Chapter 28 Flashcards Preview

Busines Law Chapter 28, 31, 42 > Chapter 28 > Flashcards

Flashcards in Chapter 28 Deck (40):

What is an Principal

In an agency relationship, the person for whom an agent is acting.


What is an agent

In an agency relationship, the person who is acting on behalf of a principal


What does it take to create an agency relationship?

Must be:
A principal
An agent
Mutual consent that the agent will act on behalf of the principal and be subject to the principals control.
Thereby creating a fiduciary relationship


Fiduciary relationship

A trustee acts for the benefit of the beneficiary, always putting the interests of the beneficiary before his own.


What three elements must be necessary to create an agency relationship?

Fiduciary duty


Equal dignities rule

If an agent is empowered to enter into a contract that must be in writing, then the appointment of the agent must also be written.


Duty of loyalty

An agent has a fiduciary duty to act loyally for the principals benefit in all matters connected with the agency relationship.


Outside benefits

An agent may not receive profits unless the principals knows and approves.


Competition with the principal

Agents are not allowed to compete with their principal in any matter within the scope of the agency business.


Conflict of interest between two principals

Unless otherwise agreed, an agent may not act for two principals whose interests conflict.


Secretly dealing with the principal

If a principal hires an agent to arrange a transaction, the agent may not become a party to the transaction without the principals permission


Appropriate behavior

An agent may not engage in inappropriate behavior that reflects badly on the principal


Duty to obey instructions

An agent must obey her principals instructions unless the principal directs her to behave illegally or unethically.


Duty of care

1. An agent has a duty to act with reasonable care
2. An agent with special skills is held to a higher standard because she is expected to use those skills.
3. Gratuitous agents are liable if they commit gross negligence, but not ordinary negligence.


Duty to provide information

An agent has a duty to provide the principal with all information in her possession that she has reason to believe the principal wants to know. She also has a duty to provide accurate information


Three principals remedies when the agent breaches a duty?

1. The principal can recover from the agent any damages the breach has caused.
2. If an agent breaches the duty of loyalty, he must turn over to the principal any profits he has earned as a result of his wrongdoing.
3. If the agent has violated her duty of loyalty, the principal may rescind the transaction


Duties of principals to agents

1. Duty to compensate as provided by the agreement
2. Duty to reimburse for reasonable expenses
3. Duty to cooperate


Duty of agents to principals

1. Duty of loyalty
2. Duty to obey instructions
3. Duty of care
4. Duty to provide information


Duty to cooperate

1. The principal must furnish the agent with the opportunity to work
2. The principal cannot unreasonably interfere with the agents ability to accomplish his task
3. The principal must perform her part of the contract


Termination by agent or principal

1. Term agreement-how long the relationship lasts
2. Time
3. Achieving a purpose-Terminate when the goals have been reached
4. Mutual agreement to terminate
5. Agency at will- no agreement in advance.
6. Wrongful termination-either party always has the power to leave.


Principal or agent can no longer perform required duties

1. If either the agent or the principal fails to obtain (or keep) a license necessary to perform duties under the agency agreement, the agreement ends.
2. The bankruptcy of the agent or the principal terminates an agency relationship only if it affects their ability ti perform
3. An agency relationship terminates upon the death or incapacity of either the principal or the agent
4. If the agent violates her duty of loyalty, the agency agreement automatically terminates


Principals liability for contracts

The principal is liable for the acts of an agent if (1) the agent had authority or (2) the principal ratifies the acts of the agent



A principal is bound by the acts of an agent if the agent has authority. There are three types of authority: express, implied, and apparent


Implied Authority

Unless otherwise agreed, authority to conduct a transaction includes authority to do acts that are reasonably necessary to accomplish it.


Apparent Authority

A principal can be liable for the acts of an agent who is not, in fact, acting with authority if the principals conduct causes a third party reasonably to believe that the agent is authorized



If a person accepts the benefit of an unauthorized transaction or fails to repudiate it, then he is as bound by the acts as if he had originally authorized it.


Fully disclosed principal

An agent is not liable for any contracts she makes on behalf of a fully disclosed principal


Unidentified principal

In the case of an unidentified principal, the third party can recover from either the agent or the principal


Undisclosed principal

In the case of an undisclosed principal, the third party can recover from either the agent or the principal


Because of concerns about fair play, there are some exceptions to the rule on undisclosed principals

A third party is not bound to the contract with an undisclosed principal if (1) the contract specifically provides that the third party is not bound to anyone other than the agent, or (2) the agent lies about the principal because she knows the third party would refuse to contract with him.


Unauthorized agent

If the agent has no authority (express, implied, or apparent), the principal is not liable to the third party, the agent is.


Principals liability for torts

An employer is liable for a tort committed by its employee acting within the scope of employment or acting with authority


A principal may be liable for the torts of an employee but generally is not liable for the torts of an independent contractor.



Negligent hiring

The principal is liable for the torts of an independent contractor if the principal has been negligent in hiring or supervising her.


Scope of employment

Principals are liable only for torts that an employee commits within the scope of employment



An act within the scope of employment, even if expressly forbidden, if it is of the same general nature as that authorized or if it is incidental to the conduct authorized.



The principal is liable for the actions of the employee that occur while the employee is at work, but not for actions that occur after the employee has abandoned the principals business.


Intentional torts

A principal is not liable for the intentional torts of an employee unless (1) the employee intended to serve some purpose of the employer; or (2) the employer was negligent in hiring or supervising this employee.


Physical or non-physical harm

Nonphysical torts are treated more like a contract claim, and the principal is liable if the employee acted with express, implied, or apparent authority.


Express authority

The principal grants express authority by words or conduct that, reasonably interpreted, cause the agent to believe that the principal desires her to act on the principals account.