Flashcards in Agency Deck (48):
What is "agency?"
Agency refers to the legal relationship whereby an agent is authorized to represent a principal in business dealings with third parties.
What are the requirements for forming (and continuing) and agency relationship?
(2) Consent of BOTH parties
(3) Writing, if statutorily required
What specifically are the capacity requirements for forming an agency relationship?
(1) Principal must have contractual capacity (can't be a minor)
(2) Agent must have MINIMAL capacity (can't be brain dead); can't represent both parties in a deal; may need a required license in some industries
Do agency relationship contracts need to be in writing?
(1) Equal Dignities Statutes: if the underlying contract must be in writing (SOF) then the agency contract must also be in writing
What fiduciary duties does the agent owe to the principal?
(2) Obedience to reasonable instructions
(3) Reasonable care and diligence
What must an agent avoid to comply with the Duty of Loyalty owed to the principal? What is the remedy for breaching this duty?
(1) secret profits
(2) Other conflicts of interest
Remedy: agent deemed to hold any gains in constructive trust for benefit of principal
To comply with the duty of reasonable care and diligence, what must an agent do?
(1) Notify the principal of all relevant matters that come to agent's attention.
Also, "reasonable" may be a factor of compensation; high compensation = high expectations of care
What fiduciary duties does the principal owe to the agent?
(1) Reasonable compensation
(2) Reimbursement for expenses
(3) Indemnification against claims arising from agency
(4) Cooperation w/ agent's efforts
(5) Good faith and fair dealing, including disclosure of risks of which principal is aware but principal is unaware.
What are the two different modes of creating an agency relationship?
(1) By act of parties
-holding out by principal
-ratification by principal
(2) By operation of law
-estoppel (apparent authority)
-statute appoints agent for limited purpose
If an agent appoints someone to perform some of the agent's tasks, who is this person?
(1) subagent: perform functions agent consented to perform
(2) coagent: another agent of the principal, just appointed by the original agent
NOTE: employees of a single organization are presumed to be coagents (ex: manager and store clerk)
Who is liable for the breach of a subagent?
The Agent is absolutely liable to the principal.
What fiduciary duties does a subagent owe?
If properly authorized:
-owes same duties to principal as agent ows
-owes no duties to principal; owes duties to the agent
Who owes the subagent compensation?
Generally the agent, even if the principal gave agent the authority to appoint subagent.
If the principal breaches, what are the agent's available remedies?
(1) Contract remedies (w/ duty to mitigate)
(2) Right to possessory lien for any money due from the principal
If the agent breaches, what are the principal's available remedies?
(1) Contract remedies
(2) tort remedies
(3) Constructive trust
(4) Action for secret profits
(5) Withhold compensation
When is a real estate broker entitled to his commission?
(1) Nonexclusive Contract:
Broker entitled upon HIS production of a ready, willing, and able buyer (even if sale doesn't close)
(2) Exclusive Contract:
Broker entitled upon ANYONE'S production of a ready, willing, and able buyer
What are the four relevant questions in determining whether the principal is bound by the actions of the "agent?"
(1) Did the agent have actual authority?
(2) Did the agent have apparent authority?
(3) Did the principal ratify the action?
(4) Is there a relevant statutory rule?
What counts as "actual authority?"
When the agent reasonably believes that she possesses authority based on the principal's dealings with her.
What are the two types of actual authority?
(1) Express authority- in terms of contract
(2) Implied authority - based on principal's conduct
What types of actions are included in an agent's implied actual authority? (8)
(1) Incidental actions
(2) customary actions
(3) actions that principal acquiesced to previously
(4) Emergency measures
(5) delegating ministerial acts that require delegation
(6) Paying for/Accepting goods, where there is express authority to purchase
(7) Accepting payment/delivery/general warranties of fitness/quality of goods, where there is express authority to sell
(8) Managing investments in accordance with the "prudent investor" standard
What are the six was that actual authority can be terminated?
(1) Lapse of specified or reasonable time
(2) Occurrence of specified event
(3) Material change in circumstances
(4) Agent breaches fiduciary duty
(5) Either party unilaterally terminates
(6) Operation of law (death/loss of capacity)
What are the two instances where an agency relationship is irrevocable?
(1) Agency coupled w/ interest (contract)
(2) Power given as security, and given to protect agent's rights and supported by consideration
What is "apparent authority?"
When the principal directly or indirectly holds out the "agent" as possessing certain authority inducing reasonable reliance.
Focus is on principal's expressions to a third party.
What are the three general types of apparent authority?
(1) When agent had no actual authority
(2) When agent exceeds actual authority
(3) Inherent authority
What if agent's authority has been terminated, but a third party is not aware of the termination?
