Agency

Question 1

Overview

Answer 1

Agency is a consensual relationship between a principal and an agent. The large topics to think about in agency law include: (1) the formation of the agency relationship; (2) an agent’s and principal’s duties and remedies; and (3) an agent’s and principal’s liability to third parties, in contract and in tort.

Question 2

AGENCY

Answer 2

1. Creation of Agency Relationship
   a. Capacity—The principal must have contractual capacity; the agent only needs
   minimal capacity.
   b. Consent—Consent must be manifested by both the principal and the agent.
   c. Method of formation
   1) By action—The principal and agent can agree to the agency relationship (actual authority); the principal can hold another out as his agent (apparent authority); or the principal may agree to be bound by previously unauthorized acts (ratification).
   2) By operation of law—A principal may be estopped from denying the existence of an agency relationship, or an agency may be created by statute.
2. Agent’s Duties
   a. Duty of loyalty—The agent must disclose interests adverse to the principal.
   b. Duty of obedience—The agent must obey all lawful instructions of the
   principal.
   c. Duty of care—The agent must act with reasonable care.
   d. Duties under contract—The agent must comply with any terms of the agency
   contract.
3. Principal’s Duties
   a. Duty to compensate and reimburse—Unless the agent agrees to act gratuitously, the principal must compensate the agent, as well as reimburse her for expenses and losses.
   b. Duty to cooperate—The principal must cooperate with the agent and help him carry out his agency functions.
   c. Duties under contract—The principal must comply with any terms of the agency contract.
4. Remedies
   a. Remedies of Principal
   1) A compensated agent can be held liable for damages based on breach of contract.
   2) Any agent is subject to tort liability for damages resulting from his misuse of the principal’s property, for intentional or negligent misperformance, or for the failure to perform.
   3) If an agent breaches her fiduciary duty of loyalty and secretly profits, the principal may recover the profits or property.
   4) The principal can bring an accounting action in equity to determine the exact amount an agent owes the principal.
   5) If the agent has committed an intentional tort, or intentionally breached her fiduciary duty, the principal may, in addition to other remedies, withhold the agent’s unpaid compensation.
   6) The principal may terminate the agency relationship when the agent breaches one of his duties.
   b. Remedies of Agent
   1) A compensated agent can sue for breach of contract.
   2) An agent has a possessory lien on any money the principal owes her.

Question 3

CONTRACT LIABILITY

Answer 3

1. Did the Agent Act With Authority?
   Whether a principal will be bound on a contract that an agent entered into on his behalf depends on whether the agent acted with authority.
   a. Actual Authority—The authority that the agent reasonably thinks she possesses based on the principal’s dealing with her.
   1) Actual express authority—The authority that a principal expressly gives an
   agent.
   2) Actual implied authority—The authority that the agent reasonably believes
   she has as a result of the actions of the principal. For example, if given the express authority to manage an apartment building, there might be implied authority to hire a janitor.
   b. Apparent Authority—Even if the agent lacked actual authority at the time of the contract, the principal will be bound on the contract if (1) the principal held out the agent as having authority, and (2) based on the holding out, the third party reasonably believed that the agent had authority to act.
   c. Ratification—A principal can be bound by a contract if the principal later ratifies the transaction. Methods of ratification include: acceptance of the transaction’s benefits, silence if there is a duty to affirm, and suing on the transaction. If ratified, the contract will be treated as if it had originally been entered with authority.
2. Contract Liability to Third Parties
   a. Third Party v. Principal—The general rule is that if the agent had authority, the
   principal is liable to the third party.
   b. Third Party v. Agent—Whether an agent can be held liable on a contract
   he enters on behalf of the principal depends on whether the principal was disclosed, unidentified, or undisclosed.
   1) Disclosed principal—Agent generally not liable.
   2) Unidentified or undisclosed principal—Generally either the principal or
   agent can be held liable (third party chooses).
   c. Principal or Agent v. Third Party—Where the principal is disclosed, only the
   principal (not the agent) may enforce the contract and hold the third party liable. If the principal is unidentified or undisclosed, either the principal or the agent may hold the third party liable.

Question 4

TORT LIABILITY

Answer 4

1. Respondeat Superior—A principal may be vicariously liable for the acts of an employee committed within the scope of employment.
   a. Employer/Employee Relationship—There are many factors the courts will
   consider in analyzing whether an agent is an employee or an independent contractor, but generally, the most important factor is whether the principal had the right to control the manner and method of the agent’s work.
   1) A principal is not liable for the acts of independent contractors unless: (1)
   inherently dangerous activities are involved; (2) nondelegable duties have been delegated; or (3) the principal knowingly selected an incompetent independent contractor.
   b. Conduct Within Scope of Employment—Like the employee-employer relationship, the courts will consider a number of factors, including the nature of the work, whether the conduct was substantially removed from the authorized time and space limits of the employment (frolic vs. detour), and whether the conduct was actuated, at least in part, by a purpose to serve the employer.
2. Apparent Authority—A principal is liable where an agent appears to deal or communicate on behalf of the principal and the agent’s apparent authority enables the agent to (1) commit a tort or (2) conceal its commission.