Upgrade to remove ads
Only $35.99/year

MEE - Agency

Terms in this set (39)

Agency
Agency is the fiduciary relation which results from manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.

The person who is acting for another is the agent and the person for whom the agent is acting is the principal.
Consent
Consent of both the principal and the agent is necessary to form an agency relationship. Consent may be established expressly (written or oral statements), or by implication from the parties' conduct.
"On behalf of"
This requirement is generally understood to mean that the agent must be acting primarily for the benefit of the principal, rather than for the benefit of the agent or some other party.
Control
The agent must act subject to the principal's control, but the degree of control exercised by the principal does not have to be significant. The requisite level of control may be found simply by the fact that the principal has specified the task that the agent should perform, even if the principal has not prescribed the details of how the task should be accomplished.
Capacity
A principal must have contractual capacity (because the contract is between the principal and a third party), but the agent does not (because the agent is just an intermediary).
Writing
Agency law requires no writing, but the statute of frauds may. This is called "equal dignities" rule - agency requirements must be in writing when the agent is to enter into certain contracts within the statute of frauds (or when the agency agreement itself would fall within the statute of frauds).
Consideration
Consideration is not required for the creation of an agency relationship.
Fiduciary Duties
An agent (even an unpaid one) is a fiduciary of its principal, and owes corresponding fiduciary duties to its principal.
Duty of Care
An agent owes a duty to her principal to carry out her agency with reasonable care (a "sliding scale" depending on any special skills that the agent may have).
Duty of Loyalty
The agent owes a duty of undivided loyalty to the principal. This includes the following obligations:
1. an agent must account to the principal for any profits made while carrying out the principal's instructions;
2. an agent must act solely for the benefit of the principal and not to the benefit himself or a third party;
3. an agent must refrain from dealing with his principal as an adverse party or from acting on behalf of an adverse party;
4. an agent may not compete with his principal concerning the subject matter of the agency; and
5. an agent may not use the principal's property (including confidential information) for the agent's own purposes or a third party's purposes.

Note: when it comes to breach of fiduciary duty, a wide range of equitable remedies are available to a court. In general, a court can do whatever it wants to "do justice" in the situation.
Duty of Obedience
An agent must obey all reasonable directions of his principal. While the principal may well be liable for the agent's acts in violation of directions (apparent authority), the agent will be liable to the principal for any loss that the principal suffers.
The Principal's Duties to the Agent
A principal's duties to an agent are not fiduciary in nature as fiduciary responsibilities run only from the agent to the principal.
Nevertheless, a principal has several obligations to an agent. For example, if an agent incurs expenses or suffers other losses in carrying out the principal's instructions, the principal has a duty to indemnify the agent. Perhaps most importantly, unless the circumstances indicate otherwise, it will be inferred that the principal agreed to compensate the agent for his services.
Actual Authority
Actual authority is authority that the agent reasonably thinks she possesses based on the principal's dealings with her. Put differently, if the principal's words or conduct would lead a reasonable person in the agent's position to believe that the agent has authority to act on the principal's behalf, the agent has actual authority to bind the principal. Actual authority may be expressed or implied.
Express Actual Authority
Authority conveyed by the principal in words (oral or written).
Implied Actual Authority
Authority the agent reasonably believes she has a result of the principal's actions (e.g., authority inferred from the principal's words or conduct, from custom, or from acquiescence by the principal.)
Termination of actual authority
Actual authority must exist when the agent enters into a contract. It will be terminated/revoked:
1. after a specified time or event, or after a reasonable time (if there is no specified time or event);
2. by change of circumstances (e.g., the subject matter of the agency is destroyed);
3. by a breach of the agent's fiduciary duty;
4. by a unilateral act of either the principal or the agent; or
5. by death or incapacity of the principal or the agent.
Apparent Authority
Apparent authority exists when the principal "holds out" another as possessing authority and a third party is reasonably led to believe that authority exists.
Put differently, if the principal's words or conduct would lead a reasonable person in the third party's position to believe that the agent has authority to act on the principal's behalf, the agent has apparent authority to bind the principal.
The policy of apparent authority is that it protects innocent third parties who rely on the principal's holding out of a person as his agent.
Actual Authority v. Apparent Authority
Actual authority is based on the principal's manifestations (words or conduct) and how they affect the reasonable agent. Apparent authority is based on the principal's manifestations (words or conduct) and how they affect the reasonable third party.

Apparent authority can exist even when actual authority does not!
Power of Position
Apparent authority may be established through an agent's title or position. Indeed, it is somewhat common for a third party to argue that an agent's title or position, which was given to him by the principal, created a reasonable belief in the third party that the agent was authorized to act for the principal in ways that are typical of someone who holds that title or position.

