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Chapter 33-Agency Liability & Termination
Terms in this set (37)
Authority declared in clear, direct, and definite terms. Express authority can be given orally or in writing.
The Equal Dignity Rule
Requires that if the contract being executed is or must be in writing, then the agent's authority must also be in writing.
Failure to comply with equal dignity rule can make a contract voidable at the option of the principal. The law regards the contract at that point as a mere offer. If the principal decides to accept the offer, the acceptance must be ratified, or affirmed, in writing.
Power of Attorney
Giving an agent a power of attorney confers express authority. The power of attorney is a written document and is usually notarized.
Power of attorney can be special: for specific acts only
Power of attorney can be general: permitting the attorney to transact all business for the principal. Because of its extensive authority granted to an agent, it should be used with great caution.
Power of attorney terminates on the incapacity or death of the person giving the power.
An agent has the implied authority to do what is reasonably necessary to carry out express authority and accomplish the objectives of the agency.
Implied authority is authority customarily associated with the position occupied by the agent or authority that can be inferred from the express authority given to the agent to perform fully his or her duties.
When the principal by either word or action causes a third party to reasonably believe that the agent has authority to act, even though the agent does not have neither express or implied authority. Ex: patterns of conduct by the Principal
Apparent Authority & Estoppel
The doctrine of agency by estoppel may be applied in situations in which a principal has given a third party reason to believe that an agent has authority to act. If the third party changes position to his or her detriment in good faith reliance on the principal's representations, the principal may be estopped from denying that the agent had authority.
When an unforseen emergency demands action by the agent to protect or preserve the property and rights of the principal, but the agent is unable to communicate with the principal, the agent has emergency power.
Occurs when the principal affirms, or accepts responsibility for, an agent's unauthorized act. When ratification occurs, the principal is bound to the agent's act, and the act is treated as if it had been authorized by the principal from the outset. Ratification can be either express or implied.
If the Principal does not ratify the contract, the principal is not bound, and the third party's agreement with the agent is viewed as merely an unaccepted offer.
In contrast, because the third party's agreement is an unaccepted offer, the third party can revoke it any time, without liability, before the Principal ratifies the contract.
The requirements for ratification:
1. The agent must have acted on behalf of an identified principal who subsequently ratifies the action.
2. The principal must know all of the material facts involved in the transaction. If the principal ratifies a contract without knowing all of the facts, the principal can rescind (cancel) the contract.
3. The principal must affirm the agent's act in its entirety
4. The principal must have the legal capacity to authorize the transaction at the time the agent engages in the act and at the time the principal ratifies. The third party must also have the legal capacity to engage in the transaction.
5. The principal's affirmation (ratification) must occur before the third party withdraws from the transaction.
6 The principal must observe the same formalities when ratifying the act as would have been required to authorized it initially.
A principal whose identity is known by the third party at the time the contract is made by the agent.
Partially disclosed principal
A principal whose identity is not known by the third party, but the third party knows that the agent is or may be acting for a principal at the time the contract is made.
A principal whose identity is totally unknown by the third party, and the third party has no knowledge that the agent is acting in an agency capacity at the time the contract is made.
Authority created when the conduct of the principal leads a third party to believe that the principal's agent has authority. Thus the principal and third party are bound in contract.
Acts committed by an agent that are outside the scope of his or her express, implied, or apparent authority.
If the agent acts within the scope of his or her authority, is the principal obligated to perform the contract regardless of whether the principal was disclosed, partially disclosed, or undisclosed?
The principal is obligated the perform the contract regardless of whether the principal was disclosed, partially disclosed, or undisclosed.
If an agent acts within the scope of his or her authority, how is the agent liable for the contract depending on whether the principal is disclosed, partially disclosed, or undisclosed?
If the principal is disclosed, the agent has no contractual liability for the non-performance of the principal or third party.
If the principal is partially disclosed, the agent is also treated as a party to the contract, and the third party can hold the agent liable for contractual nonperformance.
If the principal is undisclosed, the agent will be forced to pay the third party. However, the agent will have the right to be indemnified. If and when the undisclosed principal is revealed, the third party can elect to hold either the principal or agent liable on the contract.
If an agent has no authority but nevertheless contracts with a third party, is the principal liable?
The principal cannot be held liable on contracts created through an unauthorized act whether the principal is disclosed, partially disclosed, or undisclosed.
The person who acted as an agent is liable, however.
Under what doctrine can a third party who detrimentally relied on the unauthorized act of an agent with a disclosed or partially disclosed principal?
The third party can hold the agent liable for breaching the implied warrant of authority. The agent's liability here is based on the third party's reliance on the agent's purported authority, not on the breach of the contract itself.
If the third party knows at the time the contract is made that the agent does not have authority, is the agent liable?
Yes. Similarly, if the agent expressed to the third party uncertainty as to the extent of her or his authority, the agent is not personally liable.
Principal's Tortious Conduct
A principal who acts through an agent may be liable for harm resulting from the principal's own negligence or recklessness. Therefore, a principal may be liable if he or she gives improper instructions, authorizes the use of improper materials or tools, or establishes improper rules that result in the agent's committing a tort.
Principal's Authorization of Agent's Tortious Conduct
A principal who authorizes an agent to commit a tort may be liable to persons or property injured thereby, because the act is considered to be the principal's.
Principal's liability for Agent's Misrepresentation
A principal is exposed to tort liability whenever a third person sustains a loss due to the agent's misrepresentation. The principal's liability depends on whether the agent was actually or apparently authorized to make representations and whether the representation were made within the scope of the agency.
