AGENCY - 2007
I. AGENCY: The representation of others.
A. Definition: The fiduciary relation that results from the consent by one
person to act on behalf of another.
1. What is a Fiduciary: Person vested with a special form of trust.
 Lawyer-client, priest-parishioner, husband-wife, etc.
B. PLAYERS:
1. PRINCIPAL: The party represented
2. AGENT: The representative
a. Special For a particular transaction only.
b. General For general purposes or multiple transactions
3. THIRD PARTY The outside world
C. CAPACITY OF PRINCIPAL: The Restatement declares: "Any person
having the capacity to contract may appoint an agent, and any person may
be an agent."
1. So crazies, drunks, minors, prisoners don't have legal capacity to
create agency.
2. Note: Now can I appoint my son or a crazy person as my agent?
YES A principal can make one of these his agent (e.g. minor)
 So the agent does not have to have legal capacity - only the
Principal does!
II. Creation of AGENCY:
A. Can be created very informally….
1. Orally
2. Conduct
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3. In writing…No writing is required unless agent is hired to sign a
contract that falls under the Statute of Frauds….
 Agent is hired to buy/sell real estate
 Agent is hired under a multi-year contract
(more than one year)
III. DUTIES OF AGENT TO PRINCIPAL: The Agent has the fiduciary duty to
protect and serve his principal...
A. What if Agent is not being paid? SAME DUTIES APPLY to
GRATUITOUS AGENTS and AGENCIES FOR HIRE.
B. Duty of Loyalty:
1. To what does this loyalty extend:
a. Income: All income received from transactions must be turned
over to P.
b. Confidentiality. Agent cannot reveal secrets of his P. -particularly re: customer lists and trade secrets.
(1) What if the agent is fired or quits. 6 months later can he
divulge? Is there any more duty, since the agency
relationship has long passed?
-----Duty of Confidentiality continues FOREVER.
(2) Important for professionals: lawyers, CPA’s & doctors.
c. Avoid Commingling: Don’t mix P’s money with A’s money
d. Disclose & Avoid Conflicts of Interest:
(1) Important for Lawyers & C.P.A.'s: Cannot do anything to
that would conflict with interest of client. Especially comes
up in representing possible adverse parties.
(2) Competing with your employer a big “no no”
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C. DUTY OF PERFORMANCE: Areas of concern are....
1. Care & Skill: Must use that degree of care and skill in
fulfillment of agency duties as is normally expected of agents in the same or
similar areas doing similar work. Professional Negligence (malpractice):
This is where lawyers, CPA's and brokers get sued for lack of due care.
2. Reputation: Protect reputation of Principal. Act respectable.
3. Disclosure/Notification: You must disclose all information to
your principal that he would want or need.
4. Records/Accountinhg: Accurate records of transactions and
finances, accessible to principal. Also render accounting of
transactions
5. Stay within Scope: Do not exceed your authority as agent.
Check with Principal first before going beyond scope of authority.
D. DUTY TO OBEY: Must obey all reasonable instructions of the
Principal.
1. What if Principal tells you to lie, cheat or steal?
-----[NO -if it's a crime, immoral or against your beliefs.]
2. Give example of "Moon River" case….
IV. REMEDIES OF PRINCIPAL FOR AGENT'S BREACH:
A. Torts: Any tort that would apply. Big three are...
1. Negligence
2. Fraud
3. Intentional tort: e.g. Battery, Fraud
B. Restitution: Turn over Agent's ill gotten gain to Principal.
C. Constructive Trust/Equitable Lien: If Agent keeps profits and then
buys a corvette with them, Const. Trust or E.L. over corvette.
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D. Injunctive Relief: Can apply for Receiver or Injunctive.
E. Accounting: A financial reporting of all monies handled by Agent.
F. Discharge of Agent because of his breach of duties: Most agency or
employment relationships are "at will". Can be terminated at any time.
V. DUTIES OF PRINCIPAL TO AGENT:
A. Opportunity to work: Not found in all agency relationships. But they
all have an implied covenant that once agency relationship is undertaken by
principal, he shall give reasonable opportunity to agent to fulfill his duties.
B. Reputation: Same good conduct standard -- protect reputation of
Agent.
C. Compensation: Both express and implied promise (where the
Agency is an “Agency for Hire”). N/A to Gratuitous Agencies
D. Indemnity: Principal must reimburse or indemnify agent for
expenditures or losses. BUT -not if Agent was Negligent or did something
unauthorized/outside scope.
E. Cooperation
F. AGENT'S REMEDIES FOR PRINCIPAL'S BREACH: Pretty much
the same ones as for P. against A.
VI. THIRD PARTY LIABILITY: Now we will focus on the liabilities of the
Principal (and Agent) when the Agent is involved in the following with a third
party…
A. Agent signs a CONTRACT with 3P.
B. Agent commites a TORT against a 3P
C. Agent commits a CRIME involving a 3P.
VII. CONTRACT LIABILITY TO THIRD PARTIES: Whether a principal will
be responsible contractually for the acts of his or her agent.
A. RULE: A Principal will be liable to 3P for the contracts signed by
the Agent is the contract is either authorized or ratified.
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B. Authority is either ACTUAL or APPARENT.
C. ACTUAL AUTHORITY:
1. TWO KINDS:
a.
Express: The principal has specifically directed the
agent to perform a specific act.
