law chapter 16 - test 4

Agency law

concerned with your responsibility for the actions of others and their obligations to you

• In an agency relationship, someone (the agent) agrees to perform a task for, and under the control of, someone else (the principal).

• Creating an Agency Relationship there must be:

• A principal

• An agent

• Who mutually consent that the agent will act on behalf of the principal and be subject to the principal's control Thereby creating a fiduciary relationship.

Principal

• A person who has someone else acting for them

Agent

• A person who acts for someone else

Consent

• To establish consent, the principal must ask the agent to do something, and the agent must agree.

Control

• Principals are liable for an agent's acts because they exercise control over that person.

• If principles direct their agents to commit an act, it seems fair to hold the principal liable when that act causes harm.

A fiduciary relationship is one of trust:

•  Beneficiaries place special confidence in fiduciaries who, in turn, are obligated to act in good faith and candor, doing what is best for the beneficiaries rather than acting in their own best interest. 

Agents have a fiduciary duty to their principles; they are necessary to create an agency relationship.

• Consent

• Control

• fiduciary duty

Fiduciary relationship:

A relationship of trust in which the fiduciary acts in the best interest of the beneficiary

Equal dignities rule

If an agent is empowered to enter into a contract that must be in writing, then the appointment of the agent must also be written.

• Duty of Loyalty: 

• An agent has a fiduciary duty to act loyally for the principal's benefit in all matters connected with the agency relationship.

Outside Benefits:

An agent may not receive profits unless the principal knows and approves.

Confidential Information:

The ability to keep secrets is important in any relationship, but especially a fiduciary relationship. Agents can neither disclose nor use for their own benefit any confidential information they acquire during their agency.

Competition with the Principal:  

Agents are not allowed to compete with their principal in any matter within the scope of the agency business.

Conflict of Interest between Two Principals

Unless otherwise agreed, an agent may not act for two principals whose interest’s conflict.

Secretly Dealing with the Principal:

If a principal hires an agent to arrange a transaction, the agent may not become a party to the transaction without the principal's permission

Appropriate Behavior:

An agent may not engage in inappropriate behavior that reflects badly on the principal.

Duty to Obey Instructions:

Agents must obey their principal's instructions unless the principal directs them to behave illegally or unethically.

Duty of Care

• an agent has a duty to act with reasonable care.

  • Agents with special skills are held to a higher standard because they are expected to use those skills

Gratuitous agent:

Someone not paid for performing duties

• Gratuitous agents are liable if they commit gross negligence, but not ordinary negligence.

• have both the power and the right to quit any time they want, regardless of the agency agreement

Duty to Provide Information:

• Agents have a duty to provide the principal with all information in their possession that they have reason to believe the principal wants to know.

  • They also have a duty to provide accurate information.

• Principal's Remedies When the Agent Breaches a Duty: 

• A principal has three potential remedies when an agent breaches their duty:

  • Damages

  • Profits

  • Rescission

• Duties of Principals to Agents:

• principal must indemnify (i.e., reimburse) the agent for reasonable expenses and cooperate with the agent's efforts to perform agency tasks.

Duty to Indemnify:

• As a general rule, the principal must indemnify agents for any expenses they have reasonably incurred. These reimbursable expenses fall into three categories:

  • A principal must indemnify agents for any expenses or damages reasonably incurred in carrying out agency responsibilities.

  • A principal must indemnify agents for tort claims brought by a third party if the principal authorized the agents' behavior and the agents did not realize they were committing a tort.

  • The principal must indemnify the agent for any liability to third parties that the agent incurs as a result of entering into a contract on the principal's behalf, including attorney's fees and reasonable settlements.

• Duty to Cooperate: Principals have a duty to cooperate with their agent:

• The principal must furnish the agent with the opportunity to work.

• The principal cannot unreasonably interfere with the agent's ability to accomplish the assigned task.

• The principal must perform their part of the contract.

Terminating an Agency Relationship

• Either the agent or the principal has the right to terminate the agency relationship at any time (although there may be financial consequences)

  •  The relationship sometimes terminates automatically.

Termination by Agent and/or Principal: The two parties have these choices in terminating their relationship:

• Time

• Achieving a purpose

• Mutual agreement

• Agency at will

• Wrongful termination

Either party always has the power to terminate. They may not, however, have the right. If one party's departure from the agency relationship violates the agreement and causes harm to the other party, the wrongful party must pay damages. Nonetheless, that party will be permitted to leave.

• Principal or Agent Can No Longer Perform Required Duties:

• If the principal or the agent is unable to perform the duties required under the agency agreement, the agreement terminates

  • Either the agent or the principal fails to obtain (or keep) a required license.

  • The bankruptcy of the agent or the principal affects their ability to perform required duties. 

  • Either the principal or the agent dies or becomes incapacitated.

  • The agent violates the duty of loyalty.

