R8.2 – Agency

Question 1

Agency

Answer 1

Agency = legal relationship in which one person or entity (principal) appoints another (agent) to act on his behalf

Question 2

Requisites for Creation

Answer 2

Requirements
Principal with contractual capacity
Consent of parties

Agent does not have to have contractual capacity

Consideration not required

Written agency generally not required
– Holds true even if contract agent will enter into on principal’s behalf must be evidence by a writing undress Statute of Frauds

Question 3

Requisites for Creation – Agency Agreements That Must be In Writing

Answer 3

Agent will enter into land sale contracts

Agent agreements that can’t be performed in 1 year

Power of attorney = written authorization of agency
–Agent called “attorney in fact”; does not have to be a lawyer
– Only principal has to sign; agent not required to sign
– Agent’s authority normally limited to specific transactions

Question 4

Duties of Agent to Principal

Answer 4

Loyalty – act solely in principal’s interest

Obedience – agent obeys all reasonable directions of principal

Reasonable Care

Account
– Agent accounts to principal all property and money received and paid while in his agent capacity
– Agent can’t commingle principal;s property with agent’s

Subagents
– If agent authorized to hire subagent, subagent owed duty of care to agent and principal

Question 5

Principal’s Remedies if Agent Breaches Duty Owed

Answer 5

Tort damages – recoverable if agent negligently or intentionally breached

Contract damages – available if agent was compensated

Recovery of secret profits obtained by agents

Withhold compensation – applicable when agent committed an intentional tort or intentionally breached duty

Question 6

Duties of Principal to Agent

Answer 6

Compensation (unless gratuitous agency)

Reimburse agent for expenses he incurred in carrying out agency

Question 7

Agent’s Remedies if Principal Breaches Duty Owed

Answer 7

If principal breaches duty to agent, agent can bring action against principal for damages caused

Agent has duty to mitigate damages

Question 8

Power to Terminate Relationship

Answer 8

Either party has power (but not right) to terminate agency relationship at any time
– Agency is consensual relationship (otherwise it would be slavery)
– Can be held liable for damages if termination breaches contract

Exception = agency coupled with an interest i.e. agent has interest in subject matter of agency
– Principal can not terminate
– Agent can terminate
– Death, incapacity, or bankruptcy of principal does not end agency coupled with an interest

Question 9

Agent’s Power to Contractually Bind Principal

Answer 9

Agency relationship means agent can bind principal in contract

Agency power can arise through

1. A grant of actual authority
2. Apparent authority or estoppel
3. Ratification

Question 10

Agent’s Power to Contractually Bind Principal – Actual Authority

Answer 10

Actual authority = authority agent reasonably believes he possess because of the principal’s communication to agent

Agent with actual authority has power and right to bind principal.

Actual authority can be express or implied
– Express actual authority = all powers that principal expressly grants

Implied actual authority
– Any other authority the agent could reasonably believe is implied along with express grant
– Things reasonably necessary to carry out agency
– Things not necessary or customary but which principal has repeatedly allowed agent to do
- Authority to handle emergencies when no other instructions are given

Question 11

Agent’s Power to Contractually Bind Principal – Implied Actual Authority

Answer 11

Key is to remember manger is there to run business not destroy it. Therefore manager has authority to hire, fire, purchase inventory, and pay business debts.

There is no implied authority to sell or mortgage business fixtures or other property of principal (except inventory).

Also no implied authority to borrow money on principals behalf –needs express actual authority

Question 12

Agent’s Power to Contractually Bind Principal – Termination of Actual Authority

Answer 12

1. Act of parties
   – Principal = revocation
   – Agent = renunciation
2. Accomplishment of objective
3. Expiration of stated time
   – If not time stated, terminates after reasonable time
4. Death of either party
5. Incapacity of principal
6. Discharge in bankruptcy of principal
7. Failure to acquire a necessary license
8. Destruction of the subject matter of agency
9. Operation of law
   – Law passes that makes carrying out objective of agency illegal

Question 13

Agent’s Power to Contractually Bind Principal – Apparent Authority

Answer 13

Principal’s conduct has caused third parties to reasonably believe agent had authority
or
Principal was negligent and so will be estopped from denying agent had authority

Apparent authority requires a holding out or negligent action by principal
– Agent’s mere representation that he is an agent is insufficient to establish apparent authority

Question 14

Agent’s Power to Contractually Bind Principal – Termination of Apparent Authority

Answer 14

Notice is generally required to terminate apparent authority
– Actual notice given to old customers
– Constructive notice given to new customers

No notice needed if agency terminated by:
– Operation of law
– Death of principal or agent
– Incapacity of principal
–Discharge in bankruptcy of principal

Question 15

Agent’s Power to Contractually Bind Principal – Ratification

Answer 15

Principal chooses to become bound by a previously unauthorized act of his agent

Requirements
– Agent indicated he was acting on behalf of principal
– All material facts disclosed to principal
– No partial ratification – principal must ratify entire transaction

Ratification does not require consideration and 3rd party does not have to be notified since 3rd party already thinks he has contract with principal

Can ratify any act unless
–Performance would be illegal
– 3rd party withdraws prior to ratification
– Material change in circumstance that would make it unfair to hold 3rd party liable.

Only purported principal can ratify
– Agent can’t take over contract

Only disclosed party may ratify
– Undisclosed principal can’t

Question 16

Principal’s Liability

Answer 16

Principal is bound by agent’s actions if
–Agent acted with actual authority
–Agent acted with apparent authority
– Principal ratified transaction

Question 17

Agent’s Liability

Answer 17

Agent is not liable if agent discloses the existence and identify of principal, and is an authorized agent
–If agent is not authorized the 3rd party can hold agent liable for damages caused

Agent is liable if principal is partially disclosed or undisclosed
– Partially disclosed = existence of principal but not his identity is disclosed
– Undisclosed principal = existence and identity not disclosed
– No apparent authority if principal is undisclosed
– Disclosure or not of principal has no impact an actual authority
– 3rd party can hold principal or agent liable, but not both

Question 18

Third Party’s Liability

Answer 18

Generally, only principal can hold third party liable

Can hold third party liable even if principal’s identity of existence not disclosed

Exceptions
– Principal’s identity was fraudulently concealed
– Performance to the principal would increase the burden on third party

Question 19

Tort Liability – Employees vs. Independent Contractors

Answer 19

Employee vs. independent contractor depends on whether employer had right to control manner in which the agent performs.

If right to control isn’t clear, court looks to other factors
– Does worker have own business?
–Did worker provide own tools and facilities?
– How long was he employed?
–What was basis of compensation?
– Degree of supervision

Question 20

Tort Liability – Independent Contractors

Answer 20

Employers not liable for torts of independent contracts

– Exception: Employer is liable if he authorized tortious act or if the work involved an ultra hazardous activity

Question 21

Tort Liability – Employees

Answer 21

For employer to be liable for employee’s tortious act, the injury must have occurred within the scope of employment.

The conduct
– Doesn’t have to have been authorized by employer
– Must be of same general type employee was hired to do
– Was performed, at least in part, by a desire to serve the employer.
– Must have occurred within usual employment time and space limits
– Small detours from employer’s directions fall within the scope of employment.
– Major deviations do not

Employer is liable only for an employee’s negligence or intentional torts authorized by the employer

Employer not liable for employee’s unauthorized intentional torts

Employee generally not liable in tort for an employee’s conduct that constitutes a serious crime.

Agreement between the employer and employee that the employer will not be liable for employee forts does not prevent a third party from holding employer liable
– Employer can seek reimbursement from employee