How to approach an agency question..

(or partnership/corporation question involving an agency relationship)

i. identify the existence of agency relationships

ii. discuss whether the principal is subject to liability for the agent's actions

iii. articulate an agent's fiduciary duty to perform to the principal and whether the agent has breached

iv. determine if or when an agency relationship has terminated.

A agency relationship is created when:

i. a principal manifests assent to an agent

ii. the agent acts on the principal's behalf

iii. the agent's actions are subject to the principal's control

iv. the agent manifests assent or otherwise consents

What are the types of principals?

Individual

Master/employer

Entrepreneur

Corporation

Partnership

What are the factors that contribute to a court's analysis to determine a principal's status for a master/employer?

i. principal controls day-to-day

ii. principal supplies the tools at the place of employment

iii. principal pays the worker on a structured pay period

iv. work's skill level is specialized

v. the principal directs the work to completion.

What are the factors that contribute to a court's analysis to determine a principal's status for a master/employer?

i. principal controls day-to-day

ii. principal supplies the tools at the place of employment

iii. principal pays the worker on a structured pay period

iv. work's skill level is specialized

v. the principal directs the work to completion.

Does an agent need to receive consideration?

NO

What are the types of agents?

Individual

Servant/employee

Independent contractor

Gratuitous agent

General and Special agents

Trustee as agent

subagents

What are the characteristics of an independent contractor?

i. Bears the risk and benefits from good management;

ii. maintains a high level of independence;

iii. is free to work for others;

iv. agrees to be paid a fixed fee

v. receives payment based on results;

vi. is liable for work performed

vii. accepts responsibility to remedy defects at her own expense.

What are general/special agents?

General: managers and purchasing agents

Special: real estate agent, subagent, insurance agent, commission merchants, and bailees

Formation of Agency Relationship: Capacity

Can someone who cannot form a contract, be an agent?

yes

Formation of Agency Relationship: Capacity

What are examples of unincorporated associations?
 

Religious associations

literary associations

professional associations

charitable associations

social associations

Formation of Agency Relationship: Writing Requirement

What rule is applied, when the principal's authorization is required in writing by statute?

Equal Dignity Rule

the authorization must be of equal dignity to the underlying transactions

Operates to protect the principal against 3rd party actions.

Liability of the Principal and Agent to Third Parties: Contractual liability of the principal

When does an agent have the power to bind the principal?

i. agent has actual authority (express or implied)

ii. the agent has apparent authority; or

iii. the principal is estopped from denying the agent's authority

Principal can become subject to liability if the principal ratifies a contract that the agent did not have the authority to make.

Liability of the Principal and Agent to Third Parties: Contractual liability of the principal

How is express actual authority created?

1. Oral or written words;
2. clear, direct, and definite language; or
3. specific detailed terms and instructions 

Liability of the Principal and Agent to Third Parties: Contractual liability of the principal

What is the standard of intent required for express actual authority?

Liability of the Principal and Agent to Third Parties: Contractual liability of the principal

What is Implied actual authority?

Allows and agent to take whatever actions (designated or implied in the principal's manifestations) are properly necessary to achieve the principal's objectives, based on the agent's reasonable understanding of the manifestations and objectives of the principal.

Example: The authority to interview is implied in the agent's authority to hire.

Liability of the Principal and Agent to Third Parties: Contractual liability of the principal: Implied actual Authority

The authority to make purchases on behalf of the principal may create implied authority in an agent to:

i. make payments for goods and services purchased;

ii. accept deliveries; and

iii. collect funds

Liability of the Principal and Agent to Third Parties: Contractual liability of the principal

What are the types of implied authority?

i. customary implied authority 

ii. implied authority by position 

iii. implied by acquiescence

iv. implied authority due to emergency

v. implied authority to delegate

Liability of the Principal and Agent to Third Parties: Contractual liability of the principal: implied actual authority

Where does the implied authority based on acquiescence commonly come from?

i. The principal's acceptance of the agent's acts as they occur; or

ii. the principal's failure to object to the unauthorized actions of the agent which:

- affirm the agent's belief that those actions further the principal's objectives; and

- support the agent's perceived authority to act in the future

Liability of the Principal and Agent to Third Parties: Contractual liability of the principal: implied actual authority

Under what circumstances might an agent have an implied authority to delegate duties to a third person?

i. Mechanical of ministerial acts

ii. situation or circumstance specific

iii. custom or usage

iv. impossibility

Liability of the Principal and Agent to Third Parties: Contractual liability of the principal: Apparent Authority

From what does apparent authority derive?

Reasonable reliance of a third party, on that party's perception of the level of authority granted to the agent by the principal.

Based on principal's behavior over a period of time.

Liability of the Principal and Agent to Third Parties: Contractual liability of the principal: implied actual authority

Implied: results when the principal's words or actions cause an agent to reasonably believe in the agent's authority to act. Based on the agent's reasonable belief.

Apparent: results when the principal causes a third party to reasonably believe agent has authority to act. Focuses on the reasonable belief of the third party.

Liability of the Principal and Agent to Third Parties: Contractual liability of the principal: implied actual authority

Look to the principal's manifestation that reaches the third party and could reasonably cause the third party to believe that the agent is authorized

The key is the principal's behavior, not the agent's and the third party's perceptions which result from it.

Liability of the Principal and Agent to Third Parties: Contractual liability of the principal: 

What factors contribute to the reasonable belief of the third party for apparent authority?

i. past dealings between the principal and agent of which 3rd party is aware

ii. trade customs 

iii. industry standards

iv. principal's written statements of authority.

v. transactions that do not benefit the principal; of

vi. extraordinary or novel transactions for the principal or similar types of principals.

