Agency

Question 1

Agency

Answer 1

Agency is a fiduciary relationship that arises when one person, the principal, manifests assent to another person, the agent, that the agent shall act on the principal’s behalf subject to the principal’s control, and that the agent manifests assent or otherwise consents so to act.

Question 2

How may “the person” manifest?

Answer 2

The person may manifest itself in many forms, including:
an individual;
an organization or association with the capacity to possess rights and incur obligations;
a government, political subdivision, or entity created by the government; or
any other entity that has the legal capacity to possess rights and incur obligations.

Question 3

Consequences of entering an agency relationship

Answer 3

There are four consequences of entering into an agency relationship:

duties arise between the principal and agent;
the agent has the power to bind the principal in contract and act on his behalf, without the principal having to act personally, but under the principal’s control;
liability is imposed on the principal for the agent’s actions in tort; and
knowledge of the agent is imputed to the principal.

Question 4

Common agency forms

Answer 4

An agency relationship can take many forms, the most common of which are master-servant (employer-employee) and employer-independent contractor.

Question 5

Master and Servant (Employer and Employee)

Answer 5

The master-servant relationship is an employment relationship in which the master has the right to control the details of the physical conduct of the servant in the performance of the service, not only as to the result, but also as to the means to be used to achieve the result.

Under the doctrine of respondeat superior, a master is generally liable for his servant’s torts committed within the scope of his employment.

Question 6

Employer and Independent Contractor

Answer 6

The employer-independent contractor relationship is an employment relationship.

Unlike the master in the master-servant relationship, however, the employer has no right to control the details of the performance of the independent contractor.

Question 7

Difference between Employer and Independent Contractor vs. Employer and Employee

Answer 7

The distinction between the master-servant relationship and the employer-independent contractor relationship lies in the right to control— the degree to which an employer could intervene in the control of an employee’s manner of performance.

Question 8

Formation

Answer 8

An agency relationship is formed by the principal granting authority to the agent to act for him.

There must be a manifestation of the principal’s intention to grant authority. Such manifestation may be express (written or oral), implied, verbal, or by conduct.

Question 9

Required Elements of the Relationship

Answer 9

1. Both parties must assent to the agency. An agent can neither force an unwilling principal nor be forced to be an agent against his will.
2. The agent must agree to act on behalf of the principal. The agent may be compensated, but he is compensated primarily to advance the interests of the principal.
3. The agent must act under the control of the principal.

Question 10

Principal - Capacity

Answer 10

Any person who has the capacity to effect his own transactions has the capacity to appoint an agent to act on his behalf.

An incompetent may not act as a principal. Thus, a minor generally cannot act as a principal except when contracting for necessaries.

A corporation may act as a principal only as to matters within its corporate powers.

Question 11

Agent- Capacity

Answer 11

Generally, any person with minimum mental capacity may act as an agent.
Accordingly, both minors and incompetents may act as agents.

The agent will be endowed with the same capacity as the principal.

One may not be an agent for two adverse parties to a transaction unless both parties are fully advised and give their consent. The burden is upon the agent to show full disclosure and consent.

Question 12

Proof of Agency

Answer 12

Existence of an agency relationship may be established by direct or circumstantial evidence. Relevant factors include:
1. the situation of each party; and
2. their words and actions.

The existence of an agency relationship is ordinarily a question of fact for the jury and the burden of proof rest with the party asserting the relationship. It is to be determined from all the evidence, direct or circumstantial, and must be proved by a fair preponderance of the evidence.

Question 13

Right of Control Factors

Answer 13

1. Whether the work is typically performed by specialists without supervision
2. Who supplies the agent with tools and a place to perform the work
3. Length and exclusivity of the employment relationship
4. Whether the agent was paid by the job (more likely IC) or at regular intervals (more likely employee)
5. Whether the agent’s work is part of the employer’s regular business

Question 14

Nature of Characteristics

Answer 14

The agency relationship allows the agent to bind the principal and act on his behalf, without the principal having to act personally. Thus, the law deems a principal to have intentionally engaged an agent to represent him in business or legal affairs.

Question 15

Exam Tip: What to do if the parties have not been expressly identified as principal and agent.

