The Principal-Agent Relationship
A principal-agent relationship arises when there is:
- Assent of both parties (an informal agreement between a principal and agent);
- Benefit (agent's conduct for principal's benefit)
- Control (principal has right to control the agent by having power to supervise manner of agent's performance).
Consideration is NOT required.
Note that the principal must have contractual capacity to assent. E.g., a minor does not have contractual capacity (except in certain entertainment industry cases), so the appointment of an agent is voidable.
- By contrast, the agent need not have contractual capacity; a minor can be an agent but not a principal; the only exception is where the agent has no mental capacity at all.
Liability of Principal for Torts of Agent
A principal will be liable for torts committed by its agent if:
- There is a principal-agent relationship; and
- The tort was committed by the agent acting within the scope of the relationship.
- The derivative nature of this liability means that nonliability of the employee results in nonliability of the employer, but personal defenses of the employee that do not go to liability do not bar recovery from the employer.
- Note that in addition to liability under doctrine of respondeat superior, an employer may also be liable for negligent hiring/retention of employee or negligent entrustment/supervision.
Sub-Agents & Vicarious Liability
A principal will only be liable for the acts of a sub-agent assisting the principal's agent if there is asset, benefit, and control between the principal and the sub-agent. Typically, the principal does not assent and does not have the right to control and therefore there is no vicarious liability.
The principal will only be liable for a borrowed agent's tort if there is assent, benefit, and control between the borrowing principal and the borrowed agent. Typically, although the borrowing principal may assent to and benefit from the borrowed agent, the borrowing principal does not asume any right to control the borrowed agent and often there is no vicarious liability.
Agents versus Independent Contractors
- There is no right to control an independent contractor (not power to supervise/manage the performance), so typically there is no vicarious liability for the torts of independent contractors.
- Independent contractor engages in inherently dangerous activities on principal's behalf; or
- Estoppel: principal holds out independent contractor as agent, so principal estopped from denying vicarious liability.
- Non-delegable duties have been delegated; or
- Principal knowingly selected incompetent contractor (liable only for negligent hiring).
Scope of Employment
- In determining whether the act was within the scope of the employment, consider the connection between the time/place/occasion of the act; the history of the relationship between employer/employee; whether the act is commonly done by such an employee; the extent of departure from normal methods of performance; and whether the employer could have anticipated the specific act.
- Same general nature as job. If the act was within the job description it is likely inside the scope. Specific authorization not required; nor does prohibition by principal necessarily remove the conduct from the scope of employment. Serious criminal acts normally outside scope of employment but if the conuct is similar or incidental to that which is authorized, probable within scope of employment.
Frolic and detour. A FROLIC is a new and independent journey outside the scope of employment (major deviation); must be proof of return before employer held liable. A DETOUR is a minor deviation from employer's direction and is within the scope of employment.
- (Note: employer's ownership of vehicle driven by employee at the time that the employee commits a tort does not automatically impose liability upon the employer for the tort solely by virtue of the employer-employee relationship).
Motivation to Serve Employer. If the agent intended to benefit the principal by its conduct, that is often enough to constitute the scope of the employment. However:
- Passengers unauthorized by employer generally outside scope;
- Unauthorized instrumentalities, different from those authorized (e.g., creating greater risk of harm) generally outside scope;
- Smoking during employment in New York generally considered inside scope;
- Trips with two purposes are within the scope if any substantial purpose of the employer is being served;
- Commuting is outside the scope.
Intentional Torts of Agents
Intentional torts are not usually within he scope of employment unless:
- AUTHORIZED: a natural incident of the employer's duties (as where force is authorized),
- NATURAL FROM EMPLOYMENT: where the employee is promoting the employer's business, or where the nature of the work gives rise to hostilities.
- MOTIVATED BY DESIRE TO SERVE PRINCIPLE
- A principal is liable for an agent's misrepresentations if the agent had actual, apparent, or inherent authority to make statements concerning the subject matter involved.
Liability of Principal for Contracts Entered Into by Agents
The principal is liable for contracts entered into by agent only if the principal authorized the agent to enter into the contract. There are four types of authority:
- Actual Express Authority
- Actual Implied Authority
- Apparent Authority
Actual Express Authority
- Arises when the principal uses words to express authority to the agent. This can be oral and private, and is limited to the words within the authority.
- Except that for authorization of an agent to enter into an interest in land > 1 year, the authorization must be in writing.
Actual Implied Authority
Authority which the principal gives the agent through conduct or circumstances. Can arise by:
- Necessary/incidental to express authority;
- Arising out of custom known to the agent, customary to A's position/title;
- Prior dealings between P and A - all tasks A believes she is authorized to do b/c of such prior acquiescence;
- Emergency measures;
- Agree to settlement during litigation;
- Delegation of certain ministerial acts, where delegation is customary or task cannot be accomplished without;
- To pay for or accept goods, where authorized to buy;
- To make general warranties, collect payment, and deliver goods, where authorized to sell;
- Manage investments as a "prudent investor."