The principal is always directly responsible for an agent's misrepresentation made within the scope of the agent's authority.
When a principal has placed an agent in a position of apparent authority--making it possible for the agent to defraud a third party--the principal may also be liable for the agent's fraudulent act.
Apparent Implied Authority
When a principal has placed an agent in a position of apparent authority--making it possible for the agent to defraud a third party--the principal may be liable for the agent's fraudulent acts.
Example: Ableman is a loan officer for First Security Bank. In the ordinary course of her job, Ableman approves and services loans and has access to the credit records of all customers. Ableman falsely represents to a borrower, McMillan, that the bank feels insecure about McMillan's loand and intends to call it in unless McMillan provides additional collateral such as stocks and bonds. McMillan gives Ableman numerous stock certificates, which Ableman keeps in her own possession and later uses as collateral to take out a personal loan. The bank is liable to McMillan for any losses sustained on the stocks even though the bank was unaware of the fraudulent activity.
If Ableman had been a recently hired junior bank teller rather than a loan officer when she made the misrepresentation to McMillan, then McMillan would not have been justified in relying on Ableman's representation. In that situation, the bank normally would not be liable.
Tort liability based on fraud requires proof that a material misstatement was made knowingly and with the intent to deceive. An agent's innocent mistakes occurring in a contract transaction or involving warrant contained in the contract can provide grounds for the third party's rescission of the contract and the award of damages.
Moreover, justice dictates that when a principal knows that an agent is not accurately advised of facts but does not correct either the agent's or the third party's impressions, the principal is directly responsible to the third party for resulting damages
Liability for Agent's Negligence
Under the doctrine of respondeat superior, the principal-employer is liable for any harm causes to a third party by an agent-employer within the scope of employment. This doctrine imposes vicarious liability, or indirect liability, on the employer--that is, liability without regard to the personal fault of the employer for torts committed by an employee in the course or scope of employment.
Third parties injured though the negligence of an employee can sue either that employee or the employer, if the employee's negligent conduct occurred while within the scope of employment.
Criteria for the Scope of Employment
1. Whether the employee's act was authorized by the employer.
2. The time, place, and purpose of the act.
3. Whether the act was one commonly performed by employees on behalf of their employers.
4. The extent to which the employer's interest was advanced by the act.
5. The extent to which the private interests of the employee were involved.
6. Whether the employer furnished the means of instrumentality by which a injury was inflicted.
7. Whether the employer had reason to know that the employee would perform the act in question and whether the employee had done it before.
8. Whether the act involved the commission of a serious crime.
The Distinction between "Detour" and "Frolic"
If a servant merely took a detour from his master's business, the master will be responsible. If and not in away "on his master's business" the master will not be liable.
Employee Travel Time
An employee going to and from work or to and from meals usually is considered to be outside the scope of employment. In contrast, all travel time of traveling salespersons or others whose jobs require them to travel normally is considered to be within the scopes of employment for the duration of the business trip, including the trip home, unless there is a significant departure from the employer's business.
Notice of Dangerous Activities
The employer is charged with knowledge of any dangerous conditions discovered by an employee and pertinent to the employment situation.
Employers sometimes lend the services of their employees to other employers. Suppose that an employer leases ground-moving equipment to another employer and sends along an employee to operate the machinery. Who is liable for injuries caused by the employee's negligent actions on the job site?
Liability turns on which employer had the primary right to control the employee at the time the injuries occurred.
Liability for Agent's Intentional Torts
Most intentional torts that employees commit have no relation to their employment; thus, their employers will not be held liable. Nevertheless, under the doctrine of respondeat superior, the employer can be held liable for intentional torts of the employee that are committed within the course and scope of employment.
In addition, 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 they would not ordinarily be considered within the scope of employment.
An employer is also liable for permitting an employee to engage in reckless actions that can injure others.
Liability for Independent Contractor's Torts
Generally, an employer is not liable for physical harm caused to a third person by the negligent act of an independent contractor in the performance of the contract. This is because the employer does not have the right to control the details of the independent contractor's performance.
Courts make an exception to this rule when the contract involves unusually hazardous activities, such as blasting operations, an employer cannot be shielded from liability merely by using an independent contractor.
Liability for Agent's Crimes
An agent is liable for his or her own crimes. A principal or employer is not liable for an agent's or employee's crime simply because the agent of employee committed the crime while otherwise acting within the scope of authority or employment.
An exception to this rule is made when the principal or employer participated in the crime by conspiracy or other action.
Termination by Act of the Parties
1. Lapse of time.
2. Purpose Achieved.
3. Occurrence of a specific event.
4. Mutual Agreement.
5. Termination by one party.
Wrongful termination can subject the canceling party to a lawsuit for breach of contract.
Even in an agency at will--that is, the agency that either party may terminate at any time--the principal who wishes to terminate must give the agent reasonable notice. The notice must be at least suffiicient to allow the agent recoup his or her expenses and to make a normal profit.
Notice of Termination
When an agency relationship has been terminated by the act of the parties, it is the principal's duty to inform any third parties who know of the existence of the agency that has been terminated.
Termination by Operation of Law
Certain evens terminate agency authority automatically because their occurrence makes it impossible for the agent to perform or improbable that the principal would continue to want performance.
1. Death or Insanity.
2. Impossibility. When the subject matter of an agency is destroyed or lost, agency relationship is terminated.
3. Changed circumstances. When an event occurs that has such an unusual effect on the subject matter of the agency that the agent can reasonably infer that the principal will not the want agency to continue, the agency terminates.
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