Change in Circumstances:

• After the agency agreement is negotiated, circumstances may change. If these changes are significant enough to undermine the purpose of the agreement, the relationship ends automatically:

  • War. 

  • Change of law. 

  • Loss or destruction of subject matter.

Effect of Termination:

Once an agency relationship ends, agents no longer have the authority to act for the principal. If agents continue to act, they are liable to the principal for any damages they incur as a result.

Some of the duties of both the principal and agent continue even after the relationship ends:

• Principal's duty to indemnify agents.

• Confidential information

• Principal's Liability for Contracts:

• The principal is liable for the acts and statements of its agent if (1) the agent had authority or (2) the principal ratified the acts of the agent.

• In addition, the principal is deemed to know any information that the agent knows or should know.

Authority

• A principal is bound by the acts of an agent if the agent had authority. 

• There are three types of authority: 

  • Express

  • Implied

  • Apparent

Express and implied authority

are categories of actual authority because the agent is truly authorized to act for the principal

 In apparent authority:

 the principal is liable for the agent's actions even though the agent was not authorized.

• A principal can be liable for the acts of an agent who is not, in fact, acting with authority if the principal's conduct causes a third party reasonably to believe that the agent is authorized.

  •  In the case of express and implied authority, the principal has authorized the agent to act. 

  • Remember that the issue in apparent authority is always what the principal has done to make the third party believe that the agent has authority.

• Express Authority:

• authority specifically delegated to the agent in clear, direct, and definite terms - can be oral or written

Implied Authority

Unless otherwise agreed, authority to conduct a transaction includes authority to perform acts that are reasonably necessary to accomplish it

Ratification

•  Anyone who accepts the benefit of an unauthorized transaction or fails to repudiate it is as bound by the act as if they had originally authorized it. They have ratified the act.

  • Many of the cases in agency law involve instances in which one person acts without authority for another.

• Even if an agent acts without authority, the principal can decide later to be bound by the agent's actions if these requirements are met:

• The "agent" indicates to the third party that they are acting for a principal

• The "principal" knows all the material facts of the transaction

• The "principal" accepts the benefit of the whole transaction, not just part

• the third party does not withdraw from the contract before ratification.

Intermediary agent:

• Someone who hires subagents for the principal

Subagents

• Someone appointed by an agent to perform the agent's duties

  • As a general rule, agents have no authority to delegate tasks to another unless the principal authorizes them to do so. But when an agent is authorized to hire a subagent, the principal is as liable for the acts of the subagent as it is for the acts of a regular agent.

• Agent's Liability for Contracts:

• The agent's liability on a contract depends on how much the third party knows about the principal. 

  • Disclosure is the agent's best protection against liability.

Fully Disclosed Principal:

• Agents are not liable for any contracts made on behalf of a fully disclosed principal. A principal is fully disclosed if the third party knows of its existence and identity.

  • To avoid liability when signing a contract on behalf of a principal, agents must clearly state that they are agents and also must identify the principal.

Unidentified Principal:

• In the case of an unidentified principal, the third party may recover from either the agent or the principal

  • An unidentified principal is also sometimes called a "partially disclosed principal. 

  • A principal is unidentified if the third party knew of its existence but not its identity.

Jointly and severally liable:

All members of a group are liable; they may be sued as a group, or any one of them may be sued individually for the full amount owed, but the plaintiff may not recover more than the total

Undisclosed Principal:

• In the case of an undisclosed principal, the third party may recover from either the agent or the principal. 

  • A principal is undisclosed if the third party did not know of its existence.

  • the principal is always liable, but the agent is. only liable when the principal's identity is unknown.

A third party is not bound to the contract with an undisclosed principle if

•  the contract specifically provides that the third party is not bound to anyone other than the agent

• the agent lies about the principal because the agent knows the third party would refuse to contract with the principal.

Unauthorized agent:

• Sometimes, agents act without the authority of a principal. If the agent has no authority (express, implied, or apparent), the principal is not liable to the third party, and the agent is.

• Principal's Liability for Negligent Physical Torts:

• An employer is liable for the negligent physical torts committed by an employee acting within the scope of employment.

• Note that the employer (i.e., the principal) is liable for negligent misbehavior by the employee (i.e., the agent) whether or not the employer was at fault. 

• Indeed, the employer may be liable even if it forbade or tried to prevent the employee from misbehaving.

• Respondeat superior:

•  a legal doctrine holding an employer/principal liable for the wrongful acts of an employee/agent committed within the scope of employment

  • A Latin phrase meaning "Let the master answer."

• Employee:

• There are two kinds of agents:

  • Employees

  • Independent contractors

• Generally, a principal is liable for the negligent physical torts of an employee but is not liable for the negligent physical torts of an independent contractor.

When determining if agents are employees or independent contractors, courts consider whether:

• The principal supervises details of the work.

• The principal supplies the tools and place of work.

• The agents work full-time for the principal.

• The agents receive a salary or hourly wages, not a fixed price for the job.

