Barbri - Agency

Agency

A fiduciary relationship arising when one person (principal) appoints another person (agent) to act on his behalf and the agent so consents

Agency Elements

1. Consent

-Express/implied by conduct

2. On behalf of

-Agent acting primarily for the benefit of the principal

3. Control

-Sufficient if principal specifies tasks agent should perform

Creation of Agency Relationship

1. Capacity

-Principal must have contractual capacity

-Agent needs only minimal capacity

2. Formalities

-Consent = Both parties must consent

-Writing = No writing unless SOF (Equal Dignities Rule)

-No consideration required

Equal Dignities Rule

Agency agreements must be in writing when:

1. Agent is to enter into certain contracts within SOF; OR

2. Agency agreement itself would fall within SOF

modes of creating agency relationship

either by

1. act of parties

- agreement between principal and agent

2. by operation of law

- estoppel (same as apparent authority)

- statute

Agent's Fiduciary Duties

An agent is a fiduciary of its principal and owes corresponding fiduciary duties to its principal

1. Care

2. Loyalty

3. Obedience (aspect of duty of loyalty)

Duty of Care

Carry out agency with reasonable care based on circumstances (special skills and compensation)

Duty of Loyalty

Owes undivided loyalty to principal

- Must treat principal fairly in all respects

- cannot use position as agent to profit for themselves

- must act solely for the benefit of the principal

- shouldn't deal with principal as adverse party, or compete

Duty of Obedience (Aspect of Duty of Loyalty)

Obey all reasonable directions of principal

Principal's Remedies for Agent's Breach of Duties

1. Contract remedy (if agent compensated)

2. Tort remedies

3. Constructive trust

4. Withhold compensation

5. Terminate agency

Principal's Duties to Agent

Not fiduciary in nature

Duties:

-Indemnify (reimburse) agent's losses while carrying out principal's instructions

-Compensate agent for services

Types of Authority

1. Actual authority

-Express

-Implied

2. Apparent

3. Ratification

Actual authority

Authority an agent reasonably believes she possesses based on the principal’s dealings with her

Express Actual Authority

Conveyed by principal in words (oral or written)

Implied Actual Authority

Agent reasonably believes authority exists as a result of the principal’s words or actions

Termination of Actual Authority

-Specified time or event (or lapse of reasonable time)

-Change of circumstances

-Breach of fiduciary duty

-Unilateral termination

-Death (need notice)

Apparent Authority

Principal holds out another as possessing authority and based on this holding out, a third party reasonably believes that authority to act exists

Actual vs. Apparent Authority

-Actual Authority: Based on the principal's manifestations and how they affect the reasonable agent

-Apparent Authority: Based on the principal's manifestations and how they affect the reasonable third party

Apparent Authority - Prior Act

Where the principal previously permitted the agent to exceed their express or implied authority and knows that the third party is aware of this, the principal is bound through apparent authority.

Apparent Authority - Power of Position

Apparent authority may be established through an agent's title or position

Apparent Authority - Unilateral Agent Representations

Unilateral agent representations are insufficient to create actual or apparent authority

-Must be able to point back to principal creating apparent authority

Lingering Apparent Authority

Apparent authority can last so long as third party lacks notice that agent no longer has the authority to bind

Termination of Apparent Authority

Tell third party that agent no longer has authority to bind principal

Ratification

When an agent purports to act on behalf of a principal without any authority at all, but the principal subsequently validates the act and becomes bound

-After-the-fact actual authority

-Cannot be used to alter the rights of intervening parties

Methods of Ratification

-Express = Oral or written

-Implied = Principal accepts benefits

Ratification Requirements

1. Principal must have knowledge of all material facts of K

2. Must accept entire transaction

3. Have capacity

Who is bound by a contract involving an actual authority, apparent authority, or ratification?

Principal

Who is bound by a contract involving an undisclosed or partially disclosed principal?

Principal and agent

What is the difference between undisclosed and partially disclosed principal?

Undisclosed principal

-Third party does not know agent is contracting on principal's behalf

Partially Disclosed principal

-Third party knows agent is acting for principal, but does not know identity

Employer-Employee Relationship

1. Master = Principal who employs an agent with the right to control

2. Servant = Agent so employed by master

3. Independent Contractor = Person contractually obligated to do work, but not controlled in how the work is done

Vicarious Liability

Master (principal) is liable for his servant’s (agent) torts committed within the scope of employment

-Not liable for the torts committed by an independent contractor

Servant vs. Independent Contractor

Right to control manner and method (see factors below)

-Skill required

-Tools and facilities

-Time of employment

-Basis of compensation

-Business purpose

-Distinct business

Scope of Employment

Employer is liable for the employee's torts only if they were committed within the scope of the employee's employment

1. Conduct of kind agent was hired to perform

2. Tort occurs on job

-Detour

-Frolic

3. Conduct benefits principal at least in part

Frolic vs. Detour

Frolic = Substantial deviation (not liable)

Detour = Minor deviation (liable)

Intentional Tort Liability

Employer generally not liable for employee’s intentional torts

-Exceptions = Conduct natural from nature of job (ex: bouncer)

Borrowed Servant

Employee of one employer doing services for another

-Liability turns on who has the primary right of control

Direct Liability

Every person is liable for their own torts (e.g., an employer is liable for their own negligence if they fail to properly train or supervise employees or independent contractors, or fail to check an employee's or independent contractor's criminal record or job history)

Exam Tip:

-Discuss both theories of master liability: Direct and vicarious