Principal could be bound under apparent authority theory.
Will the principal be bound if an agent exceeds his authority?
Yes, if there is apparent authority because:
(1) Principal previously permitted agent to exceed authority
(2) Agent's actions were w/in customary role of his position
What is "inherent authority?"
Agent had authority because of:
(1) respondeat superior- torts w/in scope of employment,
(2) his conduct was similar to authorized conduct
What is "ratification?"
When the agent acts w/o authority, but the principal gives retroactive effect to the transaction by validating the action.
If the principal ratifies an action that was beyond the agent's authority, is the agent still liable for his breach?
No, agent is relieved of liability for his breach of implied warranty of authority.
What are the elements for RATIFICATION by the principal?
(1) Principal knew (or had reason to know) all material facts
(2) Principal accepts ENTIRE transaction
(3) Principal had capacity to make the transaction
What types of actions may a principal ratify?
(1) illegal actions
(2) where 3rd party withdrew prior to ratification, or
(3) actions where there has been a material change in circumstances
What liabilities does the agent have to the third party?
(1) When agent HAD authority:
Agent not liable unless contract intends for liability.
(2) When agent did NOT have authority:
Agent liable under implied warranty of authority
(3) Unidentified and undisclosed principals:
-Agent AND principal liable to 3rd party
Who are third parties liable to when they enter into a transaction via an agent?
(1) If Principal is disclosed:
-3rd Party only liable to Principal
(2) If Principal is unidentified and undisclosed:
-either Principal or Agent can enforce contract, but Principal is entitled to benefits
*Of course, Principal can't enforce contract if there is been fraud about identity or an unforeseen increased burden to 3rd Party now that they know they've contracted w/ Principal and not Agent.
What potential theories are there for holding Principal liable for Agent's torts?
(1) Respondeat Superior
(2) Apparent authority
(3) Actual authority
(4) Principal ratified the tort
Note: Principal may be liable for own tort (negligent hiring, negligent supervision, etc.)
What is the test for when Principal is liable under the theory of respondeat superior?
Principal liable IF:
Agent's actions were within the scope of employment.
Are Principals liable for torts committed by Independent Contractors?
(1) inherently dangerous activities
(2) nondelegable duties were delegated, OR
(3) principal knowingly selected incompetent independent contractor (negligence doesn't cut it, although that could be its own negligent hiring tort)
What is the test for determining whether a worker was an employee (agent) or an independent contractor?
Right to Control Test.
What are the factors of the Right to Control Test?
(1) characterization by the parties
(2) whether the business is distinct
(3) the customs of the locality regarding the supervision of the work
(4) degree of skill required on the job
(5) whose tools or facilities are used
(6) length of employment
(7) Basis of compensation (time or project?)
(8) understanding between the parties
(9) Whether person was hired for nonbusiness purpose, or for furthering the employer's business (mowing lawn vs. doing accounting for business)
Who is liable for the actions of "borrowed employees?"
Usually the original employer, BUT
this is subject to who has the PRIMARY right of control.
What three questions should be asked to determine whether an action was "within the scope of employment?"
(1) Was the action of the same general nature as the job?
(2) What was the proximity in time/place of authorized actions? (small detour or major deviation?)
(3) Was the agent motivated to serve the employer w/ his actions? (Purpose of the actions?)
If the principal expressly prohibits any detours during the work day, does this protect him from liability under respondeat superior?
Not automatically. Same "within the scope of employment" test applies, although this will be a factor in determining the purpose of the employee's actions.
If the principal owns the vehicle that the employee is using, does this automatically make the principal liable for vehicular actions under the theory of respondeat superior?
No. It will be a factor, but the "scope of employment" test will still apply.
If an employee invites passengers to ride along, is this generally "within the scope of employment?"
No, not unless employer authorized this.
If an employee's actions are partly to help his employer and partly for personal reasons, does the doctrine of respondeat superior apply?
Respondeat superior applies IF:
any substantial purpose of the employer is being served.
Are intentional torts committed by an employee "within the scope of employment?"
(1) the tort is naturally incidental to the employee's duties (bouncers, security guards),
(2) Employee is promoting employer's business, or
(3) nature of work gives risk to hostilities
Can an employer ratify an employee's tort actions?
Yes, so long as all of the normal elements of ratification are met.
This is particularly tricky with "knowing all material facts."
Can Principal be liable for Agent's torts under a theory of apparent authority?
(1) Apparent authority enabled the agent to commit the tort, or
(2) apparent authority enabled agent to conceal the commission of the tort.
Must be a close link between agent's tortious conduct and the agent's apparent authority.