AGENCY LAW
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There are THREE relationships involved in Agency Law:
Principal – Agent
Principal – Third Party
Agent – Third Party
Principal
Agent
Third Party
In any situation, the rules relating to each relationship must be applied
INDEPENDENTLY of the others.
The result in one relationship may have an influence on results (liability)
in one or both of the other relationships
2
The Principal – Agent relationship is governed primarily by:
a. the Principal—Agent agreement,
b. the law-imposed duties each owes to the other, and
c. ______________________
Principal
A.
Agent
The Principal – Agent relationship is created by ________________
1.
The Principal requests [consent] the Agent to do something for
the Principal
2.
The Agent agrees [consent] to do the act(s) requested
by the Principal
3.
Except to the extent expressly agreed otherwise, the law:
a.
Assumes the _____________ in the Principal, which carries
with it responsibility for the Agent’s acts while carrying
out the agreed tasks (contrary agreement = no agency)
b.
Imposes many _____________________ on the Agent
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IMPORTANT NOTE:
1.
The distinction between “employee” and “independent contractor”
is irrelevant to the “principal”–“agent” relationship.
2.
The rules governing the principal – agent relationship apply equally
to employees and independent contractors.
3.
If the parties to the agency relationship also have a contract:
4.
a.
The contract terms may clarify or modify (to some degree)
general agency-law rules
b.
The extent to which the parties perform, breach, can enforce,
etc., the contract depend on contract law, not agency law
c.
The extent to which the parties perform, breach, can enforce,
etc., the agency agreement/relationship depend on agency
law, not contract law
Mixing agency law with contract and/or employment law causes
confusion and, frequently, incorrect conclusions
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B.
Among the things NOT needed to create an agency relationship:
1.
A _______________, i.e. consideration is not required
2.
Something in writing, unless the act to be done by the agent must
be in writing (e.g. signing a real property deed).
3.
_________________, such as “principal,” “agent,” “agency,” etc.
4.
An _____________ concerning the agent’s duties, the principal’s
responsibilities, or other rights and responsibilities
» E.G. giving a person the job/title of store manager implies
that person has the authority to do what is necessary to
perform the functions of store manager
(a/k/a “implied actual authority”)
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Ratification:
“Ratification” happens (in any situation) when one party does some
act that may benefit or obligate (intentionally or unintentionally)
another party to perform some act(s).
The second party can, if it chooses, to perform the obligation/contract.
That agreement or actual performance “ratifies” the other party’s
act and assumes the obligations (maybe contract) created by that act.
One person’s ratification of a contract negotiated by someone who
was not the ratifier’s agent is only a ratification of the contract. That
does not retroactively create an agency relationship.
If the ratifying person/entity ratifies a number of contracts negotiated
by the not-agent, a court (applying equity principles) may hold that the
ratifying party created “apparent authority” in the negotiating person.
That would be something like ratifying the agency relationship.
It would also be much like creating an agency “by estoppel”
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D.
An Agent’s fiduciary duties (imposed by law)
1.
The duty of _________________
ALL fiduciaries have duties
similar to an agent’s, sometimes requiring an even higher
duty of care (such as a trustee
of property). Having a fiduciary duty, however, does NOT
necessarily imply the power to
legally bind someone else to a
contract
a.
Act only within the __________
her/his/its _________________
b.
To always place the principal’s
interests higher than anyone
else’s (including the agent’s)
c.
To deliver all property and opportunities to the principal
d.
To act exclusively for the principal ___________________________
____________________ otherwise, including
(1) Not acting as agent for another party at the same time
(2) Not competing with the principal
(3) Not personally benefiting as a result of acts or incidents
occurring while acting as agent
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E.
An agent’s other duties to the Principal
1.
To ________________ (except ones to do illegal or unethical things)
2.
To act with __________________
3.
a.
If the agent is a professional, he/she/it is held to professional
standards of care
b.
