Second Look Series AGENCY TABLE OF CONTENTS

Transcription

1 AGENCY TABLE OF CONTENTS I. CREATION OF AGENCY....1 A. GENERALLY..l B. ELEMENTS OF A VALID AGENCY RELATIONSHIP Capacity 1 2. Consent Formalities... 1 C. METHODS OF CREATING AN AGENCY RELATIONSHIP Contract Ratification Estoppel 2 4. Necessity Statute... 2 D. TYPE OF AGENT: AGENCY RELATIONSHIP Special Agent 3 2. General Agent Universal Agent. 3 II. CONTRACT LIABILITY: POWER OF AGENT TO BIND PRINCIPAL... 3 A. GENERALLY.. 3 B. TYPE OF AUTHORITY 3 1. Actual Authority Apparent Authority Ratification Authority..5 III. IV. LIABILITIES OF THE PARTIES A. GENERALLY..5 B. AGENT'S DUTIES TO PRINCIPAL Subagents...6 C. PRINCIPAL'S DUTIES TO AGENT... 6 D. THIRD PARTY'S LIABILITY TO PRINCIPAL 6 E. PRINCIPAL'S LIABILITY TO THIRD PARTY 6 F. AGENT'S LIABILITY TO THIRD PARTY 6 1. Fully Disclosed Principal.7 2. Unidentified Principal Undisclosed Principal Principal's Liability when Agent Exceeds Authority 7 REMEDIES... 7 A. PRINCIPAL'S REMEDIES...7 B. AGENT'S REMEDIES...7

2 V. TORT LIABILITY: RESPONDEAT SUPERIOR... 7 A. GENERALLY. 7 B. EMPLOYER--EMPLOYEE RELATIONSHIP Independent Contractor or Employee.. 8 C. SCOPE OF EMPLOYMENT Motivation to Serve Employer Same General Nature of Job Frolic and Detour Ratification Liability for Intentional Torts.... 9

3 I. AGENCY RELATIONSHIP A. GENERALLY Agency refers to the legal relationship that arises when one person 1 manifests 2 an intention that another person 3 is authorized to act on her behalf. B. ELEMENTS OF A VALID AGENCY RELATIONSHIP A valid agency relationship requires: (1) capacity of the principal and agent; (2) consent of the principal and the agent; and (3) certain formalities. 1. Capacity a. Principal Must Have Contractual Capacity A principal must have contractual capacity 4 in order to create a valid agency relationship. b. Agent Needs Only Minimal Capacity The agent need only have minimal mental capacity 5. Thus, incompetents may be appointed as agents, as may minors, provided they have minimal mental capacity. 2. Consent Notice the different capacity requirements. A principal must have contractual capacity but an agent need not. Thus a minor can be an agent but not a principal. a. Consent of Principal The principal is held to have consented when the manifestation of such consent has reached the agent. b. Consent of Agent The agent is held to have consented when her actions demonstrate such consent. 3. Formalities Remember that the agent's consent must be demonstrated by her actions and not her beliefs. 1 That is: the principal. 2 Defined as: capable of being easily understood or recognized. 3 That is: the agent. 4 For example: those that lack contractual capacity include minors, the mentally challenged, those under the influence of an intoxicating substance, incarcerated convicts and unincorporated associations. 5 Generally, it means that a person has very limited ability to remember, to reason, or to see the consequences of one's actions. AGENCY 1

