Legal Ch18

What is the definition of an agency according to the Restatement (Second) of Agency?

A fiduciary relationship resulting from the manifestation of consent by one person to another to act on his behalf and subject to his control, with the other's consent to so act.

Who is referred to as a principal in an agency relationship?

A party who employs another person to act on his or her behalf

What is the role of an agent in an agency relationship?

A party who agrees to act on behalf of another

What type of relationship is formed when an employer hires an employee and gives them authority to act and enter contracts on the employer’s behalf?

Principal-agent relationship

What governs the extent of authority an employee has in a principal-agent relationship?

Any express agreement between the parties and implied from the circumstances of the agency

What is an agency relationship?

A fiduciary relationship formed by the mutual consent of a principal and an agent.

What authority does an employee have in a principal-agent relationship?

The authority to act and enter contracts on the employer’s behalf.

Principal-Agent Relationship

A relationship formed when an employer hires an employee and gives that employee authority to act and enter contracts on the employer’s behalf.

What defines an employer–employee relationship?

An employer hires an employee to perform a physical service without authority to enter contracts.

In an employer–employee relationship, what is the employee typically not authorized to do?

Enter contracts

Who is liable for the tortious conduct of an employee committed within the scope of their employment?

The principal (employer)

Can an employee in an employer–employee relationship enter contracts on behalf of the employer?

No, the employee does not have the authority to enter contracts.

Is the principal liable for the tortious conduct of employees in an employer–employee relationship?

Yes, the principal is liable for tortious conduct committed by employees within the scope of their employment.

What term is used for persons and businesses employed by principals to perform tasks but are not employees?

Independent contractors

Which of the following is an example of an independent contractor?

Certified public accountant

Can a principal authorize an independent contractor to enter into contracts?

Yes

What happens when an independent contractor enters into an authorized contract on behalf of a principal?

The principal is bound by the contract

What is the most common form of agency?

Express agency

How is an express agency created?

When a principal and an agent expressly agree to enter into an agency agreement

Can express agency contracts be oral?

Yes, unless the Statute of Frauds requires them to be written

What happens if a principal employs another agent in an exclusive agency contract?

The exclusive agent can recover damages from the principal

In an express agency, what authority does the agent have?

The authority to contract or act on the principal’s behalf as stated in the agency agreement

What is an implied agency?

An agency created from the conduct of the parties

What is required for agency by ratification to occur?

The purported principal ratifies the unauthorized act

In agency by ratification, who is bound to perform after ratification?

The principal

What happens to the agent's liability for misrepresentation in agency by ratification?

The agent is relieved of any liability

What is apparent agency?

When a principal creates the appearance of an agency that does not actually exist.

Who creates the appearance of an agency in apparent agency?

The principal

What happens when an apparent agency is established?

The principal is bound to contracts entered into by the apparent agent.

What duty does a principal owe to an agent for services provided?

Duty to compensate

Under what condition does a principal owe a duty to reimburse an agent?

When expenses are authorized, within the scope of the agency, and necessary to discharge duties

When does a principal owe a duty to indemnify an agent?

When the agent suffers losses due to the principal's conduct

What does the duty to cooperate entail for a principal?

Assisting the agent in performing their duties

In a contingency fee arrangement, when is a principal required to pay the agent?

Only if the objective of the agency is obtained

What are the two main obligations of an agent who enters a contract with a principal?

To perform the lawful duties expressed in the contract and to meet the standards of reasonable care, skill, and diligence

What is the term used to collectively refer to an agent's obligations to perform lawful duties and meet reasonable standards?

Duty to perform

To what standard is an agent typically held when performing their duties?

The standard of a reasonable agent in the same occupation and locality under the same circumstances

What happens if an agent fails to perform their express duties or does not meet the standard degree of care, skill, or diligence?

The agent is liable to the principal for damages

What is the duty of an agent to inform the principal of important information learned concerning the agency called?

Duty to notify

Who is liable for injuries resulting from a breach of the duty to notify?

The agent

What does the legal rule of imputed knowledge imply?

The principal is assumed to know what the agent knows

What is the duty to account in the context of an agent's responsibilities?

Maintaining an accurate accounting of all transactions undertaken on the principal’s behalf

What does the duty to account require an agent to do with the principal’s property?

Use the principal’s property in an authorized manner

What must an agent maintain separately for the principal?

A separate account

What can a principal do if an agent breaches the agency contract?

Sue the agent to recover damages caused by the breach

Who has the right to demand an accounting from the agent at any time?

The principal

Who is liable for tortious conduct committed by an agent acting within the scope of authority given by the principal?

The principal

Under what condition is an agent liable for the tortious conduct of the principal?

If the agent directly or indirectly participates in or aids and abets the principal's conduct

What legal doctrine holds principals liable for the negligent conduct of agents acting within their scope of employment?

Respondeat superior

Which of the following is NOT a factor courts consider to determine if an agent's conduct occurred within the scope of employment?

