Condensed Outline
Agency
Restatement 3rd of Agency
1st question to ask: Is there an agency relationship?
Mutual Agreement
P Controls. A
A acts on behalf of P
Principal’s Control: Any right to control the conduct of the agent will usually suffice as principal having control.
2nd question to ask: Contract (foucs on authority of agent) or Tort (focus on scope of agent)?
Liability in Contract
Principal (P) will be liable to Third Parties (3rd P) in contract (K) if his Agent (A) has authority
Always start analysis with Acutal Authority, then move down the list if Actual is not met
Type of Authority:
Express Actual
Implied Actual
Apparent Authority Inherent Authority
Authoity
Authority
principal expressly
principal’s words or
principal’s words or
3rd Party’s lack of
Created By:
communicated to an
conduct, reasonably
conduct, reasonably
knowledge of
agent
interpreted, causes
interpreted, causes
principal
the agent to believe
the third person to
that he has authority
believe that the agent
has authority
determined by
act necessary or
power held by an
power from
Scope:
whether a reasonable incidental to
agent or other actor
undisclosed principal
person in the agent’s achieving the
to affect a principal’s
position
principal’s objectives legal relations w/ 3rd
parties
Terminated simply through mutual assent,
Ends only when it is
Termination:
death of P or A (or when they cease to exist). no longer reasonable
Terminated @ will. But it doesn’t terminate
for 3rd P to believe
apparent authority held by A. [if coupled
A continues to act w/
with an interest, agency relationship cannot
acutal authority
be terminated @ will]
Implied Actual Authority: An agent’s understanding of the principal’s objectives is reasonable if it accords with the
principal’s manifestations and the inferences that a reasonable person in the agent’s position would draw from the
circumstances creating the agency. § 2.02(3).
Apparent Authority: Thus, to prove apparent authority, it must be shown that:
1. A person manifested the authority to alter the legal status of another;
2. A third party reasonably believed these manifestations authorized the person; and
3. This belief is traceable to the principal’s manifestations.
Inherent Authority: Inherent authority exists to protect third parties who would not have entered into agreements had they
known the agency relationship existed with the express limitation.
Cases of inherent authority usually crops up in a certain fact pattern:
1. Generally, there is an agency relationship, where the agent does not have actual or apparent authority.
2. This is ordinarily because the third party does not know that they are dealing with an agent.
3. The agent’s authority is also usually limited in a dramatic way, but the third-party is unaware of this
limitation.
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Condensed Outline
Prinicpal is:
3rd Party’s Level of
Notice interacting w/
Agent
Is Principal Liable to
3rd Party?
Reason
Agent’s Liability to
3rd Party
Reason
3rd Party’s Liabilty to
Principal
Reason
Performance
Reason
§ 6.01
disclosed
Knows P exisits &
P’s identiy
Inherent Authority
§ 6.02
undisclosed
Doesn’t know P exists at ALL
Yes
Yes,
P contractually bound
to 3rd P
P liable to 3rd P, who justifiably
induced to change position by A
w/o actual authority.
If P had: (1) notice of A’s conduct;
& (2) didn’t take reasonable steps §
2.06(1)
Yes
All parties were part of the
contract. 3rd P knew of P,
just not name, A acting for P.
So both A&P liable to 3rd P
A was part of K (since P is
undisclosed)
If A had authority, & P
undisclosed, then 3rd P bound to
K with A
Unless:
P’s existence was covered by
fraud; or if A or P had notice that
3rd P would not deal with P
No
A was part of K
3rd P didn’t know P existed. 3rd P
& A bound by K
3rd P knew P existed, and
knew A was acting for P; so
3rd P bound to P
No
A not a party to the
contract(K)
Yes
P & 3rd P parties to
K
if:
§ 6.03
unidentified
Knows P exists, but not
identiy
Yes
Yes
Agent has duty to disclose
Principal & A avoids liability
by disclosure of P
Yes
Undiscolsed P cannot require 3rd
P to accept their performance
instead of A’s, if that substantially
changes performance. Nor can P
require 3rd P to render
performance to them, if that
substantially changes the nature of
the party’s obligations
b/c 3rd P believed contracting with
A. So 3rd P wants A’s
performance & 3rd P exepcts to
render their’s to A
Thus, to hold an undisclosed principal liable to third parties under inherent authority, it must be shown that:
1. There is an undisclosed principle;
2. A third party was justifiably induced to make a detrimental change in position.
3. The third party is induced by an agent acting without actual authority;
4. Further, the undisclosed principal must have:
a. Notice that the agent’s conduct might induce others; and
b. Did not take reasonable steps to notify the third party of the facts.
Ratification  P affiriming act, reverts back to agency formation, and gives A actual authority @ formation time
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Condensed Outline
Most Common Basis: Implied Ratification  P has knowledge, accepts benefits, and fails to reject it.
Per § 4.01(2), a person ratifies an act by either:
1. Manifesting assent that the act shall affect the person’s legal relations, or
2. Engages in conduct that justifies a reasonable assumption that the person so consents.
A ratification is not effective unless is encompasses the entirety of an act, contract, or other single
transaction. § 4.07.
Per § 4.02(2)(a)-(c), Ratification is not effective:
1. In favor of a person who causes it by misrepresentation or other conduct that would make a
contract voidable;
2. In favor of an agent against a principal when the principal ratifies to avoid a loss;
3. To diminish the rights or other interest of persons, not parties to the transaction, that were
acquired in the subject matter prior to the ratification.
If a person makes a manifestation that the person has ratified another’s act and the manifestation, as reasonably understood
by a third party, induces the third party to make a detrimental change in position, the person may be estopped to deny the
ratification. § 4.08.