Answer 15

Start the analysis with whether or not an agency relationship was created.

Question 16

Gratuitous Agency

Answer 16

Principal does not compensate the agent for the work the agent does on the principal’s behalf.

Question 17

Contractual Agency

Answer 17

Can take many forms, but the most common are employer-employee and employer-independent contractor.

Question 18

Agency as an Equitable Doctrine

Answer 18

The related concepts of “agency by estoppel” and “apparent authority” are equitable doctrines invoked to protect a third party from damage or loss.

Parties may appeal to these equitable doctrines when there is in fact no actual agency and thus no agent acting within the scope of actual authority granted by the principal.

When invoked by the court, parties are treated as if an agency had existed and as if the agent had acted within the scope of actual authority granted by the principal.

Question 19

Exam Tip; Essay Implicates Agency Law

Answer 19

When an essay implicates issues in agency law, some aspect of the relationship between principals and agents (their respective powers and duties) is almost always tested. In addition, the duties of agents to their principals tend to be more frequently tested than the duties of principals to their agents. The duties of care and loyalty are heavily tested.

Question 20

Exam tip- Liability

Answer 20

Libaility of pricipals and agents to third parties is agency’s most frequently tested topic.

Question 21

Presumption of Agency in Motor Vehicle Operation

Answer 21

At common law, th owner of a motor vehicle is not presumed liable for negligence.

However, a number of states have enacted statutes that create a presumption that the driver of a motor vehicle is operating as the agent of the owner. In such a case the owner of the motor vehicle is liable for for the negligence of the person operating the vehicle with the express or implied permission of the owner.

Question 22

Scope of Employment Factors

Answer 22

An employee acts within the scope of employment when preforming task assigned by the employer or engaging in a course of conduct subject to the employer’s control.

An employee’s act is not within the scope of employment when it occurs within an independent course of conduct not intended by the employee to serve any purpose of the employer.

When determining if an employee is acting withen the scope of their employment the court will consider the extent to which the conduct
1. is the kind of work the employee was hired to perform;
2. occurred substantially within the time and space authorized by the employer;
3. and was intended to serve the employer.

Question 23

Disclosed Principals

Answer 23

A principal is disclosed if, at the time of the transaction, the third party has notice that the agent is acting for a principal and has notice of the principal’s identity.

An agent for a fully disclosed principal does not ordinarily incur personal liability.

Question 24

Undisclosed Principals

Answer 24

If the third party has no knowledge of the existence of identity of a principal, the principal is undisclosed.

An agent who enters into a contract from an undisclosed principal is personally liable on the contract.

Question 25

Partically Disclosed Principal

Answer 25

A partially disclosed principal is one whose existence, but not identity, is known to the third party. An agent who enters into a contract from an partially disclosed principal is personally liable on the contract.

Question 26

Types of Agents

Answer 26

The authority conferred by a principal on his agent may be general in nature (general agency) or limited in scope (special agency) In either case, the agent possesses the authority to conduct transactions that are incidental to the main business.

Question 27

General Agent

Answer 27

A general agent is employed by a principal to conduct all of his business of a particular kind. This authority cannot be limited by any private order or direction not known to the party dealing with him.

Question 28

Special Agent

Answer 28

A special agent is employed by the principal specifically for one transaction. A special agent has no authority to bind his principal beyond the terms of the specific authority conferred upon him by the agreement for employment.

Question 29

Real Estate Agent

Answer 29

A real estate agent is a special agent who may be either an agent or broker licensed by the state to conduct sales of real property. A listing broker merely has authority to promote a property while a selling agent has apparent authority to bind a seller.

Question 30

Salesperson

Answer 30

A salesperson is an agent to sell chattels and warrant goods under the UCC, he usually may not modify the terms of a sale.

Question 31

Auctioneer

Answer 31

An auctioneer is a special sales agent with the authority to sell goods within the auction's terms, usually to the highest bidder. The auctioneer is the agent of the seller and as a result warrants title to the goods.

Question 32

Insurance Agent

Answer 32

An insurance agent is a representative of an insurer, which is liable for the acts of its agents acting within the scope of their authority.

