AGENCY PROFESSOR WILLIAM BIRDTHISTLE CHICAGO–KENT COLLEGE OF LAW CHAPTER 1: THE AGENCY RELATIONSHIP A. Overview • Principal Every agency relationship must have a ____________________________ and an Agent ______________________________________. • Agent Generally, an _________________________ does things on behalf of the Principal Principal ______________________________________ and the ____________________________ Agent typically directs the ____________________________’s acts. • Why create an agency relationship? o o o • corporate To extend the principal's _________________________________________ reach To acquire the agent's expertise To make money Common examples of principal-agent relationships: o o o o Employee-Employer Named agents (e.g., talent agent, governmental agents, etc.) Partner-Partnership Officer/Director-Corporation • Whether an agency relationship exists matters because there is a legal consequence to valid liable agency relationships; when one exists, a principal can be held ____________________________ for acts of agents. • When might a principal be liable to third parties for the actions of the agent? o o In contracts In torts B. Components of Creating an Agency Relationship • Three components of an agency relationship (ABC): o o Assent A____________________________: This requires that both parties manifest an assent ____________________________________________________ to work with one another benefit B____________________________: The agent agrees to work for the benefit of the Principal ________________________________________________________ o • Control C____________________________: The agent agrees to work subject to the Control and direction ____________________________of the principal Consideration There is no requirement of ____________________________ to create an agency relationship. Example 1: You ask your new roommate to sign up your apartment for electricity. The roommate orders the electricity. When the bill arrives, will you be liable for payment? Y Answer: ________________________________________________________ Example 2: You ask your roommate to move your car for you for street cleaning. Your roommate says “Roger that.” When your roommate moves the car, he hits someone. Are you liable? Y Answer: ________________________________________________________ Exam Tip 1: The parties are not going to always say, or even think, that they are in an agency relationship. As long as the essential elements are there, an agency relationship exists. • When one or more parties disclaim the creation of an agency relationship, courts will look to manifestations assent ______________________________________________ of ____________________________ , which can range from a formal letter, to spoken words, to physical actions. CHAPTER 2: PRINCIPALS AND AGENTS A. Who Can Be a Principal? • legal capacity Almost any person or entity that has __________________________________ can be a principal. o • Types of entities that can be principals: o o o • minors This excludes: _________________ and anyone incapacitated by illness or intoxication. Employer Corporation; LLC Partnership; LLP Employers typically exert a great amount of control over employees. This includes a significant physical amount of control over the __________________________________ activities of the employees, including: o o o tools Giving the employees _________________ to work at the workplace; salary Paying employees on a structured _________________; and Directing the ways in which employees should finish and perform the tasks. 2 | © 2019 Themis Bar Review, LLC | Agency • un- official While most entities can be principals, __________________________________ associations legal capacity cannot because they lack __________________________________. Example 3: A book group, a bird-watching group, or a collection of folks who like to hang out at coffee shops do not have legal capacity. B. Who Can Be an Agent? • minimal Any person or entity who has __________________________________ capacity o • To have minimal capacity, an agent must be able to: o o o • minor A __________________________________ may serve as an agent. assent __________________________________ to the agency relationship; Perform the tasks on behalf of the principal; and control Be subject to the principal’s __________________________________. Generally, any type of business entity may serve as an agent. C. Formalities for Creating an Agency Relationship • Agency formation simply requires: (i) assent, (ii) benefit, and (iii) control. • consideration No __________________________________ is required to form an agency relationship; service may be gratuitous. • No evidence in writing is necessary. D. Types of Agents • Servants/employees: The employer has the right to control the agent’s physical activities employee __________________________________ conduct of _________________. • Independent contractors: The principal does not control or have the right to control the agent’s physical activities controctor __________________________________ conduct of _________________. o Characteristics of an independent contractor: independence Maintain a high level of __________________________________ Free to work for other people contractual amount Paid on a __________________________________ tools Typically owns his own _________________ Example 4: Law firm big wig tells an associate to drive him to a meeting downtown. That will be an employer/employee relationship. Now contrast that with the lawyer hailing a cab and telling the cab driver to drive him downtown. What are the differences? A pricipal has more liability in an employee-type agency relationship and less liability in an _________________________________________________________________ independent contractor-type relationship because they have less control over the contrcator. _________________________________________________________________ Agency | © 2019 Themis Bar Review, LLC | 3 liable This is relevant because principals are more _________________ when they have more control; they are more legally responsible. • any party can unilaterally Terminating an agency relationship: __________________________________ can terminate an without mutual agreement agency relationship __________________________________. CHAPTER 3: SPECIFIC LIABILITY OF PRINCIPALS TO THIRD PARTIES A. Introduction • When you encounter an agency problem on the bar, the fact pattern will include: 1) Activity that arguably constitutes the formation of an agency relationship between the principal and the agent; 2) The agent will do the work, either by entering into a contract on behalf of the principal or by doing a task in which the agent commits a tort; and 3) The principal is going to be sued by the third party—a contractual third-party or tort victim. B. Contract Liability • When is a principal liable for contracts that an agent enters on behalf of the principal? The principal is bound on a contract when: o o • authorized The principal __________________________________ the agent to enter into the contract; and legal authority The agent acted with __________________________________ There are four types of legal authority: o o o o actual express __________________________________ authority actual implied __________________________________ authority apparent __________________________________ authority Ratification Exam Tip 2: As a general rule, when you are trying to discern between actual authority and apparent authority, look to the communication. When the principal is communicating with the agent, there is actual authority; when the principal is communicating with the third party, there is apparent authority. 4 | © 2019 Themis Bar Review, LLC | Agency CHAPTER 4: ACTUAL AUTHORITY A. Actual Express Authority • Look to communication between agent and principal. • words The principal creates actual express authority by using _________________, writting physical gestures _________________ or _________________ to convey authority to the agent. Example 5: You whisper in the ear of your roommate to have your car washed. Or you write something down on paper to tell your roommate to have the car washed, but then you burn the paper. When you receive a bill from the car wash, who is liable to pay? Why? principal Answer: The __________________________________ is bound to pay. An agency relationship existed. The agent had actual express authority to act on the principal’s behalf. 1. Requisite Intent o o subjectively believe that he is doing what the principal Subjective intent: The agent must _________________ wants _________________ him to do. reasonable Objective intent: The belief must be objectively __________________________________. 2. Termination by Death o o terminates Upon the death of the principal, actual express authority ____________________________ actual knowledge when the agent has __________________________________ of the principal’s death. immediately Actual express authority terminates __________________________________ upon the death of the agent. B. Actual Implied Authority • principal agent Look to communication between _________________ and ____________________________. • A principal creates actual implied authority by using words, written or spoken, or physical gestures __________________________________ to convey authority to the agent to take whatever necessary steps are __________________________________ to achieve the principal’s objectives. • The agent has actual implied authority (absent express instructions to the contrary) to act within business custom the accepted ___________________________________________________ or general trade usage ___________________________________________________. Example 6: You tell your roommate, who happens to be a talent agent, to get you a role in the new Aquaman film. In an attempt to do this, your roommate takes the producer of the film out to dinner and tells the waiter to send the bill to you. Are you bound by the bill? Y Answer: _________________. The agent had actual implied authority to do whatever was necessary, under accepted business custom or trade usage, to secure the role for the principal. Agency | © 2019 Themis Bar Review, LLC | 5 Example 7: A barista has been signing invoices for cups without receiving instructions from the restaurant’s owner. The owner has seen this take place several times. One morning, a delivery of cups arrives and the barista signs for the delivery without first receiving authorization from the owner. The owner, seeing this take place, does not object. Will the owner be liable for deliveries signed by the barista? Answer: Yes, because the owner saw and did not object. CHAPTER 5: APPARENT AUTHORITY AND RATIFICATION A. Apparent Authority • principal Look to communication between the __________________________________ and the third party __________________________________. • The principal creates apparent authority by words, written or spoken, that cause the third party __________________________________ to reasonably believe that the principal agrees agent ____________________ to have acts done on the principal’s behalf, by the ________________. • Is the third party’s belief reasonable? Have the principal and the third party had similar dealings before? I tell the wine store that my butler has the authority to buy my apparent authority wine for me. The butler has __________________________________. Example 8: If I send a letter to the wine store instead, would I, as principal, be bound by the y butler’s actions? _________________. I tell the wine store the same thing, but I tell the butler that I can’t stand the German stuff, and not to order any. The butler does it anyway. Am I bound to Y pay? _________________. What if I fire the butler, but he still occasionally orders things and puts it on my Y bill, am I still liable? _________________, until the apparent authority is revoked. The principal must tell the store that he is no longer bound. B. Ratification • There's no pre-act communication to consider. • Ratification requires that (i) the principal has knowledge of the material terms of the contract enjoys and (ii) the principal then __________________________________ the contract’s benefits __________________________________. Example 9: I have said nothing to my butler about wine, and I have said nothing to the store. I just hired the butler yesterday. The butler, to cheer me up, goes down to the store on the very first day of employment and orders me a huge crate of wine; I have not authorized him and I have not 6 | © 2019 Themis Bar Review, LLC | Agency said anything to the store. He brings the crate of wine back and gently drops it at my feet. If I reject the wine, I am bound to pay the bill? N Answer: _________________ If I accept the wine, knowing the contract he entered to buy it for me, I am bound to pay the bill? Y Answer: _________________ Exam Tip 3: Remember that regardless of whether the principal is liable, the agent may still be liable for violating a contract or committing a tort, regardless of his status as an agent. In other words, it is possible for both the agent and the principal to be liable. CHAPTER 6: • DISCLOSURE OF PRINCIPALS Three types of principals: 1) Principals can be disclosed. The third party knows: (i) the agent is acting on behalf of a Principal __________________________________ and (ii) the principal’s identity __________________________________. • In these scenarios, the parties to the contract are the third party and the principal. 