Applies to all related acts, from driving a car, to renting a
hotel room, to dealing with third parties
To provide the principal with complete and timely information
(because the principal is assumed to know everything its agent
knows)
An agent’s duties might be summarized as: “An agent has a duty to act
in all respects ___________________ if the principal were acting instead
of the agent.” The agent is a legal alter ego of the principal and must act
accordingly.
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F.
Principal’s remedies in case of Agent’s breach of duty
1.
The agent must ____________________________ received beyond
those expressly provided for in the principal – agent agreement
2.
Damages for ________________ incurred by the principal (including
profits the principal could have made if the agent had acted properly)
3.
a.
Includes losses [indemnification] and costs incurred [reimbursement] in performing contracts with third parties when the agent
did not have actual authority to agree on the principal’s behalf
b.
Includes tort damages paid by the principal to third parties
injured by the agent’s negligence
Rescission of any contracts between the principal and agent
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G.
Principal’s duties to Agent
1.
To ______________________ for costs incurred while carrying out the
agency
a.
b.
Applies even if the agent is a friend acting gratuitously
Assumes that the costs were reasonable and appropriate
(if not, agent would have breached a duty)
2.
To __________________ for any contract liability imposed on agent
3.
To indemnify agent for any tort liability imposed on agent for acts
which were specifically authorized (and agent did not know it was a tort)
4.
To _______________ with the agent so that the agent can perform
a.
b.
Other agents of the principal may not do anything the principal
could not do directly
Not unreasonably interfere with the agent’s performance
[But if the agency is not exclusive (area, subject matter) the
principal can compete]
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TERMINATION of a Principal – Agent Relationship
The course text (and most others) do not make sufficient
distinction between the agency relationship, which is based
on consent, and the related contract, if any.
The agency relationship can be terminated
by either party at any time.
Whenever an agency relationship ends, one or both
parties may have a cause of action against the other
for relationship-related things (indemnification, etc.)
IF the agency relationship is part of, or related to,
a contract, the act terminating the agency relationship may breach that contract.
IF there was a contract involved, the non-breaching
party might also have a cause of action based on the
contract (separate from any concerning the agency).
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A.
Things that terminate a Principal – Agent Relationship
1.
The ________________ by either Principal or Agent
(with notice, of course).
2.
Any event that would terminate a contract between the parties:
a.
Agreement between Principal and Agent to terminate
b.
Completion of the agency’s purpose
c.
Performance of agency becomes impossible
(1)
(2)
(3)
d.
Act/purpose becomes illegal
The subject matter ceases to exist (cow died)
Agent or Principal looses necessary qualification
(which usually makes performance illegal)
The Agent _____________ his/her ___________________
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3.
Termination of the agency ONLY terminates the agent’s __________
____________ for the principal
a.
Obligations between the parties that were created during
the relationship are not automatically terminated
(1) Any duty to ______________________________ continues
(2) Duty of indemnification and reimbursement continue
until fulfilled
(3) Duty to surrender Principal’s property and account
continue until fulfilled
b.
Agent’s general duty of loyalty does terminate
In all aspects of the Principal—Agent—Third Party situation, it is
VERY important to keep a clear separation between the rights, duties
and obligations imposed by _____________ and any rights or obligations
____________________________.
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AGENCY LAW – Part 2
The “Outside” Relationship
There are THREE relationships involved in Agency Law:
Principal – Agent
Principal – Third Party
Agent – Third Party
Principal
Agent
Third Party
In any situation, the rules relating to each relationship must be applied
INDEPENDENTLY of the others.
The result in one relationship may influence results in on one
or both of the other relationships
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I.
Principal – Agent & AUTHORITY
A.
This relationship is governed by agreement between Principal
and Agent
B.
Most important with respect to third parties is Agent’s authority
C.
In Principal – Agent relationship, the key is “_____________________”
1.
Actual authority can be either _______________________
a.