Question 33

Subagents

Answer 33

Subagents are persons entitled to do work for the original agent in the relationship and, as a consequence, a new agency relationship is created with the original agent becoming the principal to the subagent. Where the principal has authorized the agent to appoint subagents, the subagent has the same responsibilities to the principal as the original agent, and any breaches of duty by the subagent are imputed to the agent. If the subagent has been appointed without the principal's authority, no agency relationship exists between the principal and the subagent.

Question 34

Gratuitous Agent

Answer 34

A gratuitous agent agrees to perform all duties of an agent without compensation.

Question 35

Duties to Principal Agent

Answer 35

Duties begin when the agency relationship is created and end when the agency relationship is terminated. Absent an agreement to the contrary, the principal is obligated to his agent to: 1. compensate for services rendered, either for an agreed upon amount ot for the reasonable value of those services; 2. Reimburse the agent for reasonable expenses incurred in the scope of his agency 3. indemnify and exonerate the agent for any liabilty that results from his good faith performance of his duties; 4. coroperate with the agent in the performance of his duties; and 5. excercise due care toward the agent

Question 36

Agent's Remedies for Principal's Breach

Answer 36

The agent may seek the usual remedies available for breach of an agency contract. The agent retains a lien on any property of the principal of which he has lawful possession. The agent may set off any money owed to him by the principal against monies collected on behalf of the principal. The principal may use any of the following defenses in the event of his breach: 1. S.O.F 2. illegality 3. the agent's disobedience 4. the agent's contributory negligence

Question 37

Duties of Agent to Principal

Answer 37

Duty of Care Duty of Loyalty Duty of Confidentiality Duty Not to Compete Duty of Obedience Duty to Account Duty of Candor

Question 38

Duty of Care

Answer 38

The agent is obligated to show a duty of care to the principal with a duty to; 1. Perform the contract and render services with reasonable care 2. act only within the scope of his actual authority 3. Act with the care, competence, and. diligence normally exercised by agents in similar circumstances, and if the agent is possessed of a higher level of skill, to exercise that level of skill; and 4. Indemnify the principal against loss caused by the agent's wrongful behaviour or failure to act with reasonable care care

Question 39

Duty of Loyalty

Answer 39

The agent also has a duty of loyalty to the principal with a duty to: 1. not engage in self-dealing 2. not usurp a business opportunity of the principal 3. protect confidential information and 4. not compete against the prinicpal

Question 40

Self Dealing

Answer 40

An agent must prefer the interest of the principal to his own or others in acting for the principal. An agent who acts for his own benefit instead of that of the principal is said to be self-dealing.

Question 41

Usurpation of Business Oppurtunity

Answer 41

An agent may not usurp a business opportunity belonging to the principal. A business opportunity is one that is so closely related to the principal's business that it could be deemed incidental to that business. An employee may take personal advantage of a business opportunity only if the employer knows and consents.

Question 42

Duty of Confidentiality

Answer 42

An agent may not use confidential information obtained from the principal to the detriment of the principal, even if the information is not obtained through his agency. However, an ex-employee may use skills learned on the job in later employment and may solicit former customers so long as he does not reveal confidential information in violation of any contract restrictions.

Question 43

Duty to Not Compete

Answer 43

An employee may, while still employed, prepare to enter into competition once his employment ends by setting up his own business, so long as he does not take away from his employer's business by soliciting customers or key employees.

Question 44

Noncompete Agreements

Answer 44

Agreements restricting an employee from competition must rest upon a protectable interest and be reasonable in time, geographic area, and subject matter scope to be enforceable. Courts may adjust an overreaching agreement to sever to sever the non-enforcable provisions from the enforcable ones or reduce the area or time covered by the agreement.

Question 45

Duty of obedience

Answer 45

An agent has a duty to obey all reasonable directions from their principal, outside of illegal or unethical orders. Reasonableness is dependent on the nature of the work, the contractual understanding between the parties, and the customary procedures in that trade.

Question 46

Duty to Account

Answer 46

An agent has a duty to account for money or property received for the principal and to keep the principal's assets separate from his own assets.

Question 47

Duty of Candor

Answer 47

An agent must fully disclose to the principal any facts relevant to the agent's duties that he reasonably believes the principal might want to know.