2) Sometimes, the principal is partially disclosed. The third party knows that the agent is identity working on behalf of a principal, but not the __________________________________ of the principal. • In these scenarios, the parties to the contract are the third party, the principal, and the agent. Note 1: The two scenarios above assume that the agent had the proper authority to bind the principal to a contract. Note that disclosed and partially disclosed principals only become parties to a contract if (i) the agent had authority to bind the principal to the contract, or (ii) the principal ratified the contract. 3) The principal can also be undisclosed. The third party knows neither agent’s status as an agent nor the principal’s identity. • In these scenarios, the parties to the contract are the third party agent __________________________________ and the _________________. • Whether an undisclosed principal is also party to the contract depends on whether authority the agent had the __________________________________ to bind the principal to the contract. Agency | © 2019 Themis Bar Review, LLC | 7 CHAPTER 7: PRINCIPALS’ LIABILITY FOR TORTS A. Vicarious Liability • Vicarious liability, or respondeat superior: A principal may be liable for the tortious acts of his agent. • Requirements for respondeat superior to apply: control 1) The principal has sufficient __________________________________ over the agent’s activities __________________________________ such that the agency relationship is employeremployee; and 2) The tort committed by the agent was committed while the agent was acting within the scope employment _________________ of his __________________________________. • Sufficient control: A principal who controls, or has the right to control, the Physical conduct ___________________________________________________ (manner and means) of the agent’s performance of work is in the higher category of employer-employee status. • A principal does NOT have vicarious liability for torts committed by an independent contractor. o Exceptions: inherently The task is __________________________________ dangerous. Example 10: You hire an independent contractor to remove your spent uranium from your bedroom. hiring The principal was negligent in __________________________________ the independent contractor. Example 11: If you just picked a name out of a hat for your uranium removal, you could be liable. • To determine scope of employment, ask: o o o • aspects of conduct and the tort occurs within The principal retains control over certain _________________ aspects those _________________. benefit Did the agent intend to _________________ the principal? hired Was the agent’s conduct of the kind that the agent was _________________ to perform? within the scope of employment Did the tort occur “__________________________________?” Look for frolic and detour: o total Frolic: A __________________________________ deviation from an assigned path; outside scope of employment Example 12: A UPS driver, while making a delivery, stops to play basketball and commits a tort against one of the other players. There is no liability to the principal because the tort was outside the scope of employment. 8 | © 2019 Themis Bar Review, LLC | Agency o slight Detour: A __________________________________ deviation from an assigned path; within scope of employment Example 13: A UPS driver takes a shortcut and gets in an accident with another driver. The principal is probably liable because the tort was within the scope of employment. Example 14: A UPS driver comes back to the office and dribbles a basketball around the office while waiting to load the trucks. The principal is probably liable because the tort was within the scope of employment. B. Intentional Torts • outside Generally, intentional torts are __________________________________ the scope of employment. Therefore, there would not be liability for the principal __________________________________. • Exceptions in which a principal may be held vicariously liable for intentional torts: o o o space time The conduct occurred within the general _________________ and _________________ limits of employment. benefit The agent was motivated in some part to __________________________________ the principal. The act is of a kind that the agent was hired to perform. Example 15: A pitcher is warming up at the ballgame in the bullpen, and a fan is mouthing off to him. The pitcher beans the fan in the head with one of the balls. Example 16: A salesperson intentionally lies about a product. CHAPTER 8: • FIDUCIARY DUTIES Three duties that all agents owe to principals—even if the agent is unpaid: care 1) Duty to exercise reasonable _________________ understand 2) Duty to _________________reasonable instructions 3) Duty of loyalty A. Duty of Loyalty • usurp The agent cannot _________________ a business opportunity. Example 17: A machinist is working for a company and has the opportunity to moonlight or do some separate work on the side; he cannot do it. • secret profits The agent cannot take in __________________________________. Agency | © 2019 Themis Bar Review, LLC | 9 Example 18: If a soldier, in uniform, uses the uniform to help smugglers get supplies past a military checkpoint, then those are secret profits that should have been disgorged to the soldier’s boss. • The agent cannot compete in competing businesses with the principal. Example 19: A cleaner who leaves the employ of a cleaning company and takes the customer list. [END OF HANDOUT] 10 | © 2019 Themis Bar Review, LLC | Agency