Express actual authority includes all the actions,
authorities, duties, etc., Principal expressly grants Agent
authority through:
(1) Contract, if any
(2) Job description of Agent’s position
(3) Specific instructions (oral or written) on any topic
b.
2.
Implied authority is based on ______________________ of
scope of authority normally associated with a particular job
May vary over the term of the relationship
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D.
Relationship between actual authority and Agent’s and
Principal’s liability to each other
1.
If Agent is acting within her/his actual authority, Principal is
responsible ________________ for carrying out any obligation
agreed to by Agent
Example: Agent agrees with Zelda that Principal will sell
Zelda 100 purple widgets at $5.25 each. Principal must
perform that contract, even if Principal did not really want to
sell to Zelda. (If Agent knew Principal did not want to sell to
Zelda, the contract would not be within her actual authority.)
2.
If Agent acts outside of actual authority, Principal is _______
responsible ________________ to perform the contract, and
Agent must indemnify Principal for any resulting losses, costs
[Principal may still be ______________________ to perform
the contract.]
3.
If Agent acts within actual authority but Principal does not
meet the obligation incurred, Principal must _________ Agent
for any losses, etc., suffered by the Agent
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II.
THE PRINCIPAL – THIRD PARTY RELATIONSHIP
A.
The Principal – Third Party Relationship is controlled by
_______________________ rules
1.
“Apparent authority” is based on what a third party can
reasonably conclude about the Agent’s authority ____________
_____________________________
2.
Relevant acts of the Principal include (among other things)
a.
b.
c.
d.
e.
The Agent’s job title
Giving the agent business cards, company forms,
company car, telephone number at company offices,
_____________________________________________
about the Agent and her/his relationship with principal
General publicity concerning the Principal and Agent
Actually performing contracts arranged by Agent can
become apparent authority only after that becomes a
pattern known to the third party
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B.
Relationship between “apparent authority” and parties’
liability to each other
1.
If an agreement made by Agent with a third party is within the
scope of Agent’s apparent authority, Principal is responsible
___________________________ for performance
2.
An agent has ______________________________ based on
apparent authority rules for any agreement made by Agent on
behalf of the Principal
(Third party may have some other
basis for going after the Agent.)
3.
Apparent authority, as such, is _____________ to the Principal –
Agent relationship
(But some factors used to determine the scope of implied actual
authority are nearly the same as
factors used to determine apparent
authority.)
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III.
AGENT – THIRD PARTY RELATIONSHIP
A.
The Agent – Third Party relationship is governed principally by the
extent to which the agent’s status is known by the third party
1.
_______________________ Agency
a.
The third party knows that the agent is __________________
and _____________________ of the principal
b.
The _________________ to the third party for the performance
of any agreement made on the principal’s behalf, UNLESS the
agent somehow indicates his/her personal agreement
(1) An agent may join with his/her principal as a contract party
(2) If an agent signs a contract document without indicating
he/she is signing as an agent, law assumes that he/she
intends to be a party to the contract
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2.
_______________________ Agency
a.
The third party knows that the agent is acting as an agent,
but ______________________ the identity of the principal
b.
________ the agent and the principal are liable to the third party
for agreements made on the principal’s behalf
(1) The principal is liable because it was the third party’s
intent to enter into a contract with the principal
(2) The agent is liable because, in fact, the third party was
__________________________________________ and
other facts when making the agreement
c.
There can be no _________________ in this situation because
there is no information flowing directly from the principal
to the third party
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3.
_____________________ Agency
a.
The _________________ that the agent is acting as an
agent, or (obviously) the identity of the principal
b.
The agent is personally liable _____________________ for
performance of the agreement
c.
The agent can _______________________________ to the
principal, so long as that is consistent with contract-law
rules on assignment and delegation
d.
The __________________________ an assigned/delegated
agreement is governed by Principal – Agent relationship rules
e.
The third party’s obligation to accept performance from the
principal is based on contract-law rules concerning assignment and delegation
f.