4 a. Writing Generally, a writing is not required to form a valid agency relationship. b. Consideration Consideration is not required to form a valid agency relationship. Remember that many states do require a writing for third party contracts entered into with the agent when the subject matter falls under the Statute of Frauds (Mnemonic: MYLEGS 6 ). C. METHODS OF CREATING AN AGENCY RELATIONSHIP There are five ways to create an agency relationship: 1. Contract The principal and agent expressly agree that the agent will act on the principal s behalf. 2. Ratification The agent acts without the principal s consent, but the principal accepts the agent s acts. 3. Estoppel Estoppel arises where the agent and principal have no agreement, but the third party reasonably believes they do, and it would be unjust not to let the third party rely on that belief 7. Apparent authority is virtually the same as estoppel. They both require a third party's reasonable reliance on communication from the principal. However, estoppel is utilized merely as a remedy to protect innocent third parties from loss, while apparent authority makes the principal a party to the contract with all the inherent contractual rights and liabilities. 4. Necessity The agent and principal have no agreement, but the agent has to act to prevent an injury to people or property. 5. Statute 8 D. TYPE OF AGENT: AGENCY RELATIONSHIP An agent is a person authorized to act for and under the direction of another person when dealing with third parties. The person who appoints an agent is called the principal. An agent can enter into binding agreements on the principal's behalf and may even create liability for the principal if the agent causes harm while carrying out her duties. 6 Marriage, contracts for more than one Year, Land, Executor/Estate, Goods ($500 or more), and Surety. 7 Especially if the principal or agent knew the third party believed agency existed, but did not try to correct her. 8 For example: A nonresident motorist statute appointing the secretary of state as her agent for service of process.

5 1. Special Agent Special agents are authorized to conduct either a single transaction or a specified series of transactions over a limited period of time. 2. General Agent A general agent can act for the principal in a variety of ways and is authorized to engage in a series of transactions involving a continuity of service. A general agent s powers are less broad than those of a universal agent, but more broad than those of a special agent. 3. Universal Agent Universal agents hold the broadest authority to act on behalf of the principal 9. II. CONTRACT LIABILITY: POWER OF AGENT TO BIND PRINCIPAL A. GENERALLY A principal may be held liable for the acts of another only if she has made the other her representative and given her the authority to bind her. B. TYPE OF AUTHORITY 1. Actual Authority a. Generally Actual authority may be express or implied and must exist at the time the contract is agreed to by the agent Agency concepts most tested for bar exam purposes are those that relate to actual and apparent authority. b. Express Actual Authority Express actual authority exists when the principal expressly tells the agent to act on her behalf based on verbal communication, written communication, action, or incidental authority 10. Remember, express authority may exist even if the principal did not intend to grant such authority but did so mistakenly 11 or because of misrepresentation. 9 For example: they may have a professional relationship or hold a power of attorney, such as lawyer and client. 10 Incidental authority is that authority to perform those acts incident to the fulfillment of the principal's objectives. 11 For example: Rachel wishes Monica to enter into a transaction on her behalf but mistakenly tells Phoebe to do it. Phoebe has actual express authority to act on Rachel's behalf. AGENCY 3

6 c. Implied Actual Authority Implied actual authority is the authority that the agent reasonably believes she has based on the principal's actions 12. d. Exceeding Actual Authority The principal will be bound for her agent's transactions beyond actual authority in situations where the principal previously permitted the agent to exceed authority. e. Termination of Actual Authority Termination of actual authority may occur by any of the following: (1) the happening of an event; (2) by agreement between the principal and the agent; (3) by change of circumstances 13 ; (4) by lapse of time 14 ; (5) by breach of agent's fiduciary duty; (6) by operation of law 15 ; (7) by either party's unilateral termination 16. e. Irrevocable Agencies Neither an agency coupled with an interest 17 nor a power given as security 18 may be unilaterally terminated by the principal. 2. Apparent Authority Apparent authority appears when the principal's actions or manifestations give a third party reasonable expectation that the agent has authority, even though the agent really doesn't have that authority. The third party's belief must be reasonable and the principal must have acted 19 or neglected to do something 20 that causes the third party's reasonable belief. 12 Includes authority arising out of acquiescence, custom, from prior agreement, to pay for and accept goods where there is authority to purchase, to delegate where customary, manage investments, and to give general warranties. 13 On the basis of which the agent should reasonably conclude that the principal would not want the agent to exercise her authority. 14 That is: if there is no specified time in the agreement, the courts will imply termination within a reasonable time period. 15 For example: death or loss of capacity of either principal or agent. 16 Upon receipt of notice to terminate. Although parties are empowered to unilaterally terminate, damages will be assessed if doing so breaches the contract. 17 For example: Monica owes Rachel $1,000. Monica then gives Rachel a written power of attorney (i.e. an interest) to sell her car and to remit to Monica any money received in exceeding $1,000. Monica accepts this as a discharge of the debt and Monica cannot revoke Rachel's power to sell the car. 18 For example: a loan to the principal who posts collateral and gives the agent authority to sell in the event of default. 19 For example: Chandler tells Joey that Ross is Chandler's agent and has the power to enter into a contract for Chandler. Ross, it turns out, has no actual authority to contract for Chandler. But if Ross does contract with Joey on Chandler's behalf, Chandler will be bound (i.e. because Chandler held out Ross as being his agent). 20 For example: Phoebe, in Monica's presence, tells Rachel that she is Monica's agent, when she is not. Monica has a duty to correct Phoebe's misrepresentation; otherwise Phoebe will have apparent authority to act on Monica's behalf.

