back and sue the principal for indemnification and recover damages
sole proprietorship
Owner is actually the business - business is NOT a separate legal entity
• Most COMMON form of business org. in US
Advantages
- –Easy and low cost to form
- –Proprietor makes all mgmt. Decisions w/ no other approval req. (hiring and firing employees)
- –Right to all profits - owns entire business
- –Easily transferred or sold
Disadvantages
- –Access to capital limited to: personal funds and any loans owner can obtain
- –Proprietor is legally responsible for business contracts himself
- – He is also responsible for all torts committed in course of employment
SP
- -forming it
- -liability
- -taxation
Forming it - NO FORMALITIES - just start doing business - no federal or state gov. approval req. (some local gov. require license to do business w/in the city)
—-Can operate under proprietor or trade name (Henry Cheeseman, “The Big Cheese”
Liability
- – Proprietor bears risk of loss of business - loses entire capital contribution if fails
- –Proprietor has UNLIMITED personal liability!!! - creditors may recover claims again the business from his own personal assets
Taxation
— NO TAXES at business level – earnings ad losses reported on personal income tax return
general partnership
- —Voluntary association of 2+ ppl carrying on business as co-owners FOR PROFIT
- —Rights and duties btwn partners and w/ third parties defined by partnership agreement and by law
- –Partners are PERSONALLY LIABLE for debts and obligations of partnership
Evidence of partnership
- —Prima facie = receipt of share of business profits
- —Compelling evidence – agreement so share profits/losses and right to participate in mgmt.
Partnership agreement. May be written, oral, or implied from conduct
- —Partnerships existing over 1 year or in real estate must be in WRITING under statute of frauds
- –Written agreements recommended but not required - but few states req. filing certificate of partnership
- –Partners are free to determine terms except illegal - if agreement fails to specify an essential term = UPA fills in gaps
UPA and general partnership rights
UPA - uniform partnership act - model act that codifies partnership law - most states have adopted - covers most problems arising in formation, operation, or dissolution “unless otherwise agreed”
All partners are PERSONALLY LIABLE for partnership debts and obligations
—-Taxation - no federal income taxes - income and losses reported on each indiv. Partners’ personal income tax returns = “flow through” taxation
Rights of GP - unless otherwise agreed
- — Each partner has right to participate in mgmt. - an equal vote on partnership matters REGARDLESS OF PROPORTION OF CAPITAL CONTRIBUTION MADE
- –Under UPA a simple majority decides most ordinary partnership matters
- —Split profits and losses - NOT ENTITLED TO SALARY
- —Entitled to indemnification for expenditures on behalf of partnership
- –Partners who make loans to partnership entitled to repayment after pmt. Of other creditors
- — Entitled to return of capital contributions upon termination of partnership (After creditors paid)
- — Each partner has right to FULL INFO. From other partners - and to inspect and copy records
fiduciary duties of general partners
- Duty of loyalty - imposed by law - in conflict btwn partnership and personal interests, partner must choose interest of partnership
- —-Breaches - self-dealing w/o consent of others, usurping partnership opp., competing with partnership, secret profits (taking kickbacks), breach of confidentiality, making personal use of partnership property - Duty to inform - knowledge is imputed to other partners
- Duty of obedience - adhere to partnership agreement - if breach liable for damages
- Duty of care - level of care that a reasonable person would in same situation
- —Breach of duty of care is NEGLIGENCE
- —- Partner is liable to partnership for any damages caused by his/her negligence
- —Partners not liable for honest errors in judgment - Right to an accounting - cannot sue the partnership
tort liability of GP
—-Partnership liable for tortious act of partner, employee, or agent committed while person is acting W/IN ORDINARY COURSE OF PARTNERSHIP BUSINESS or with authority of co-partners
Partners jointly and severally liable for torts and breaches of trust
- Joint and several liability
- —Plaintiff can sue one or more partners separately and recover entire amt. of judgment from any or all partners