If the agent is acting beyond the scope of his/her actual
authority, the principal has ______________________, unless
she/he/it ratifies the agreement
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IV.
ON AGENTS and EMPLOYEES
A.
Text says all employees are agents.
1.
2.
That is true in the limited sense that all employees do something
for the employer. However, the term “agent” is normally used
with respect to persons who have some authority to deal with third
parties on the principal’s behalf.
a.
A person can be an agent without being an employee
b.
Many employees have no authority (actual or apparent) to
deal with third parties on their employer’s behalf
Whether a particular person is an employee (or not) is based on
the extent to which the employer has the __________________ the
details of that person’s actions
a.
An employer has the right to specifically control every aspect
of an employee’s work
b.
An ________________________ agrees to provide a result, and
has the right to decide how that is done
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B.
It is better to intellectually separate “employees” and “agents”
1.
The rules and considerations applicable to “agency” are principally
concerned with third-party contract problems
2.
The rules and considerations applicable to employer-employee
relationships and third parties are principally concerned with
tort problems (i.e. non-contract injuries to third parties)
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V.
PRINCIPAL’S LIABILITY FOR INTENTIONAL TORTS
A.
Agent or Employee is always liable for his/her own torts (intentional
or otherwise)
B.
Principal is liable for Agent’s torts committed __________________ by
Principal
C.
1.
If a person commits a tort on the instructions of, and for the
benefit of, another person, that other person is liable as principal
(Implicit agency agreement)
2.
Agent may receive indemnification from Principal if Agent had
no reason to believe that the instructed act would be a tort
Principal MAY be liable for ____________ committed by employee or
agent
1.
If employee/agent is ________________________________ and
just happens to commit a tort in the process, principal/employer
is probably liable
2.
If agent’s purpose when committing the tort was personal,
principal is probably NOT liable
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VI. EMPLOYER’S LIABILITY FOR EMPLOYEE’S NEGLIGENCE
A.
Employer’s liability for employees’ acts is based on
“_________________________”
1.
Theory is based on the assumption that the employer has the
_________________________________________
2.
If the person committing the tort fits the definition of “employee”
the employer does have that power
3.
If a person/firm is acting as an “independent contractor” the other
party to the contract (sometimes called “employer”) does not
have the necessary power to control
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B.
An employer is liable for an employee’s negligence when the employee
was ___________________________________ when the tort occurred
1.
“Scope of employment” is interpreted ________________
2.
A person is acting within the scope of his/her employment if
a.
He/she is properly following instructions and doing what the
employer hired her/him to do
b.
She/he is attempting to do the job, but may not be doing it
strictly as instructed
c.
He/she is at a particular place at a particular time ___________
___________________, with the possibility of doing particular
acts, even if they violate instructions
EXAMPLE: Bus driver assigned to drive a long route. Rules
require that he rest before driving again. Driver stays in motel,
goes to restaurant/bar for dinner, after dinner drinks. Driver
gets in a fight in the bar, injures third party. Bus operator is
liable as employer.
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3.
Employer is NOT liable if employee has “abandoned” acting for
the employer and is, instead, pursuing his/her personal interests
a.
An employee’s abandonment of employer’s interest is never
assumed
b.
That the employee is pursuing only his own interests must be
obvious
c.
So long as the employee is doing something within the scope
of his/her employment, the fact that she/he is also doing something
for personal benefit or enjoyment does not exempt the
employer. (Think talking on cell phone while delivering pizza.)
d.
As soon as the employee resumes doing the employer’s work,
she/he is back within the scope of employment, even if she/he
is far from where she/he would have been if there had been
no abandonment.
EXAMPLE: Zeke is told to drive to Dallas with a truck load of widgets. Zeke
drives north on US 59 to Texarkana, then turns east to visit his girlfriend in
Little Rock. When he turns east, he is on his own. When Zeke finishes his
visit
in Little Rock and gets back on I-30, he is back within the scope of
employment,
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