Agency Relationships

Chapter 19: Agency Relationships

The Agency Relationship

  • Definition of Agency: An agency relationship exists when one person (the agent) acts on behalf of another person (the principal).
  • Formation of Agency Relationships:
      - Can be formed through:
        - Express Agreement: An explicit agreement, can be oral or written.
        - Implied Agreement: Implied by conduct of the parties involved.
  • Consideration: Agency relationships can be gratuitous (i.e., without consideration or payment); however, limits on enforceability may arise if the agent fails to perform their duties.
  • Consent: Both parties must consent to the agency relationship.
  • Authority in Business Context:
      - In partnerships or LLCs, members are considered agents by virtue of their business relationship, thus they have consented to the agency relationship by choosing to enter the business.
  • Capacity Requirements:
      - The principal must possess contractual capacity, while the agent does not need such capacity and can be a minor.
  • Employee vs. Independent Contractor:
      - An employee is typically always an agent of the employer, whereas independent contractors are agents sometimes.
      - Factors to determine relationship status:
        - Amount of control exerted by the employer over the worker's activities.
        - Level of skill/expertise required for the work.
        - Time and method of payment.
        - Length of the work engagement.
        - Provision of tools/equipment for performing the work.

Duties of Agents and Principals

  • Duties of the Agent:
      1. Duty of Performance:
         - Agents must act with reasonable skill and diligence.
         - They must exercise the degree of care that a reasonable person would in a similar situation.
      2. Duty of Notification:
         - Agents must inform the principal of all matters related to the agency.
         - Knowledge of the agent is presumed to be knowledge of the principal, regardless of communication.
      3. Duty of Loyalty:
         - Agents must act solely for the benefit of the principal and avoid conflicts of interest with the agent's own interests or third parties.
      4. Duty of Obedience:
         - Agents must follow lawful and clearly stated instructions from the principal.
      5. Duty of Accounting:
         - Agents must keep a clear record of all property and funds received and expended on behalf of the principal, and make this accounting available.

  • Duties of the Principal:
      1. Duty of Compensation:
         - Principals must compensate agents for their services unless the agent is acting without expectation of payment.
      2. Duty of Reimbursement and Indemnification:
         - Principals must reimburse agents for expenses incurred during the performance of their duties and may be obligated to indemnify them against legal fees or judgments arising from authorized actions.
      3. Duty of Cooperation:
         - Principals must cooperate with agents and assist in the performance of agency duties.
      4. Duty to Provide Safe Working Conditions:
         - Ensures that agents can perform their tasks safely.

Agent’s Authority

  • Types of Authority:
      - Actual Authority:
        - Authority that is expressly or implicitly given to the agent.
        - Express Authority: Clearly communicated authority, either orally or in writing.
        - Implied Authority: Authority to perform acts that are necessary to carry out the express authority or to accomplish the objectives of the agency. It cannot contradict the express authority granted.
      - Apparent Authority:
        - Authority that appears to be granted the agent based on the behavior and communication (acts, words) of the principal, causing third parties to reasonably believe the agent has authority, even without actual authority.

Liability

  • Contractual Liability:
      - Principal's Liability:
        - The principal is liable for actions taken by the agent when they are authorized.
      - Agent's Liability:
        - Depends on whether the principal was disclosed, partially disclosed, or undisclosed to third parties:
          - Disclosed principal: Agent not liable.
          - Partially disclosed principal: Agent may be liable; third parties can hold either liable for nonperformance.
          - Undisclosed principal: Agent is liable; if the principal’s identity is revealed, the third party can hold either liable.
        - If an agent's act was authorized, they are entitled to be indemnified or reimbursed for any amount paid to a third party.
      - Unauthorized Actions:
        - When an agent's actions are unauthorized, the principal is not liable, and the agent is liable unless the principal created apparent authority.

Tort/Criminal Liability

  • Each party (agent and principal) is liable for their own tortious or criminal conduct.
  • A principal generally is not liable for an agent’s criminal acts unless the principal authorized or participated in the act.
  • Liability for Misrepresentations: Principals are liable for misrepresentations made within their authority (i.e., actual or apparent) while acting within the scope of their agency, such as describing products as part of their job.
  • Negligence and Intentional Torts: A principal may be held liable under respondeat superior for acts performed by agents in the scope of employment.
  • Factors for Determining Employment Scope:
      - Time, place, and purpose of the act.
      - Commonality of the act performed by employees on behalf of their employer.
      - The employer’s interest advanced by the act.
      - The extent to which the employee's private interests were involved.
      - Equipment or tools furnished by the employer for the act.
      - Whether employers had reason to anticipate the act and whether employees had previously engaged in it.
      - Involvement of serious crimes.
  • Liability for Independent Contractors:
       - Principals are generally not liable for the torts committed by independent contractors as they are generally not regarded as agents.

Termination of Agency Relationship

  • The agency relationship ends when the agreement between the parties concludes; actual authority then terminates.
  • Modes of Termination:
      - By Parties:
        - Either party can choose to terminate the agency relationship.
      - By Operation of Law:
        - Death of either party.
        - Impossibility of the subject matter that the agency is based upon being destroyed/lost.
        - Agency established for a specific period or purpose that has lapsed or been achieved.

Sample Question 1

  • Scenario: Agent Allie is the manager of Principal Paul’s convenience store. He has not given her any specific instructions about her authority. She enters into contracts to get supplies to sell in the store and enters into contracts with employees.
  • Question: What would be the basis for her authority to enter into these contracts?
      - Options:
        - Express authority
        - Apparent authority
        - Implied authority
        - She does not have authority to enter into these contracts

Sample Question 2

  • Scenario: Security Guard Gary is an employee of Vince’s department store. He detains two customers he suspects of shoplifting. The customers bring a case against Gary for false imprisonment.
  • Question: Can the department store be held liable for Gary’s actions?
      - Options:
        - No, because Gary was not acting in the scope of his employment.
        - Yes, because Gary was acting in the scope of his employment.
        - No, because an employer cannot be held liable for the torts of its employees.
        - Yes, but only if Gary was given express instructions by his supervisor to detain the customers

Sample Question 3

  • Statement: An agent must have contractual capacity.
      - Options:
        - True
        - False