Liability of the Principal and Agent to Third Parties: Contractual liability of the principal: Apparent Authority

Is information known by a third party, that a person is an agent for an organization without knowledge of the person's position in the organization sufficient basis to support a belief in the agent's authority?

NO

Liability of the Principal and Agent to Third Parties: Contractual liability of the principal: Termination of Authority

An agent's actual authority may be terminated by:

i. principal's revocation

ii. principal's agreement with the agent;

iii. a change of circumstances;

iv. the passage of time

v. the principal's death or suspension of powers;

vi. the agent's death or suspension of powers;

vii. The principal's loss of capacity; or

viii. A statutorily mandated termination

Liability of the Principal and Agent to Third Parties: Contractual liability of the principal: Termination of Authority

Revocation: who can revoke or renounce consent?

Liability of the Principal and Agent to Third Parties: Contractual liability of the principal: Termination of Authority: Changed Circumstance

Agency relationships may end as a result of:

i. A Change in a statute relating to subject matter

ii. insolvency of either party

iii. a dramatic change in business conditions

iv. the destruction of the subject matter of the agency relationship; or

v. disaster (natural or unnatural)

Liability of the Principal and Agent to Third Parties: Contractual liability of the principal: Ratification

In order for ratification to occur, the following elements must exist:

i. principal must ratify the entire act, contract, or transaction

ii. principal must have the legal capacity to ratify the transaction at the time it occurs

iii. the principal's ratification must be timely.

iv. the principal must have knowledge of the material facts involved in the original act.

Liability of the Principal and Agent to Third Parties: Principal's liability to third parties in tort for agent's conduct:

Under the doctrine of respondeat superior, when can a principal be vicariously liable for a tort committed by an agent?

When the agent is acting within the scope of his employment.

Principal is liable despite the absence of tortious conduct by the principal = derivative liability.

Liability of the Principal and Agent to Third Parties: Principal's liability to third parties in tort for agent's conduct:

A principal is vicariously liable to a third party harmed by the agent's conduct when:

i. the agent is a servant (employee); and

ii. the agent commits a tort while acting within the scope of employment

Liability of the Principal and Agent to Third Parties: Principal's liability to third parties in tort for agent's conduct:

What is acting within the scope of employment?

i. performing work assigned by the employer; or

ii. engaging in a course of conduct subject to the employer's control

**If an employee acts independently of any intent to serve any purpose of the employer, the employer may escape liability.

Liability of the Principal and Agent to Third Parties: Principal's liability to third parties in tort for agent's conduct:

Frolic v. Detour

Frolic: significant deviation = outside scope of employment

Detour: small departure = probably within scope

Liability of the Principal and Agent to Third Parties: Principal's liability to third parties in tort for agent's conduct:

What is required for apparent authority to exist in vicarious liability?

Actual Authority and such belief must be reasonable and be traceable to a manifestation by the principal

Liability of the Principal and Agent to Third Parties: Principal's liability to third parties in tort for agent's conduct:

When is a principal directly liable to third parties?

i. the principal authorizes or ratifies the agent's conduct;

ii. the principal is negligent in selecting, supervising, or otherwise controlling the agent; or

iii. the principal delegates to an agent performance of a non-delegable duty to use care to protect other persons or their property and the agent breaches the duty.

Liability of the Principal and Agent to Third Parties: Principal's liability to third parties in tort for agent's conduct:

When is a duty non-delegable?

When the responsibility is so important to the community that a person should not be permitted to transfer it to another person.

Examples: Landlord keeping premises in safe condition, use of care in inherently dangerous activities = explosives.

Agent's Liability:

What must an agent do to avoid becoming a party to a K?

i. enter into the K on behalf of the disclosed principal

ii. affirmatively disclose to the third party both the existence and identity of the principal; and

iii. not agree to become a party to the K

Agent's Liability:

Is an agent of a partially-disclosed principal a party to a K?

yes, unless the agent and third party agree otherwise.

Agent's Liability:

What does the election of remedies doctrine require?

Agent's Liability:

Generally a third party is liable to an undisclosed principal on a K made with an agent on behalf of the principal unless:

i. the principal or undisclosed principals are excluded by the form or terms of the K; or

ii. the principals existence is fraudulently concealed, i.e., the agent falsely represents to the third party that the agent does not act on behalf of the principal.

Agent's Liability: Undisclosed Principal

Generally an undisclosed principal is liable to a third party if:

i. the third party is induced to make a detrimental change in position by an agent without actual authority;

ii. the principal knew of the agent's conduct and that it might induce others to change positions, and 

iii. did not take reasonable steps to notify the third party of the facts

Agent's Liability: Agent's warranty of authority

When is an agent treated as giving an implied warranty of authority?

What are the principal's remedies for breach by an agent?

i. injunction

ii. breach of contract for harm suffered, including monetary damages;

iii. tort action for harm suffered including punitive damages

iv. avoidance or rescission of a K or transaction

v. restitution

vi. an accounting to principal for value of the agent's use of the principal's property

vii. termination of agency relationship

viii. Forfeiture of commission or other compensation paid or payable; and

xi. Disgorgement of profits earned by the agent without the principal's consent

What are the two basic duties of an agent to a principal?

Duty of loyalty: fiduciary duty

Performance Based duty: includes a duty of care

What are the must have duties required to addressing duties of an agent to the principal>?

i. duty of care to perform with reasonable diligence and skill

ii. duty to provide information to the principal regarding all matters relating to the agent relationship;

iii. duty of loyalty to the principal and to work only for his benefit

iv. duty of obedience to the principal; and

v. duties not to usurp a business opportunity from the principal; not to take financial gain from the principal; to provide an accounting; and to not commingle the principal's property with that of a third party.