Revocation of Actual Authority
unilateral act of either principal or agent; except that -– irrevocable agency: neither an agency coupled with an interest nor a power given as security may be unilaterally (or by operation of law) terminated by the principal, if the agency was given to protect the agent's (or a third party's) rights and it is supported by consideration.
death/incapacity of principal
- DEATH: terminates authority unless principal gave agent a power of attorney in writing that authority survives death
- INCAPACITY: express consent will survive incapacity unless P gives A power of attorney that A's power terminates upon incapacity
- lapse of specified/reasonable time;
- happening of specified event;
- breach of fiduciary duty;
- change in circumstances, including destruction of subject matter of authorization, insolvency, or change in law / business conditions.
- Principal "cloaks" agent with the appearance of authority; and
- Third party reasonably relies on such appearance of authority. (Think about what P did to indicate to third party that A has authority).
Lingering Apparent Authority:
- Notice: where actual atuhority has been terminated, he will have apparent authoirty to act on P's behalf until third parties receive actual/constructive notice of termination.
- Writing manifesting authority: where actual authority has been terminated but third parties rely on written authority of agent, apparent authority is not conisdered erminated.
- Where P negligently permit an imposter to be in a position to appear to have agency authority, the principal will be held liable for the imposter's actions undertaken with such authority.
Agent Exceeds Actual Authority
- Where P previously permitted A to exceed authority and knows third party is aware of this, P bound.
- Where A is in a position that customarily carries with it certain responsibilities, P liable for A's acts that come within those customary responsibilities.
- Secret limiting instructions: where P secretly limits A's authority and A acts beyond, P bound.
- Derived solely from agency relationship and results in principal's being bound even though there was no actual or apparent authority (To protect innocent third parties). Examples:
- Respondeat superior (torts of employee w/in scope of employment);
- Conduct similar to that authorized;
- Improper disposition of goods (principal held liable for the disposition of her goods by an agent possessing them, if the agent was given some indicia of ownership or if the goods disposed of were sold by an agent who is a dealer in the particular goods.
- Agency relationship is created by ratification when an "agent" purports to act on behalf of P without any authority at all, but P subsequently validates the act and becomes bound. The ratification gives the transaction retroactive effect unless P lacked contractual capacity at the time the agent entered into the contract.
- P must:
- know all material facts regarding the K;
- accept its benefits;
- not change any terms of the K.
Liabilities of Agents to Third Parties
- Generally A is not liable on authorized contracts unless P is partially disclosed (identity not disclosed) or undisclosed (existence of not disclosed), in which case authorized agent may be held liable at the election of the third party. Suit against either one does not bar later used against other except to the extent of satisfaction of the claim.
Third party liability to principal and agent
- Disclosed principal: where principal is disclosed, only the principal and not the agent may enforce the K and hold third party liable.
Partially/Undisclosed principal: either P or A may enforce K and hold third party liable. IF A enforces K, P entitled to all rights and benefits thereunder.
- principal may not enforce K if there has been an affirmative fraudulent misrepresentation of P's identity or unforeseen increased burden to third-party due to fact that performance is owed to the principal and not to the agent.
- if appointed with authority, subagent owes P same duties as A; if unauthorized, no duties to P but owes duties to A.
Rights and Duties of Agents to Principles
Agents owe to principals:
- duty of care (not to be negligent in acting on P's behalf);
- duty of obeying reasonable instructions;
- duty of loyalty (no self-dealing, usurpation of P's opportunity, or secret profits at P's expense).
- ALSO: absolute liability to P for breaches of subagent
- Contract action, tort action, action for secret profits, equitable actions for an accounting, and withholding of compensaton for intentional torts or intentional breaches of fiduciary duty.
Principle's Duties to Agent
- all duties imposed by contract, reasonable compensation, and reimbursement for expenses.
- Cooperate with agent and not unreasonably interfere with performance.
- If agency agreement silent re compensation, agent entitled to reasonable compensation.
- No duty to compensate a subagent, even if agent had authority to hire subagent.
- A compensated agent has the usual contract remedies against the principal (but has duty to mitigate damages). Also, an agent has a right to a possessory lien for any money due from the principal.
Real Estate Broker's Contracts
- Exclusive contracts -- enables real estate broker to get commission if anyone produces ready, willing, and able buyer.
- Non-exclusive contracts -- entitles broker to compensation upon production of a ready, willing, and able buyer even if sale is not consummated.
- Right to compensation -- must be licensed to enforce claim for commissions.
Agency and Statute of Frauds
Generally a writing is NOT required, except where the contract the agent is to enter into on the principal's behalf is for an interest in land for more than one year. Then, there must be a writing re the agency relationship.