Question 48

Dual Agency Rule

Answer 48

When an agent acts for more than one principal in negogitations between multiple principals, the transaction is voidable by either prinicpal, unless both principals are fully informed of the representation and gave their consent.

Question 49

Principal's Remedies for Agent's Breach of Duties

Answer 49

A compensated agent may be held liable for damages to the principal that result from the agent's breach of his fiduciary duties. Generally, an uncompensated agent cannot be held liable. Punitive damages may be awarded if the agent acts with malice or in bad faith. If the agent has intentionally breached his fiduciary duty, the principal may withhold compensation. Any transaction resulting from a breach of the agent's fiduciary duty is voidable by the principal.

Question 50

Agent's Duties and Obligations to 3rd Parties

Answer 50

Liability to a third party on a contract signed by the agent depends on whether the principal was fully disclosed. If a third party knows of the principal's existence and identity at the time of the transaction, the agent will not incur personal liability unless he takes additional actions to assume personal liability, agent may sign any documents with his and principal's name as well as with notion that he is acting as an agent to guarentee they do not assume personal liabilty. Where the agent lacks authority to bind a principal to a contract, the agent breaches the warranty of authority and is liable to a third party for any damages suffered. The principal may indemnify the agent for all damages caused by the agent's breach of the warranty of authority.

Question 51

Election to Sue Principal or Agent

Answer 51

Upon learning of the identity and existence of an undisclosed principal, the third party may elect to sue the principal or the agent. To be binding, the election to sue must be made with the knowledge of the fact of the previously undisclosed principal. Suit brought against an agent prior to learning the identity of the principal does not act as a waiver of the third party's rights against the principal.

Question 52

Termination by Parties

Answer 52

Both the principal and the agent have the power to terminate the agency relationship at any time, termination power does not preclude either party from institution of a breach of contract action. Death or incapacity of either party will automatically terminate the agency. If the agency was created by durable power of attorney, the death of the principal will only serve to revoke the agent's authority when the agent receives actual knowledge of the principal's death.

Question 53

Imputed Knowledge

Answer 53

The knowledge of an agent is imputed to his principal. For knowledge to be imputed, the agent must have a duty to speak to their principal about the specific item of knowledge. Generally, knowledge is not imputed to the principal where the agent is acting adversely to the principal and for his own or another's benefit or where the agent colludes with a third party in order to defraud the principal.

Question 54

Effective Termination

Answer 54

For termination to be effective, the principal must notify the agent of termination, unless 1. The agency naturally expires upon completion of an action or 2. The agency is set to expire at a particular time The agency will end if, by an objective standard of reasonableness, the agent should have understood his authority to be terminated by the principal's actions.

Question 55

Termination- Apparent Authority

Answer 55

To terminate the agent's apparent authority, the principal must notify all third parties with whom the agent has dealt who might expect the agent to still be acting for the principal.

Question 56

Agency Coupled With an Interest & Power Given for Security

Answer 56

An agency coupled with an interest exists when the agent has an interest in the subject matter of the agency. A power given for security exists when the agency was created for the purpose of the payment of a debt owed by the principal to the agent. An agency is not terminable at will if the agency is coupled with an interest or the agent has a power given for security.

Question 57

Borrowed Employee

Answer 57

A person who is generally the employee of one employer may become a borrowed employee of another. If employer who loaned the employee does not continue to excercise control over the employee, he will not be liable even though he continues to pay the employee. The right to control is the key test, courts will consider the following factors to determine whether control has been completely transferred to the new employer; 1. the manner of hiring 2. the mode of payment 3. the right to discharge 4. the manner of direction of services There is a rebuttable presumption that the orginal employer maintaines right to control the employee, but if employee commits tort at the bidding of the borrower, vicarious liabilty attaches to the borrower. If the orginal employer ad the borrowing employer jointly control the activities of the employee, they may both be held liable for his tortious acts.

Question 58

Police Officers

Answer 58

Tort liability depends on the extent to which the private person has the right to control the activities of the officer. If a tort arises from an activity for which the officer has been given instructions by the employer, then the employer may be liable.

