AGENCY PROFESSOR WILLIAM BIRDTHISTLE CHICAGO KENT COLLEGE OF LAW

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1 AGENCY PROFESSOR WILLIAM BIRDTHISTLE CHICAGO KENT COLLEGE OF LAW CREATING THE AGENCY RELATIONSHIP Every agency relatinship must have a principal and an agent. Generally, an des things n behalf f the and the typically directs the acts. Why create an agency relatinship? T extend the principal's ecnmic reach. T acquire the agent's expertise. T make mney. Cmmn examples f principal-agent relatinships: Emplyee-Emplyer Entertainer-Talent Agent Partner-Partnership Officer/Directr-Crpratin Why des it matter if an agency relatinship exists? When is the principal ging t be liable t third parties fr the actins f the agent? In cntracts In trts A. Creatin f an Agency Relatinship Three cmpnents f an agency relatinship (ABC): A : This requires that bth parties B : The agent agrees t C : The agent agrees t There is n requirement f t create an agency relatinship.

2 Example 1: Parents tell their children t rder HBO. The children rder HBO. When the cable cmpany sends the parents the bill, will they be liable fr payment? Answer: Example 2: One rmmate asks the ther t mve his car fr him fr street cleaning. The ther rmmate says Rger that. When the rmmate mves the car, he hits smene. Is the first rmmate liable? Answer: Exam Tip 1: The parties are nt ging t always say, r even think, that they are in an agency relatinship. As lng as the essential elements are there, an agency relatinship exists. When ne r mre parties disclaim the creatin f an agency relatinship, curts will lk t manifestatins f assent, which can range frm a frmal letter, t spken wrds, t physical actins. B. Principals and Agents 1. Wh can be a principal? Almst any persn r entity that has. This excludes:. Types f entities that can be principals: Emplyer Crpratin; LLC Partnership; LLP Emplyers typically exert a great amunt f cntrl ver emplyees. This includes a significant amunt f cntrl ver the day-t-day activities f the emplyees, including i) giving the emplyees tls t wrk at the wrkplace, ii) paying emplyees n a structured pay perid, and iii) directing the ways in which emplyees shuld finish and perfrm the tasks. While mst entities can be principals, cannt. They lack. Example 3: A bk grup, a bird-watching grup, r a cllectin f flks wh like t hang ut at cffee shps d nt have legal capacity. 2. Wh can be an agent? Any persn r entity wh has. A minr may serve as an agent Themis Bar Review, LLC Agency

3 T have minimal capacity, an agent must be able t: Assent t the agency relatinship; Perfrm the tasks n behalf f the principal; and Be subject t the principal s cntrl. Generally, any type f business entity may serve as an agent. 3. Frmalities fr Creating an Agency Relatinship Agency frmatin simply requires: (i) assent, (ii) benefit, and (iii) cntrl. N is required t frm an agency relatinship; service may be gratuitus. N evidence in writing is necessary. 4. Types f Agents Servants/emplyees: The emplyer has the right t cntrl the agent s physical cnduct f wrk. Independent cntractrs: The principal des nt cntrl r have the right t cntrl the agent s physical cnduct f wrk. Characteristics f an independent cntractr: Maintain a high level f independence Free t wrk fr ther peple Paid n a fixed fee Has his wn tls Example 4: Law firm big wig tells an assciate t drive him t a meeting dwntwn. That will be an emplyee/emplyer relatinship. Nw cntrast that with the lawyer hailing a cab and telling the cab driver t drive him dwntwn. What are the differences? Why this is relevant? C. Terminating an Agency Relatinship can terminate an agency relatinship. Agency 2017 Themis Bar Review, LLC 3

4 SPECIFIC LIABILITY OF PRINCIPALS TO THIRD PARTIES FOR CONTRACTS When yu encunter an agency prblem n the bar, the fact pattern will include: 1) Activity that arguably cnstitutes the frmatin f an agency relatinship between the principal and the agent; 2) The agent will d the wrk, either by entering int a cntract n behalf f the principal r by ding a task in which the agent cmmits a trt; and 3) The principal is ging t be sued by the third party a cntractual third-party r trt victim. When is a principal liable fr cntracts that an agent enters n behalf f the principal? The principal is bund n a cntract when the principal A. Legal Authrity There are fur types f legal authrity: 1. Actual Express Authrity Exam Tip 2: As a general rule, when yu are trying t discern between actual authrity and apparent authrity, lk t the cmmunicatin. When the principal is cmmunicating with the agent, there is actual authrity; when the principal is cmmunicating with the third party, there is apparent authrity. Lk t cmmunicatin between agent and principal. The principal creates actual express authrity by using t cnvey authrity t the agent. Example 5: The principal whispers in the ear f the agent t have his car refurbished. Or the principal writes smething dwn n paper t have the agent have the car refurbished, but then he burns the paper. When the principal receives a bill frm a bdy shp, wh is liable t pay? Why? Answer: Subjective intent: The agent must believe that he is ding what the principal wants him t d Themis Bar Review, LLC Agency