- —Release of one partner does not discharge others
- —Partners who thus paid may seek indemnification from partner who committed wrongful act
Contract liability - partners are JOINTLY LIABLE for contracts and debts of partnership
- —Third party must name ALL PARTNERS in lawsuit - if don’t list all then judgment cannot be collected - and if one is released then all are released
- — If they pay more than their share they can seek indemnification
SUMMARY ON LIABILITY
- joint liability
- —Contract action
- —Plaintiff must name ALL partners as defendants
- –If successful, plaintiff can recover judgment against all or any of defendants
- —Partner who pays can recover indemnification from other partners - Joint and several liability
- —Tort action
- —Plaintiff can sue partners individually
- — If successful, plaintiff can recover against all or any of named defendants
- —Partner who pays judgment can recover indemnification from other partners for their share of judgment
GP - liability of incoming and outgoing partners
INCOMING
- –new partner is liable for existing debts (antecedent debts) ONLY TO THE EXTENT OF HIS/HER CAPITAL CONTRIBUTION
- — New partner is PERSONALLY LIABLE for debts/obligations incurred by partnership AFTER becoming a partner
- –limited liability on things before (just capital contribution)
OUTGOING
- — Personally liable for debts/obligations that exist at time of dissolution
- —-NOT liable for any new debts after they leave AS LONG AS PROPER NOTIFICATION OF HIS LEAVE IS GIVEN TO CREDITORS
dissolution of GP
Change in relation of partners caused by any partner ceasing to be associated w/ business
—–Duration of partnership may be: fixed term, until event occurs, at will
Wrongful dissolution - a partner has POWER to withdraw and dissolve partnership at any time - at-will partnership, partner has right to do so - if partnership term has not yet expired, then dissolution is wrongful and partner owes damages
Notice of dissolution
- —Dissolution terminates partners’ ACTUAL AUTHORITY to enter into contracts or act on behalf of partnership
- —Notice must be given to 3rd parties who dealt with partnership (actual notice) - constructive notice to others who had knowledge - no notice to third parties with no knowledge
- — If no notice is given, APPARENT AUTHORITY to bind partnership cont.
Winding up - follows dissolution unless partnership is to cont. - process of liquidating partnership’s assets and distribution the proceeds to satisfy claims
- —-Debts are satisfied in this order:
1. Creditors
2. Creditor-partners
3. Capital contributions
4. Profits - —-If partnership cannot satisfy claims, partners are personally liable
If partnership CONTINUES after dissolution - determine how much to pay to out-going partners
- — Old partnership dissolved and new partnership created
- — Creditors of old become creditors of new
- — Have equal status w/ creditors of new
how to determine if it is a general partnership
- –look for if they are SHARING PROFITS - if they are then we will treat you as a partnership - then burden is to prove to court you are not a partnership
- -mgmt. is not compelling evidence but if they are SHARING LOSSES that is the strongest evidence
- –status: sharing profits, sharing losses, or co-managing (least imp.)
—forming - can have formal partnership agreement but not req.
only way you EVER ADD ANOTHER PARTNER is with consent of ALL PARTNERS
—your interest in a partnership is your desire to share the profits…you can assign that to another person w/o the consent of the other partner (SO you can transfer your partnership interest/profits to someone else w/o consent but you can’t transfer your partnership status unless have consent from ALL partners)
rights of partners - duties of partners
- manage
- share profits
- rights to compensation and reimbursement
- when partnership is dissolved you have right to get loans returned and to get your capital back
- right to info. - what other partner is doing
duties of partners
- –duty of loyalty
- -care
- -inform
- -obey
FOR CONTRACT LIABILITY ISJ OINT AND FOR TORT LIABILITY IS JOINT IN SEVERALh as an indiv. member is personally liable
- -Joint = all members
- -several = each
agency in GP
EACH PARTNER IS AN AGENT OF THE PARTNERSHIP AS AN ENTITY AND TO EACH INDIVIDUAL PARTNER - Means you are liable for decisions or contracts entered into by other partners
IMPORTANT