Doctrine of Estoppel P is liable when they mislead 3rd P to believe A has authority
o often required that the 3rd P justifiably rely on the A’s purported authority.
o Estoppel holds Principal subject to liability to a third party who justifiably is induced to make a detrimental change
in position because the transaction is believed to be on the person’s account, if:
1. The person intentionally or carelessly caused such beliefs, or
2. Having notice of such belief and that it might induce others to change their positions, the person did not
take reasonable steps to notify them of the facts.
5 ways to get a principal bound by liability under contract to third parties:
Actual Authority
Apparent Authority Inherent Authority
Ratification
Estoppel
§ 2.01
§ 2.03
§ 2.06
§ 4.07
§ 2.05
Uses agent’s authority to bind principal to agent’s actions
retroactively creates
prevents the denial of
the effect of the agent an existence of an
having actual
agency relationship
authority
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Condensed Outline
Liability in Tort
Pursuant to the doctrine of respondeat superior, an employer is responsible for the torts committed by an employee acting
within the scope of their employment. An employee is an agent whose principal controls or has the right to control the
manner and means of the agent’s performance of work.
Party Creating
Liability for
Principal
Liability
Created by:
Doctrine:
–
–
–
Principal
Employee
Independent
Contractor
Their own actions &
negligence in hiring,
supervising, or otherwise
controlling the agent. §
7.05(1)
E Acting w/in Scope
of Employment
(Actual Authoirty)
Or by P’s ratification
P Not Liable, unless
exception applies
Direct liability for E’s
actions, b/c of P’s own
negligence
Respondeat Superior
§2.04 (Vicarious
Liabilty) § 7.04 & §
7.07
Nondelegable Duty,
Abnormally Dangerous
Activities; or
Negligence
A principal required by
contract or otherwise
by law to protect
another cannot avoid
liability by delegating
performance of the
duty, whether or not
the delegate is an
agent. § 7.06
Tortious
Misrepresentations
Agent
[or if P enable’s the
A to conceal its
commission then P
creates direct
liability for
themself]
Vicarious Liabilty
A in dealing or
communicating
with a 3rd P on or
purportedly on
behalf of the P
when actions taken
by the A w/
apparent authority
constitute the tort
§ 7.08
employee acts within the scope of employment when performing work assigned by the employer or engaging in
a course of conduct subject to the employer's control.
employee is an agent whose principal controls or has the right to control the manner and means of the agent's
performance of work, and gratuitously performed work does not relieve a principal of liability. § 7.07(3)(a)
An employee's act is not within the scope of employment when it occurs within an independent course of conduct
not intended by the employee to serve any purpose of the employer. § 7.07(2)
Factors used to determine whether an employee’s acts are within the scope of employment:
1. The time, place, and purpose of the act;
2. Its similarity to acts which the servant is authorized to perform;
3. Whether the act is commonly performed by servants;
4. The extent of departure from normal methods; and
5. Whether the master would reasonably expect such act would be performed.
Borrowed Servant Doctrine: When a servant or employee is working for 2 employers, and commits a negligent act within
the scope of employment, liability should be allocated to the employer in the best position to take measures to prevent the
injury suffered by the third party. An employer is in that position if the employer has the right to control an employee’s
conduct.
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Condensed Outline
The Torts of Independent Contractors: An employer is not liable for the torts of an independent contractor. There are
exceptions to this general rules: principals subject to a non-delegable duty; abnormally dangerous activities; or negligence
in selecting or supervising independent contractors.
When a principal has a special relationship with another person, the principal owes that person a duty of reasonable care
with regard to risks arising out of the relationship, including the risk that agents of the principal will harm the person with
whom the principal has such a special relationship.
Summed Up Agent’s Duties Duty of Loyalty §8.01; Duty of Care §8.08 and Duty of Obedience §8.07
Summed Up Principal’s Duties duty to deal with agent fairly and in good faith §8.15
Imputing an Agent’s Knowledge to the Principal
In general, the agent’s knowledge is imputed to the principal if that knowledge is material to the agent’s duties to the
principal or concerns a matter within the scope of the agent’s actual authority. The agent’s knowledge is imputed no
matter when or how the agent acquired the knowledge, unless the agent is subject to a duty not to disclose the fact to the
principal, or the third party knows or has reason to know that the agent is acting adversely to the principal. When knowledge
is imputed, the principal is charged with the agent’s actual knowledge and information the agent has reason to know.
Termination of the Agency Relationship
Most Important Rule in this area is that the principal or agent may terminate the agency relationship at will, even
when such termination may constitute a breach of contract. The breaching party will be liable under contract law though.
This is allowed because no one is required to act against his will. [And there are times when breach of K claim is cheaper
and easier than damage a party can do when they are forced to remain in agency relationship]
The death of a principal or agent who is an individual will terminate the agency relationship. For principals and agents who
are not individuals, the agency relationship is terminated when the principal or agent cease to exist, commences a process
that will lead to cessation of existence, or has its powers of operation suspended.
The termination of actual authority does not by itself end any apparent authority held by an agent. Apparent authority ends
when it is no longer reasonable for the third party with whom an agent deals to believe that the agent continues to act with
actual authority. § 3.11.
***When an agency is coupled with an interest, then the agency relationship cannot be terminate at will***
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–
Sub Agency
A subagent stands in a fiduciary relationship with the their imdeiate principal and the ultimate principal.
o The Sub can breach a duty to the ultimate P while following instructions of immediate P
An agent may appoint a subagent only if the agent has actual or apparent authority to do so.
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