Note: this notation that title or position conveys authority can also be used to establish actual authority to the extent that the agent reasonably believes that he has authority to act based on the title or position given to him by the principal.
Unilateral Agent Representations
Apparent authority is based on the principal's manifestations to a third party. Thus, apparent authority cannot be created by the mere representations of an agent or other actor.
Lingering Apparent Authority
As mentioned, apparent authority can exist even when actual authority does not. Similarly, apparent authority can linger after actual authority ends.
Ratification
Even if the agent had no authority at the time of entering into the contract, the principal will still be bound by the agent's actions if the principal ratifies the contract (e.g., a company resolution). Ratification effectively serves as a substitute for before-the-transaction authority.
Methods of Ratifying
Ratification can be express or implied. The most common form of express ratification is oral or written affirmation of a contract (e.g., a company resolution). The most common form of implied ratification is when the principal accepts the benefits of the contract.
Requirements for Ratifications
1. The principal must have knowledge of all material facts regarding the contract;
2. the principal must accept the entire transaction. The principal cannot merely ratify a portion of the transaction;
3. Ratification cannot be used to alter the rights of intervening parties.
Rules of Liability on the Contract: General Rule
If actual authority, apparent authority, or ratification is present, the principal is liable on the contract and the agent is not.
Rules of Liability on the Contract: Exception
If the principal is undisclosed (at the time of the agent's transaction, the third has no notice that the agent is acting for a principal) or partially disclosed (at the time of the agent's transaction, the third party has notice that the agent is acting for a principal, but has no notice of the principal's identity), the agent is also liable on the contract. (The principal is still liable).
Master
A master (i.e. an employer) is a principal who employs an agent to perform service in his affairs and who controls or has the right to control the physical conduct of the other in the performance of the service.
Servant
A servant (i.e., an employee) is an agent so employed by a master.
Independent Contractor
An independent contractor is a person who contracts with another to do something for him but 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.
Tests for Respondeat Superior
A master is liable for tort committed by a servant within the scope fo the servant's employment. The master and the servant are both jointly and severally liable.
On the other hand, a principal is generally not liable for torts committed by an independent contractor in connection with his work.
Thus, the determination of whether a person is a servant or an independent contractor can be outcome-determinative in a particular dispute.
Servant or Independent Contractor
In general, if a person is subject to the control of another as to the means used to achieve the particular result, he is a servant. By contrast, if a person is subject to the control of another as to his results only (but not over how to achieve those results), he is an independent contractor.
Determining servant or independent contractor
It is often difficult to determine whether a person is a servant or an independent contractor. The single overriding factor is whether the principal has the right to control the manner and method by which the person performs his tasks. Factors to consider in determining the right to control include: (1) skill required—where great skill is required, more likely to be an independent contractor; (2) tools and facilities—if the principal supplies the tools and facilities used to perform the job, more likely to be an employee; (3) period of employment—if the period is indefinite and/or long, more likely to be an employee; (4) basis of compensation—if compensation is on the basis of time, more likely to be an employee; if compensation is paid based on the job, more likely to be an independent contractor; (5) business purpose—if the person was hired to perform an act in furtherance of the principal's business, more likely to be an employee; and (6) distinct business—a person who has her own business or occupation is more likely to be an independent contractor.
Scope of Employment
A master is not automatically liable for a servant's torts. A master is only liable if the servant was acting within the scope of his employment. Three factors are helpful in making this assessment:
1. was conduct "of the kind" that the agent was hired to perform?
2. did the tort occur "on the job" (i.e., within the time and space limits of the employment)?
- A minor deviation from the employer's directions is usually within the scope. This is called a detour. A substantial deviation is usually outside of the scope. This is called a frolic.
3. was the conduct actuated at least in part to benefit the principal?
Intentional Torts: Rule
The general rule is that the employer is not liable for the intentional torts of an employee (e.g., battery or assault). Intentional torts are typically viewed as outside the scope of employment
Intentional Torts: Exceptions
Intentional torts will be viewed as within the scope of employment if the conduct is:
1. natural from the nature of the job;
2. motivated to serve the employer; or (3) specifically authorized or ratified by the employer.
Borrowed Servant
An employer may lend the services of an employee to another. If the employee commits a tort in the loaned role, who is liable - i.e., who is the employer? The key issue is who has the primary right of control over the employee - the loaning principal or the borrowing principal? That employer is liable.
Direct Liability
Every person is liable for his own torts. Thus, a master is liable for his own negligence if he fails to properly train or supervise employees, or fails to check an employee's criminal record or job history.
Contract Liability Approach
Is a principal liable to a third party on a contract entered into by an agent?
1. Did the agent have actual or apparent authority at the time of the contract, or did the principal ratify the contract later?
2. If so, the principal is liable on the contract (but usually the agent is not).
Tort Liability Approach
Is an employer liable for a tort committed by an employee?
1. Was the tort committed by a servant in the scope of employment?
2. If so, the master and the servant are jointly and severally liable to the third party.
Other sets by this creator