5 Objective intent: The belief must be reasnable. Upn the death f the principal, actual express authrity terminates when the agent has actual knwledge f the principal s death. Actual express authrity terminates immediately upn the death f the agent. 2. Actual Implied Authrity Lk t cmmunicatin between agent and principal. A principal creates actual implied authrity by using wrds, written r spken, r ther cnduct t cnvey authrity t the agent t take whatever steps are necessary t achieve the principal s bjectives. The agent has actual implied authrity (absent express instructins t the cntrary) t act within. Example 6: The principal tells the agent t get him a rle in the new Aquaman film. In an attempt t d this, the agent takes the prducer f the film ut t dinner and tells the waiter t send the bill t the principal. Is the principal bund by the bill? Answer: Example 7: A restaurant manager has been signing invices fr wine withut receiving instructins frm the restaurant s wner. The wner has seen this take place several times. One mrning, a delivery f wine arrives and the manager signs fr the delivery withut first receiving authrizatin frm the wner. The wner, seeing this take place, des nt bject. Will the principal be liable fr deliveries signed by the manager? Answer: 3. Apparent Authrity Lk t cmmunicatin between the principal and the third party. The principal creates apparent authrity by wrds, written r spken, that cause the third party t Is the third party s belief reasnable? Have the principal and the third party had similar dealings befre? Example 8: I tell the wine stre that my butler has the authrity t buy my wine fr me. The butler has. Agency 2017 Themis Bar Review, LLC 5

6 What if I send a letter t the wine stre instead? What if I tell the wine stre the same thing, but I tell the butler that I can t stand the German stuff, and nt t rder any, but the butler des it anyway? What if I fire the butler, but he still ccasinally rders things and puts it n my bill, am I still liable? 4. Ratificatin There's n pre-act cmmunicatin t cnsider. Ratificatin requires that (i) the principal has knwledge f and (ii) the principal then. B. Disclsure f Principals Example 9: I have said nthing t my butler abut wine, and I have said nthing t the stre. I just hired the butler yesterday. The butler, t cheer me up, ges dwn t the stre n the very first day f emplyment and rders me a huge crate f wine; I have nt authrized him and I have nt said anything t the stre. He brings the crate f wine back and gently drps it at my feet. If I accept that, if I apprve f the act t the third party, I am bund t pay the bill? Answer: Three Types f Principals 1) Principals can be disclsed. The third party knws: (i) the agent is and (ii) the. In these scenaris, the parties t the cntract are the third party and the principal. 2) Smetimes, the principal is partially disclsed. The third party knws In these scenaris, the parties t the cntract are the third party, the principal, and the agent. Editr's Nte 1: The tw scenaris abve assume that the agent had the prper authrity t bind the principal t a cntract. Nte that disclsed and partially disclsed principals nly becme parties t a cntract if (i) the agent Themis Bar Review, LLC Agency

7 had authrity t bind the principal t the cntract, r (ii) the principal ratified the cntract. 3) The principal can als be undisclsed. The third party knws neither nr. In these scenaris, the parties t the cntract are the third party and the agent. Editr's Nte 2: Whether an undisclsed principal is als party t the cntract depends n whether the agent had the authrity t bind the principal t the cntract. PRINCIPALS LIABILITY FOR TORTS A. Vicarius Liability Vicarius liability (respndeat superir): A principal may be liable fr the trtius acts f his agent. Requirements fr respndeat superir t apply: 1) The principal has sufficient such that the agency relatinship is emplyer-emplyee; and 2) The trt cmmitted by the agent was cmmitted while the agent was acting _. Cntrl: A principal wh cntrls, r has the right t cntrl, the (manner and means) f the agent s perfrmance f wrk is in the higher categry f emplyer-emplyee status. A principal des NOT have vicarius liability fr trts cmmitted by an independent cntractr. Exceptins: The task is. Example 10: Yu hire an independent cntractr t remve yur spent uranium frm yur farm. The principal was negligent in the independent cntractr. Example 11: If yu just picked a name ut f a hat fr yur uranium remval, yu culd be liable. The principal retains and the trt ccurs within thse tasks. Scpe f Emplyment Agency 2017 Themis Bar Review, LLC 7

8 Did the agent intend t benefit the principal? Was the agent s cnduct f the kind that the agent was hired t perfrm? Did the trt ccur n the jb? Frlic: A significant deviatin frm an assigned path. Example 12: A UPS driver, while making a delivery, stps t play basketball and cmmits a trt against ne f the ther players. There is n liability t the principal. Detur: A de minimis deviatin frm an assigned path. Example 13: A UPS driver takes a shrtcut and gets in an accident with anther driver. The principal is liable. Example 14: A UPS driver cmes back t the ffice and dribbles a basketball arund the ffice while waiting t lad the trucks. The principal will likely be liable. B. Intentinal Trts Generally, intentinal trts are Therefre, there wuld nt be liability fr the. Exceptins in which a principal may be held vicariusly liable fr intentinal trts: The cnduct ccurred within the general space and time limits f emplyment The agent was mtivated in sme part t benefit the principal The act is f a kind that the agent was hired t perfrm C. Fiduciary Duties Example 15: A pitcher is warming up at the ballgame in the bullpen, and a fan is muthing ff t him. The pitcher beans the fan in the head with ne f the balls. Example 16: A salespersn intentinally lies abut a prduct. Exam Tip 3: Remember that, just because the principal may be fund liable des nt mean that the agent is nt als liable fr his wn actins. Three duties that all agents we t principals even if the agent is unpaid: 1) Duty t exercise reasnable care 2) Duty t bey reasnable instructins 3) Duty f lyalty 1. Duty f Lyalty The agent cannt Themis Bar Review, LLC Agency

9 Example 17: A machinist is wrking fr a cmpany and has the pprtunity t mnlight r d sme separate wrk n the side; he cannt d it. The agent cannt take in. Example 18: If a sldier, in unifrm, uses the unifrm t help smugglers get supplies past a military checkpint, then thse are secret prfits that shuld have been disgrged t the sldier s bss. The agent cannt. Example 19: A cleaner wh leaves the emply f a cleaning cmpany and takes the custmer list. [END OF HANDOUT] Agency 2017 Themis Bar Review, LLC 9

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