Agency

Question 1

Requirements for Creation of an Agency Relationship

Answer 1

(1) Mutual assent by both the principal and the agent, either expressly or impliedly, that the agent will act for the principal’s benefit/on the principal’s behalf; and
(2) That the agent be subject to the principal’s control.

To create, the principal must have contractual capacity, whereas the agent must only have minimum mental capacity.

Question 2

Termination of an Agency Relationship

Answer 2

Authority to act for the principal can terminate in several ways, including the principal manifesting a desire to the agent to discontinue the relationship.

Question 3

Actual Authority

Answer 3

An agent has actual authority to take all actions that are necessary or incidental to achieving the principal’s objectives.

Express: Agent is expressly (orally or in written communications) given authority to act for the principal.

Implied: When the principal’s conduct leads the agent to believe that it has authority. Can be implied by custom, past course of conduct, necessity, or emergency circumstances. Terminates after a reasonable time or following a change in circumstances, death, or incapacity of the principal.

Question 4

Apparent Authority

Answer 4

When an agent with apparent authority contracts on behalf of a disclosed principal, the principal and the third party are bound.

Arises when the behavior of the principal leads the third party to believe that agent is acting with the principal’s authority.

(1) The person dealing with the agent has a reasonable belief in the agent’s authority; and
(2) The believe must be generated by some manifestation of the principal.

Question 5

Ratification

Answer 5

The retroactive creation of an agency relationship.

Even if the agent did not have authority to enter into a transaction, the principal can ratify the acts, and thus become liable, by expressly or impliedly affirming or accepting the benefit of the acts, as long as the principal knew the material facts and had capacity.

Question 6

Vicarious Liability of Employer/Respondeat Superior

Answer 6

An employer is liable in tort for the acts of an agent or employee if the agent or employee —

1. Was acting in the scope of employment;
2. Made a minor deviation (detour) from employment (not a frolic); OR
3. Committed an intentional tort, but only if it was
   3(a). For the principal’s benefit,
   3(b). Because the principal authorized it, or
   3(c). It arose naturally due to the nature of employment.

Agent is also liable under the theory of joint and several liability.

Question 7

Indemnification

Answer 7

The principal can recover against the agent for indemnification if the agent acts beyond his authority.

Question 8

Direct Liability of the Principal

Answer 8

The principal is directly liable for his own negligence if he negli

Question 9

Agency Relationship

Answer 9

An agency relationship is a voluntary, fiduciary relationship between a principal and an agent in which the principal authorizes the agent to act on their behalf.

Can be based on a contract, but a contract is not required.

Question 10

Gratuitous Agency

Answer 10

Principal does not compensate the agent for work done on their behalf.

Question 11

Employer-Employee Relationship

Answer 11

Relationship in which the employer has control over what the employee does and how they do it. The higher the level of control, the more liability for the employer.

Question 12

Employer-Independent Contractor Relationship

Answer 12

Relationship in which the employer has a lower level of control over how the contractor performs. The less control, the lower the amount of liability.

Question 13

Duties Owed by the Agent to the Principal

Answer 13

Duty of care, duty of loyalty, duty to account, and the duty of candor.

Question 14

Duty of Care

Answer 14

Absent an agreement to the contrary, the agent owes a duty of care to their principal. This requires the agent to —

1. Follow the principal’s reasonable instructions;
2. Perform their duties with reasonable care;
3. Indemnify the principal against loss caused by the agent’s wrongful behavior/failure to act with care.

Question 15

Duty of Loyalty

Answer 15

The agent has a duty of loyalty to the principal arising from the fiduciary character of their relationship. The agent must:

1. Prefer the interests of the principal over their own;
2. Avoid self-dealing; and
3. Neither compete with the principal nor usurp their business opportunities for themselves.

Question 16

Duty to Account

Answer 16

Agent has the duty to account for money or property received for the principal and to keep the principal’s assets separate from their own assets.

Question 17

Duty of Candor

Answer 17

Agent must fully disclose to principal any facts that they reasonably believe the principal should know.

Question 18

Duties Owed by the Principal to the Agent

Answer 18

Duty of compensation and the duty of reimbursement.

Question 19

Duty of Compensation

Answer 19

The duty to pay the agent a reasonable value of services rendered, unless they have agreed otherwise.

A principal’s failure to meet this obligation allows the agent to seek restitutionary damages.

Question 20

Duty of Reimbursement

Answer 20

The principal is obligated to reimburse the agent for all reasonable expenses incurred in the scope of the agency.

Question 21

Power to Bind

Answer 21

When the agent is acting within the scope of their authority, the agent had the power to bind the principal to any contracts entered into on their behalf.

The agent has no power to bind the principal beyond their actual authority (express or implied).

Question 22

Agent’s Liability to Third Parties (in General)

Answer 22

An agent will be liable to 3rd parties for harm caused by their own negligence or intentional tortious conducts, whether or not they are acting within the scope of their agency relationship.

An agent’s contractual liability will depend on if the principal is disclosed or undisclosed.

Question 23

“Scope of Employment”

Answer 23

Includes performing tasks assigned by the employer, or engaging in a course of conduct subject to the employer’s control.

Factors include —
- The kind of work the employee was hired to do;
- Whether the act occurred substantially within the time and space authorized by the employer;
- Whether the employee intended to serve the interests of the employer.

Question 24

Frolic and Detour

Answer 24

An employer is NOT liable for employees who have substantially deviated from the authorized route (frolic). However, an employee can return to the scope of employment after a frolic.

An employer IS liable for slight deviations (detour).

Question 25

Respondeat Superior

Answer 25

An employer is vicariously/strictly liable for torts of an employee when the tort is committed within the scope of employment.

Both the employer AND the employee are jointly and severally liable.

The principal is not liable for torts of non-employees, unless the agent non-employee is acting with apparent authority.

Question 26

Agent’s Contractual Liability

Answer 26

Fully Disclosed Principal: The principal’s existence and identity are known to the 3rd party. If the agent enters into a contract on behalf of a fully disclosed principal, then the agent will not be personally liable for the contract.

Undisclosed Principal: If an agent enters into a contract on behalf of a not fully disclosed, partially disclosed, or undisclosed principal, the agent and the principal are both personally liable for the contract.

To escape personal liability, the agent must make it clear that they are representing the principal and that they are not a party to the contract.

Question 27

Employee’s Intentional Torts

Answer 27

Employers are not liable for the intentional torts of an employee unless it was accomplished in the course of work AND for the purposes of doing such work.

Employers are generally not liable for damages of an independent contract since they are not under the employer’s control.

Question 28

Negligent Supervision

Answer 28

A principal can be liable for harm caused by a principal’s negligence in selecting, training, supervising, or otherwise controlling an agent.

Question 29

Undisclosed Principal

Answer 29

Cannot grant apparent authority, because a third party cannot reasonably rely on a party that isn’t known.

However, they can be liable for contracts when an authorized agent acts on their behalf without disclosed them to a 3rd party.