7 a. Lingering Apparent Authority Where an agent's apparent authority has been terminated she will still have apparent authority when dealing with third parties that the principal knows she dealt with until the third parties are in receipt of actual or constructive notice of termination. b. Agency by Estoppel Agency by estoppel is closely related to apparent authority and will arise when the principal: (1) makes a false representation or conceals a material fact; (2) intends for the third party to rely on that fact; (3) the third party relied on the false representation or that fact; and (4) reliance was reasonable. c. Termination of Apparent Authority Termination of apparent authority may occur when it is no longer reasonable for the third party to believe the agent continues to act with authority. 3. Ratification Authority An agency relationship is created by ratification when an agent purports to act on behalf of the principal without any authority, but the principal subsequently validated the act and becomes bound to it. a. Methods of Ratification Ratification may be consummated by: (1) express affirmance of the transaction by the principal; (2) accepting the benefit of the transaction; (3) silence - where she would otherwise have a duty to disaffirm; (4) suing on the transaction b. Prerequisites of Ratification The principal must have knowledge of all material facts at the time of the affirmance and accept the entire transaction. No consideration is necessary. III. LIABILITIES OF THE PARTIES A. GENERALLY The agent and principal have whatever duties are expressly stated in their contract as well as a number of common law duties. B. AGENT'S DUTIES TO PRINCIPAL A duty is a legal relationship, created by law or contract, in which a person or business owes something to another. The breach of this obligation can result in liability. AGENCY 5

8 In the absence of any contractual provision otherwise, the agent owes her principal the following: (1) duty of loyalty 21 ; (2) duty to obey the contract 22 ; (3) duty of reasonable care 23 ; (4) duty to act within the scope of authority; (5) duty to notify principal of all material matters 24 ; (6) duty of indemnification for the agent's tortuous acts; (7) duty to preserve trade secrets. 1. Subagents A subagent appointed with proper authority will owe the principal the same duties as the agent. C. PRINCIPAL'S DUTIES TO AGENT In the absence of any contractual provision otherwise, the principal owes her agent the following: (1) duty to act in good faith and cooperate with her agent in carrying out agency functions 25 ; (2) agreed upon compensation; (3) indemnification of all expenses reasonably incurred in discharging her authorized duties; (4) duty to comply with the terms of any contract between her and the agent; (5) indemnity; (6) to prevent harm to the agent. Remember that a principal has no general duty to compensate a subagent, even if the agent was duly authorized to hire the subagent; unless the principal has entered into an agreement otherwise. D. THIRD PARTY'S LIABILITY TO PRINCIPAL Third parties are always liable to a disclosed or identified principal. A third party will be held liable to an undisclosed principal unless: (1) the third party entered into the bargain for the agent's skills or reputation; (2) either the principal or agent knew the third party would not contract with the principal; or (3) holding the third party liable would be an undue burden 26 upon her. E. PRINCIPAL'S LIABILITY TO THIRD PARTY The principal is liable to third parties on contracts entered into by her agent with authority regardless of whether the principal is fully disclosed, unidentified, or undisclosed. F. AGENT'S LIABILITY TO THIRD PARTY An agent's liability to third parties depends on whether the principal was disclosed. 21 No duel agency (i.e. the agent acting for two principals with contrary interests), no self-dealing (i.e. profiting at the expense of the principal), obtaining secret profits. 22 That is: obedience to all reasonable directions of her principal. Reasonableness factors include the custom, contractual understanding, and the nature of the work. 23 That is: to carry out her agency with reasonable care, in light of local community standards and taking into account any special skills of the agent. 24 That is: all such matters known by the agent will be imputed to the principal. 25 This includes the duty to not unreasonable interfere with the agent's performance. 26 That is: burdens causing injustice.

