Agency Relationships

Flashcards reviewing vocabulary and key concepts from a lecture on Agency Relationships.

Agency

A legal relationship where one party (agent) is authorized to represent or act on behalf of another party (principal).

Principal

The party who has the right to control the agent's conduct in matters entrusted to the agent.

Agent

The party authorized to represent or act on behalf of the principal.

Benefits of Agency Relationships

Allows a business owner to "scale up" their business as well as conduct multiple business operations at the same time in different locations.

Restatements of Agency

Published by the American Law Institute (ALI), these are akin to the Restatement of Contracts providing general principles of agency.

Agency Costs

Costs that arise from the separation of ownership and control where the principal is unable to directly ensure that the agent is acting in the principal’s best interest because monitoring/bonding is costly.

Moral Hazard

A situation where an agent may not act in the best interest of the principal due to differing incentives and costly monitoring.

High-powered incentive contracts

Solution for agency costs such as stock option plans.

Contingency Fee

Fees charged for an attorney's services only if the lawsuit is successful or favorably settled. Calculated as a percentage of the client's net recovery.

Objective Standard

The legal standard used to determine consent in an agency relationship, focusing on outward manifestations rather than subjective intent.

Fiduciary Relationship

A special relationship based on trust and confidence that gives rise to certain fiduciary duties depending on the type of fiduciary relationship that exists.

Fiduciary Duties of Agent

Performance, notification, loyalty, obedience, and accounting.

Duty of Care

An implied condition in every agency relationship where an agent agrees to use reasonable diligence and skill in performing work.

Duty of Loyalty

The agent's duty to act solely for the benefit of the principal and not in the interest of the agent or a third party.

Fiduciary Duties of Principal

Compensation, Reimbursement, Cooperation, and Safe working conditions.

Agency Law vs. Contract Law

Agency law is not a subcategory of contract law; an agency relationship can exist without a contract.

Impossibility Doctrine

A defense that can be used as an excuse for non-performance when an unforeseen event occurs after the contract is made that makes performance impossible.

Mandatory Rule

Parties cannot alter (e.g., duty of loyalty).

Default Rule

Parties can contract around by agreement of the parties (e.g., duty of care).

Authority

Whether an agent acted with authority (i.e., has authority to enter a contract) determines if a principal is bound by a contract.

Types of Authority

Actual (express or implied), apparent, and inherent.

Actual Authority

Agent acts with actual authority when the agent reasonably believes, in accordance with the principal’s manifestations to the agent, that the principal wishes the agent to act.

Express Actual Authority

Authority declared in clear, direct, and definite terms, orally or in writing.

Implied Actual Authority

Authority that can be gleaned from reasonable inferences with respect to the principal’s conduct, position, or even inaction.

Power of Attorney

A written document, usually notarized, granting an agent (attorney-in-fact) authority to act on behalf of the principal. Can be special or general.

Apparent Authority

The power held by an agent to affect a principal’s legal relations with a third party when the third party reasonably believes the actor has authority to act on behalf of the principal, and that belief is traceable to the principal’s manifestations.

Inherent Authority

Authority that arises from the relationship between parties itself.

Agent's Liability for Contracts (Without Authority)

If an agent enters a contract on behalf of a principal acting without authority, then the agent is obligated to perform under the contract.

Agent for Disclosed Principal

If an agent acting with authority makes a contract on behalf of a disclosed principal, then the agent is not a party to the contract.

Agent for Undisclosed Principal

If an agent acting with authority makes a contract on behalf of an undisclosed principal, then the agent is a party to the contract.

Agency by Estoppel

A situation where a person who has not made a manifestation that an actor has authority as an agent is 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 that person’s account.

Ratification

Affirmance of a prior act done by another, whereby the act is given effect as if done by an agent acting with actual authority.

Vicarious Liability

Indirect liability imposed on one party for the actions of another party because of the relationship between the 2 parties. A type of strict liability.

Respondeat Superior

General rule regarding a principal’s vicarious liability applied to an employer-employee relationship.

Control Test

Used to determine if someone is an employee or independent contractor. Employee is an agent whose principal controls (or has right to control) manner and means of agent’s performance.

Independent Contractor

Not an employee or agent. The owner is not vicariously liable for torts committed by an independent contractor.

Scope of Employment

An 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.

Direct Liability

A principle can be directly liable for the tort of an agent because of some separate basis of liability (i.e., some negligent act by the principal caused or resulted in a tort or crime committed by the agent).

Negligent Hiring

An employer who knows or should know that an employee has a propensity for committing tortious acts is liable for the employee’s acts, even if such acts would not ordinarily be considered within the scope of employment.

Franchise

Not a separate business entity. A bilateral arrangement in which the owner of intellectual property provides a license to others in exchange for a fee to use intellectual property in selling goods or services.

Franchisor

Seller of franchise.

Franchisee

Purchaser of franchise.

Apparent Agency

Creates an agency relationship that does not otherwise exist, while apparent authority expands the authority of an actual agent.

Termination of Agency Relationship

Both agency and contract may be terminated by (1) voluntary act of parties, or (2) by operation of law.