Examples: Power of Attorney, Corporate
Resolution (bank account example), agency
or employment contract.
b.
Implied/Incidental: Authority an agent has to
perform such acts as may be reasonably necessary
to carry out his tasks under the express agency.
What an agent reasonably believes he or she has.
2. How does implied authority manifest itself:
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a. Conduct of P: Objective standard
b. Belief of A: Subjective standard
- OR -
VIII. APPARENT or OSTENSIBLE AUTHORITY: When the A doesn’t have
actual authority...
A. Fact Pattern:
1. No actual authority
2. Principal creates appearance of authority
3. Reliance by 3rd party
B. Definition: Apparent authority includes:
1. Authority that the P., either intentionally or by want of ordinary care,
causes or allows 3rd parties to believe the agent to possess.
2. Liability of principal extends to those persons who have...
a. Acted in good faith
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b. Exercised ordinary care
c. Detrimentally relied on apparent authority
C. NOTE: Although P. will be liable to 3rd P., P. can sue agent for
indemnity.
D. Distinguishing between Express, Implied and Apparent: When you see
question on the exam, look for this fact pattern…..
1. The question tells you that the Agent was given the authority
(principal said to him "YOU CAN DO THIS")……Express Authority
2. The principal told the Agent ”YOU CANNOT DO THIS” (or Agency
is terminated)….then only Apparent Authority or Ratification (see
below) is possible.
3. From the question you cannot tell one way or another whether the
Agent can or cannot do this. Wasn't told one way or another. Then the
ONLY POSSIBILITY is Implied Authority if it is within the expected duties of
this person.
IX. RATIFICATION: Affirmation by P. of an unauthorized act by A.
A. Elements/Fact Pattern:
1. Unauthorized act (once again, no authority)
2. For P's benefit
3. P affirms the act
B. Ratification can be express or implied…
1. Express - Principal says, OK I'll be responsible.
2. Implied - Principal says nothing but retains the benefits of the
contract (and he had an opportunity to reject it).
X. LIABILITY OF AGENT FOR CONTRACTS HE OR SHE SIGNS:
A. RULE: An Agent is not personally liable for authorized contracts
signed for the Principal within the Agent's scope of authority, unless….
1. Undisclosed Principal: or partially disclosed….
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2. Agent exceeds authority: If Agent signs a contract which they
were NOT AUTHORIZED to sign - they are personally responsible.
3. Agent agrees to be responsible in the contract. E.g. personal
guarantee of an officer required by the bank on a corporate loan.
XI. LIABILITY OF AGENTS AND PRINCIPALS FOR TORTS.
A. Liability of AGENT: An AGENT is always liable for any tort they
commit.
 whether they run a red light or strike someone, personally liable
B. Liability of PRINCIPAL: Depends what kind of tort…..
1. Intentional Tort: What if I hire student as TA and he pops
another student in the nose, am I responsible…..NO
 Rule is: A principal will not be liable for the intentional
torts of an Agent unless…
** Principal directed the tort
** It's a foreseeable part of the job
(e.g. bouncers, security guards, etc.)
2. Negligence: What if my TA drops hot cofee on the lap of
another student (and is therefore negligent), am I liable….YES, if in the
course and scope of employment.
a. Doctrine is called: Respondent Superior: I am
vicariously liable for the acts of my agent, if done during the course and
scope of the agency or employment.
b. What if I hire UCLA Teaching Assistants, Inc., a campus
business run by graduate students to grade my exams. Mr. _________, a
graduate student and company employee is sent to help grade the exams.
The coffee incident is repeated. Am I still going to be held liable:
 NO, not if the person hired is an independent contractor.
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 How do we determine if someone is an independent
contractor: Degree of CONTROL exercised by Principal.
 However, if Principal creates an appearance that an Ind.
Contractor is an agent, Principal is still liable
c. What if the coffee is spilled during my TA's work day, but
while he is on a coffee break at the vending machines down the hall or at
lunch at the snack shop. Am I liable? NO -- not course and scope... This is
the coming and going rule. Agent not liable if someone is coming to work,
going home, at break or at lunch.
d. One exception to all of this: What if Agent is out of town
on business or at a conference: On the job 24-hours a
day is the law.
e. Deviations from travel route: If minor, A. still “on the job”
and P liable. If major, A. not on the job and P. not liable.
3. In any situation where P. hires a “dangerous” A. (with a history
of wrongful conduct), then P. liable for A’s torts (whether
intentional or negligent) based on theory of “negligent hiring”.
XII. CRIMES: Rule is simple: A principal is NOT responsible for the crimes
of an agent (only the Agent is responsible) unless authorized.
XIII. AGENCY OPERATION AND TERMINATION:
A. OPERATION:
1. Notice, Payment & Knowledge: So if your agent is paid,
notified or knows about it-- the principal is presumed to have received the
knowledge or the payment.
2. Subagents:
a. Subagents bind both P. and A.
b. Buy, A. may not create a subagency without P's approval
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3. Borrowed Servant: Who is responsible. Borrowing Master, unless
Original Master retains control.
B. TERMINATION OF AGENCY:
1. Usual types of termination:
a. Acts of Parties:
(1) Agreement of both P. and A.
(2) Renunciation by agent.
(3) Revocation by Principal
b. Operation of Law: Death, expiration or term, destruction of
subject matter.
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