Whether the agent was personally at fault

What type of liability is based on the legal theory of vicarious liability?

Liability without fault

What are the three main sources of tort liability for principals and agents?

Negligence, intentional torts, and misrepresentation

What remedies are available to injured parties where tort liability is found?

Medical expenses, lost wages, pain and suffering, emotional distress, and punitive damages

What term is used to describe an agent acting in their own interest rather than the principal's during employment?

Frolic and detour

When is a principal generally relieved of liability for an agent's actions?

When the agent's frolic and detour is substantial

In the context of frolic and detour, when is a principal liable for the agent's tortious conduct?

When the deviation is minor

What is an example of a situation where a principal would be liable for an agent's actions?

A salesperson stops at home for lunch and injures a pedestrian while leaving

What is a dual-purpose mission in the context of agency law?

An agent acting partly for themselves and partly for the principal

Who is liable if an agent injures someone while on a dual-purpose mission?

Both the principal and the agent

Under which test is a principal liable if an agent's motivation for committing an intentional tort is to promote the principal's business?

Motivation test

Under the work-related test, when is a principal liable for an agent's intentional tort?

If the tort is committed within work-related time or space

When is a principal liable for an agent's misrepresentation?

When the misrepresentation is made within the scope of employment

What can a third party do if an agent makes an intentional misrepresentation?

Rescind the contract or recover damages

What is the principal's liability under the motivation test if an agent's motivation for committing an intentional tort is personal?

The principal is not liable

Who is liable on a contract if a principal authorizes an agent to enter into a contract with a third party?

The principal

In what type of agency is the agent not liable on the contract because the third party relies on the principal's credit and reputation?

Fully disclosed agency

What must the agent's signature indicate in a fully disclosed agency?

That the agent is acting as an agent for a specifically identified principal

In a fully disclosed agency, who is liable on the contract?

The principal

What are the two conditions that define a fully disclosed agency?

The agent is acting as an agent for a principal, and the actual identity of the principal is known

What is a partially disclosed agency?

An agency where the agent discloses their status but not the principal's identity.

Who is liable on third-party contracts in a partially disclosed agency?

Both the principal and the agent

Why might an agent not disclose the principal's identity in a partially disclosed agency?

The principal instructs the agent not to disclose it or the agent forgets.

What can an agent do if they are made to pay the contract in a partially disclosed agency?

Sue the principal for indemnification

What is an undisclosed agency?

An agency where the third party is unaware of the existence of the agency.

Who is liable on the contract in an undisclosed agency?

Both the principal and the agent

What can an agent do if they are made to pay the contract in an undisclosed agency?

Recover indemnification from the principal

How can an undisclosed agency be created?

Either expressly or by mistake

Who is an independent contractor?

A person who contracts with another to do something for him who is not controlled by the other nor subject to the other’s right to control with respect to his physical conduct in the performance of the undertaking.

What is a key factor in determining independent contractor status?

The degree of control that the principal has over the party

Which of the following is NOT a factor in determining independent contractor status?

The number of clients the worker has

Which of the following professionals is commonly an independent contractor?

Certified public accountant

Who is generally liable for the torts of an independent contractor?

The independent contractor

Why is a principal generally not liable for the torts of an independent contractor?

Because principals do not control the means of how the results are accomplished

Under what circumstances can a principal be liable for the negligence of an independent contractor?

When the task involves inherently dangerous activities

What is an example of an inherently dangerous activity?

Crop dusting

When is a principal bound by the contracts of an independent contractor?

When the contracts are authorized by the principal

If an independent contractor enters into a contract without authority, who is liable?

The principal is not liable, the independent contractor is

What happens to an agent's actual authority when an agency is terminated?

It is extinguished

What type of notice must a principal give to third parties who have knowledge of the agency but with whom the agent has not dealt?

Constructive notice

If a principal hires an agent to take care of her dog until she returns from a trip, when does the agency terminate?

When the principal returns from the trip

What must a principal provide to avoid liability from an agent's apparent authority after termination?

Proper notice of termination

What causes the termination of an agency due to an unusual change in circumstances?

A change that leads the agent to believe the principal's original instructions should no longer be valid

What happens to an agency contract if the principal dies?

The agency contract is terminated by operation of law.

What circumstance will terminate an agency contract by operation of law?

The insanity of either the principal or the agent.

What is the effect of the principal's bankruptcy on an agency contract?

The agency contract is terminated by operation of law.

What happens to an agency contract if a war breaks out between the principal's country and the agent's country?

The agency contract is terminated by operation of law.

Is there a duty to notify third parties if an agency terminates by operation of law?

No, there is no duty to notify third parties.

What happens to an agent's power to act on behalf of the principal when the agency is terminated?

The power is extinguished

What can the other party do if the termination of an agency contract breaches the contract?

Sue to recover damages

What can the agent recover if the principal wrongfully terminates the agency contract?

Damages for lost commission