Principal/Agent

Question 1

When is a principal liable for contracts entered into by its agent?

Answer 1

Principal is liable for contracts entered into by its agent IF the principal “AUTHORIZED” the agent to enter into the contract

** The principal is liable ONLY FOR its “authorized contracts”

Question 2

What types of authority render a principal liable for an agent’s contracts?

Answer 2

1) Actual Express Authority:
- Principal used WORDS to express authority to agent
- Can be oral and private
- BUT is narrowly construed

** EXCEPTION: if the contract ITSELF must be in writing (because of the Statute of Frauds), the express authority must ALSO be in writing (e.g. when an agent is negotiating a land contract)

• • Express authority will be revoked by:
    
    • Unilateral act by EITHER the principal or agent;
    • Death of the principal (EXCEPT if the principal gave the agent the power of attorney that EXPRESSLY survives death)
    • Incapacity of the principal (NOTE: in NY a power of attorney WILL survive incapacity unless it expressly states otherwise)

2) Actual Implied Authority: Principal gives the agent authority through conduct or circumstances
- Necessity: there is an implied authority to do all tasks that are necessary to carry out an expressly authrized task
- Custom: there is an implied authority to do all tasks that by custom are performed by agent’s title or position
- Prior acquiescence: there is an implied authority to do all tasks that the agent believes to be authorized to do from “prior acquiescense” by the principal

3) Apparent Authority:
- Principal “cloaked” agent with apparent authority;
- Third party reasonably relies

4) Ratification: Authority can be granted AFTER the K has been entered IF…
- Principal has knowledge of all material facts
- Principal has accepted its benefits; AND
- Ratification did NOT alter the terms of the contract

Question 3

What is the effect of a principal authorizing a contract?

Answer 3

The principal is liable on its authorized contracts →agents are NOT LIABLE for their authorized contracts

EXCEPTION: if the principal is PARTIALLY DISCLOSED (only the identity of the principal concealed) or UNDISCLOSED (fact of principal concealed)→ authorized agents may NONETHELESS be liable at the election of the 3d party

Question 4

When is a principal vicariously liable for torts committed by an agent?

Answer 4

Principal will be liable for torts commited by agent IF:

1) A PRINCIPAL-AGENT RELATIONSHIP exists; AND
2) The tort was commited by the agent within the SCOPE of that relationship

Question 5

What is necessary for a principal-agent relationship?

Answer 5

1) Assent: an agreement between a principal (who has capacity) and an agent
2) Benefit: the agent conduct must be for the principal’s benefit
3) Control: the principal must have “the right to control the agent by having the power to supervise the manner of the agent’s performance”

** NOTE: these are ALSO the requirements for liability for “sub-agents” (hired by the agent) & “borrowed agents” (borrowing from another principal)

Question 6

What is the rule for vicarious liability and independent contractors?

Answer 6

Independent Contractor = The principal does not have control to manage his performance

RULE: there can be no vicarious liability for an independent contractor’s torts

EXCEPTIONS:

1) Inherently dangerous activity
2) Estoppel: If the principal “holds out” the independent with the appearance of agency, he is estopped from denying liability on that ground

Question 7

When is an agent’s activities within the “scope” of the relationship?

Answer 7

Factors include…

1) Was the conduct “of the kind” that the agent was hired to do (within the job description)?

2) Frolic vs. detour?
- Frolic = new/independent journey= outside scope
- Detour = a mere departure = within scope

3) Did agent intend to benefit the principal?

4) Did the agent commit an intentional tort? Generally no, unless:
- Action authorized by the principal
- Action is natural consequence of the employment
- Action wasmotivated by desire to serve principal

Question 8

What are the duties that an agent owes to a principal?

Answer 8

In return for reasonable compensation and reimbursement of expenses, agents owe…

1) Duty of care
2) Duty to obey REASONABLE instructions
3) Duty of loyalty
- Self-deal: receive a benefit to the principal’s detriment
- Usurp: the principal’s opportunity
- Secret profits: make a profit at the principal’s expense without disclosure