• The work is part of the regular business of the principal.

• The principal and agents believe they have an employer-employee relationship.

The Gig Economy:

• The gig economy is based on companies that, instead of hiring full-time employees, use mobile apps to facilitate peer-to-peer transactions that pay per job. These jobs include ridesharing, chores, cleaning, cooking, delivery, repairs, and shipping.

  • The companies that connect these gig workers with consumers want to treat them as independent contractors (with few rights) rather than employees (with benefits)

Negligent hiring:

• A principal is liable for both the negligent and intentional physical torts of independent contractors only if the principal has been negligent in hiring or supervising them. 

• Scope of Employment: 

• You remember this rule: An employer is liable for a negligent physical tort committed by an employee acting within the scope of employment. 

  • Employees are acting within the scope of employment if their acts:

    • Are authorized

    • Have not been abandoned

    • are motivated, at least in part, by a purpose to serve the employer.

Authorization

• an act is authorized if it takes place in the time and place specified by the employer and is assigned by the employer or is under the employer's control.

  • An act is within the scope of employment, even if expressly forbidden, if it is same general nature as that authorized or if it is incidental to the conduct authorized

Purpose

Employees are only acting within the scope of employment if the purpose of their actions is, at least in part, to serve the employer.

• Principal's Liability for Intentional Physical Torts:

• A principal is not liable for the intentional physical torts of an employee unless:

  • (1) the employee intended to serve some purpose of the employer

  • (2) the employer was negligent in hiring or supervising this employee.

• Principal's Liability for Nonphysical Torts:

• Nonphysical torts (whether intentional or unintentional) are treated like a contract claim:

  • The principal is liable only if the employee acted with express, implied, or apparent authority.

  • Nonphysical tort One that harms only reputation, feelings, or wallet

• Agent's Liability for Torts:

• It is important to remember that agents are always liable for their own torts.

  • Agents who commit torts are personally responsible, whether or not their principal is also liable. Even if the tort was committed to benefit the principal, the agent is still liable.

• If the agent and principal are both liable, which one does the injured third party sue? 

The principal and the agent are jointly and severally liable, which means, as we have seen, that the injured third party can sue either one or both, as it chooses. If they recover from the principal, the principal can sue the agent.

1. Creating An Agency Relationship:

• A principal and an agent mutually consent that the agent will act on behalf of the principal and be subject to the principal's control, thereby creating a fiduciary relationship.

2. Elements Not Required; An agency relationship can exist without:

•  either a written agreement, a formal agreement, or compensation.

 An Agent's Duties to the Principal:

• An agent owes these duties to the principal: duty of loyalty, duty to obey instructions, duty of care, and duty to provide information.

4. The Principal's Remedies in the Event of a Breach:

• The principal has three potential remedies when the agent breaches a duty: recovery of damages the breach has caused, recovery of any profits earned by the agent from the breach, and rescission of any transaction with the agent.

The Principal's Duties to the Agent:

• The principal has three duties to the agent: to compensate as provided by the agreement, to indemnify for reasonable expenses, and to cooperate with the agent.

Power and Right to Terminate

Both the agent and the principal have the power to terminate an agency relationship, but they may not have the right. If the termination violates the agency agreement and causes harm to the other party, the wrongful party must pay damages.

Automatic Termination:

An agency relationship automatically terminates if the principal or agent no longer can perform the required duties or if a change in circumstances renders the agency relationship pointless.

A Principal's Liability for Contracts:

A principal is liable for the contracts of the agent if the agent has express, implied, or apparent authority.

9. Express Authority:

The principal grants express authority by words or conduct that, reasonably interpreted, cause the agent to believe that the principal desires the agent to act on the principal's account.

10. Implied Authority

• Unless otherwise agreed, authority to conduct a transaction includes authority to perform acts that are reasonably necessary to accomplish it

  • are categories of actual authority

11. Apparent Authority:

Apparent authority means that a principal is liable for the causes a third party reasonably to believe that the agent is authorized

An Agent's Liability for a Contract:

If an agent makes a contract on behalf of a fully disclosed principal, the agent is not liable on the contract, but the principal is. In the case of an unidentified or undisclosed principal, both the agent and the principal are liable on the contract.

Negligent Physical Torts of An Employee:

An employer is liable for a physical tort negligently committed by an employee acting within the scope of employment.

Scope of Employment:

the range of activities an employee is reasonably expected to do as part of their job, including actions that benefit the employer and are connected to their work duties

Independent Contractor:

• agree to perform some tasks for a fixed fee

  • The less control a principal has - the more likely it is to be an independent contractor

Nonphysical Torts:

A principal is liable for nonphysical torts of an employee (whether intentional or unintentional) only if the employee was acting with express, implied, or apparent authority.

 Agent's Liability for Torts:

Agents are always liable for their own torts.

Indemnify

one party promises to compensate another for losses, damages, or legal liabilities, often through a contractual agreement