9 1. Fully Disclosed Principal In fully disclosed principal 27 transactions the agent is not liable. 2. Unidentified Principal In unidentified principal 28 transactions the agent is liable. 3. Undisclosed Principal In undisclosed principal 29 transactions the agent is liable. 4. Principal's Liability when Agent Exceeds Authority A principal will be bound where her agent exceeds actual authority in the following limited circumstances: (1) where the principal previously permitted the agent to act beyond her authority and knows that the third party is aware of this; (2) where the agent is put in a position that requires unauthorized acts to complete customary responsibilities inherent in that position. IV. REMEDIES A. PRINCIPAL'S REMEDIES The principal may enforce the contract and hold the third party liable in all disclosure situations 30. B. AGENT'S REMEDIES The agent may enforce the contract and hold the third party liable in situations only where the principal is unidentified or undisclosed. Remember the principal may enforce all third party contracts whereas agents may only enforce those that involve unidentified principals and undisclosed principals. V. TORT LIABILITY: RESPONDEAT SUPERIOR A. GENERALLY A principal is only liable for torts committed by agents who are employees acting within scope of their employment. 27 That is: in situations where the third party knows there is a principal/agent relationship and the name (identity) of the principal. 28 That is: in situations where the third party knows there is a principal/agent relationship but does not know the name (identity) of the principal. 29 That is: in situations where the third party does not know there is a principal/agent relationship and does not know the name (identity) of the principal. 30 That is: fully disclosed principal, unidentified principal and undisclosed principal situations. AGENCY 7

10 B. EMPLOYER-EMPLOYEE RELATIONSHIP In determining whether an agent is an employee courts look to whether the agent is an independent contractor or employee. 1. Independent Contractor or Employee An independent contractor is a legal category of worker that is distinct and different from an employee. The key to the definition is that, unlike employees, independent contractors retain control over how they do their work. a. Right to Control The key analysis in differentiating between an independent contractor and an employee is the principal's right to control the manner and method by which the agent performs her tasks. Factors to consider are: (1) characterization by the parties 31 ; (2) period of employment 32 ; (3) whose tools and facilities are used; (4) degree of skill required 33 ; (5) whether person hired has her own business; (6) basis for compensation 34 ; (7) local custom regarding supervision 35 ; (8) contract gives right to control. C. SCOPE OF EMPLOYMENT An employee's scope of employment includes those actions or activities an employee might reasonably undertake as part of her job. An employer is responsible for actions an employee takes within the scope of employment, which means the employer can be liable to third parties who are injured by the employee's conduct. Factors to consider include: 1. Motivation to Serve Employer At the time of the act, the employee must be motivated, at least to some degree, to serve the objectives of the employer. 2. Same General Nature of Job If the employee's conduct is of the same general nature or incident to that which the employee was employed to perform she will be held to have acted within the scope of employment. 3. Frolic and Detour Small deviations from an employer's directions (detour) fall within the scope of employment, while major deviations (frolic) fall outside the scope. 31 For example: employer-employee vs. principal-independent contractor. 32 Short term employment indicates an independent contractor. 33 Great skill indicates independent contractor; laborer indicates employee. 34 Hourly indicates employee; job basis indicates independent contractor. 35 That is: the type of work in the locality normally performed under supervision of the principal (which indicates employee) or without supervision (which indicates independent contractor).

11 4. Ratification The unauthorized intentional torts of the employee may be ratified by the employer provided she has knowledge of all material facts at the time of the affirmance and accept the entire transaction. 5. Liability for Intentional Torts The employer will not be liable for an employee's intentional tort except where the intentional tort is a natural incident to the carrying out of the employer's business 36 or it benefits the employer. 36 For example: bouncer, bodyguard, and debt collector. AGENCY 9