Question 59

Dangerous Disrepair

Answer 59

Where the employer's premises are in a state of dangerous disrepair and an IC is employed to correct the situation, the risk of harm due to the disrepair cannot be delegated to an IC by the owners of the premises.

Question 60

Nondelegable Duty

Answer 60

Certain relationships impose a duty of care that cannot be discharged even by the employment of the a carefully selected IC.

Question 61

Inherently Dangerous Activities

Answer 61

Work is inherently dangerous where the nature and circumstances of the work to be performed are such that injury to others will probably result unless precautions are taken.

Question 62

Independent Contractors

Answer 62

Generally, a principal is not responsible for the tortious conduct of an IC. The following are exceptions to the rule that principals are not liable for the torts of ICs; 1. inherently dangerous activities 2. nondelgable duties 3. dangerous disrepair

Question 63

Vicarious Liability of Principal When Agent is Not Liable

Answer 63

Generally a principal cannot be held vicariously liable for the acts of his agent if: 1. a court find the agent not liable for the tort 2. the agent is immune from liabilty under common law or by statute; or 3. the plaintiff agrees to a settlement with the agent

Question 64

Common Carriers

Answer 64

An employer is even more likely to be held liable for the intentional torts of his employee in common carrier cases.

Question 65

Intentional Torts

Answer 65

Employers will generally not be held liable for the intentional torts of their employees unless the tort occurred during an attempt to serve the interest of the employer. Employer may be held liable for employees intentional torts if the act was done in the course of doing the employer's work and for the purposes of accomplishing it.

Question 66

Disgorgement of Profits

Answer 66

Where the agent breaches his duty of loyalty to the principal, the appropriate remedy is disgorgement of any profits the agent made from his disloyalty, and if others have also benefited from the breach, liability of the agent for the profits of third parties. The principal need not suffer a loss to recover.

Question 67

Enforcing Contracts

Answer 67

If the principal is disclosed, only the principal and the agent may enforce the contract and hold a third party liable. Generally, if the principal is partially disclosed or undisclosed, either the principal or the agent may enforce the contract and hold a 3rd party liable. However, if the agent has fraudulently concealed the principal's identity, the principal may not enforce the contract, and the 3rd party is granted right of rescission. A majority of states hold that the agent must affirmatively misrepresented the principal's identity in order to deny the principal's right to enforce the contract.

Question 68

Actual Authority

Answer 68

Actual authority is created by the manifestation of the principal to the agent of the principal's request that the agent act for the benefit of the principal in a particular way, and that the principal agrees to be bound by the actions of the agent. Actual authority may be expressed or implied. An agent has actual authority to take actions designated or implied in the principal's manifestations and acts that are necessary or incidental to achieving the principal's objective, as the agent reasonably understands them when the agent determines how to act.

Question 69

Express Authority

Answer 69

Express authority arises when the principal directly requests the agent to act on the principal's behalf in a specific matter.

Question 70

Equal Dignity Rule

Answer 70

The equal dignity rule, followed in many states, holds that if a contract must be in writing, the grant of authority to an agent to enter into such contract on behalf of the principal must also be in writing.

Question 71

Implied Authority

Answer 71

Implied authority includes the authority to do: 1. anything necessary to accomplish the principal's express request of his agent OR 2. those things the agent believes the principal wishes him to do based on his reasonable understanding of the principal's expressed request.

Question 72

Apparent Authority

Answer 72

Apparent authority arises based on the principal's representations made not directly to the agent, but to a third party. Because of the behavior of the principal, the third party is led to believe the agent is acting with the principal's authority. Apparent authority requires some overt action by the principal. A principal's holding out may be accomplished by words, conduct, or a failure to act.

Question 73

Apparent Authority- 3rd Parties

Answer 73

Under the apparent authority doctrine, a principal is accountable for the results of a third party's beliefs about an actor's authority to act as an agent when the belief is reasonable and is traceable to a manifestation of the principal. The third party must reasonably rely to his detriment upon the authority of the purported agent in order to bring suit against the principal. A principal may be liable to a 3rd party for knowingly or negligently allowing a purported agent to assume authority or to overextend his legitimate authority. The overreaching agent will still be held liable to the principal for his unauthorized actions.

Question 74

Estoppel to Deny the Existence of Agency Relationship

Answer 74

A principal may properly deny the existence of an agency relationship, including apparent authority, if there is a lack of a manifestation by the principal that the purported agent holds authority to complete the transaction in question. A third party may fight an estoppel claim by showing justifiable inducement under the circumstances because: 1. the principal intentionally or carelessly caused such belief or 2. Having notice of such belief and that it may induce others to change their positions, the principal did not take reasonable steps to notify them of the facts.

Question 75

Ratification

Answer 75

Ratification allows a principal to grant retroactive authority for his agent's earlier unauthorized actions. To be granted retroactive effect, the ratified act must be one that the principal could have authorized at the time of the act, meaning the principal must have been in existence. Ratification will only grant authority; it does not legitimize an otherwise illegitimate transaction, nor will it grant authority to a nondelegable act.

Question 76

Ratifications Elements

Answer 76

Ratification requires 1. manifesting assent that the act shall affect the person's legal relations; OR 2. conduct that is justifiable only on the assumption that the person so consents.

Question 77

Requirements for Effective Ratification

Answer 77

For ratification to be effective, it must include the following; 1. the act the principal is seeking to ratify must have been otherwise valid at the time it was performed 2. The principal must have been in existence when the act was performed and must be legally competent when he attempts to ratify, 3. the act myst have been performed on behalf of the principal 4. the ratification must have the same formalities that would have been required to give authorization intitally and, by extension, any formalities that the orginal act itself would have required AND 5. at ratification, the principal must know of all material facts concerning the transaction.

Question 78

Limitations of Ratification

Answer 78

A principal may not partly ratify an act; ratifaction of any part of the act or contract is deemed to constitute ratification of the whole. A ratification will not be effective if, prior ro ratification, the ratification would have an adverse effect on third parties in the following circumstances; 1. manifestation of intention to withdraw from the transaction by the third party 2. a material change in the circumstances would make it inequitable to bind the third party, unless the third party chooses to bound; and 3. a specific time that determines whether a third party is deprived of a right or subjected to a liabilty

Question 79

Retroactive Effect of Ratification

Answer 79

Generally, a ratified transaction is given retroactive effect. Once an act has been ratified, it has the effect as if it were originally done by the agent with actual authority.

Question 80

Delegation

Answer 80

In general, if the authority given involves the agent using his own judgment, he cannot delegate his responsibilities absent an emergency or explicit agreement of the principal.

Question 81

Independent Contractor Factors

Answer 81

The following nine factors are used to determine whether an agent is a servant (employee) or an IC 1. The amount of control the principal exerts over how the agent performs his work 2. whether the agent is engaged in a distinct occupation or business whether the type of work the agent is doing is customarily done under the supervision of the principal 4. the skill required in the agent's occupation 5. who supplies the tools required for the agent's work and the place of performance 6. The length of time the agent is engaged by the principal 7. whether the agent is paid by the job or by the hour 8. Whether the principal and agent intend to create an employment relationship and 9. whether the principal is in business

Question 82

Respondeat Superior

Answer 82

Respondeat Superior is the doctrine that imposes vicarious liability upon a principal for the torts his agent committed in the course of agency.

Question 83

Scope of Employment- Torts While Traveling

Answer 83

Torts committed by the employee on the way to or from work are generally considered outside the scope of employment, unless the employee's travel is within the scope of employment, which an employer may do by providing the employee with a vehicle and exerting control over how the employee uses the vehicle so that the employee may more readily respond to the needs of the employer's enterprise.

Question 84

Frolic & Detour

Answer 84

An employer will not be liable if the employee has substantially deviated from the authorized route (a frolic) but will be liable if the deviation is slight (a detour). However, an employee can return to the scope of employment after a frolic occurs, court will consider 1. The advancement of the employer's interest 2. Whether the accident occurred before or after the employer's objective was served 3. the scope of the deviation in terms of time and distance and 4. whether the deviation was in keeping the type of employment

Question 85

Liability for Negligently Selecting an Agent

Answer 85

A principal is liable to a 3rd party for harm caused by the principal's negligence in selecting, training, retaining, supervising, or otherwise controlling the agent.