TEXAS AGENCY PROFESSOR WILLIAM BIRDTHISTLE CHICAGO KENT COLLEGE OF LAW

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1 TEXAS AGENCY PROFESSOR WILLIAM BIRDTHISTLE CHICAGO KENT COLLEGE OF LAW CHAPTER 1: CREATING THE AGENCY RELATIONSHIP Every agency relatinship must have the principal and the agent. d things n behalf f the typically direct the actins Why create an agency relatinship? T extend the principal's business dealings T acquire the agent's expertise T earn a living Cmmn examples f principal-agent relatinships: Emplyer-Emplyee Entertainer-Talent Agent Partner-Partnership Officer/Directr-Crpratin Why des it matter if an agency relatinship exists? A can be liable t third parties fr the acts f its. In cntract In trt A. Creatin f an Agency Relatinship Three cmpnents f an agency relatinship (ABC): A: : This requires manifestatin f assent frm the principal the agent B: : The agent agrees t act fr the benefit C: : The agent agrees t act subject t the cntrl There is n requirement f t create an agency relatinship.

2 Example 1: A parent tells their child t call the cable cmpany and rder HBO. The child says "sure." Is the parent required t pay the HBO bill? Is there an agency relatinship? Example 2: One rmmate asks the ther t mve his car fr street cleaning. The ther rmmate says Rger that." When he mves the car, he hits smene. Wh is required t pay fr thse damages? Is there an agency relatinship? Exam Tip 1: The parties are likely nt ging t say that they are in an agency relatinship. As lng as the essential elements are there, an agency relatinship exists, even if the parties attempt t disclaim the 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:, smene wh is incapacitated by,, r illness Types f entities that can be principals: Emplyer (significant cntrl ver emplyees, including day-t-day activities) Crpratin; LLC Partnership; LLP Entities that cannt be principals: assciatin, because it lacks Example 3: Bird-watching club, bk grup, scial grup 2. Wh can be an agent? Any persn r entity wh has A minr may serve as an agent. 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 Themis Bar Review, LLC TX Agency

3 3. Frmalities fr Creating an Agency Relatinship N need t receive ; service may be gratuitus N requirement that the relatinship be put in writing 4. Types f Agents All agents act n behalf f the principal and subject t the principal's cntrl The degree determines the type f agent a. Servants/emplyees The principal/emplyer exerts a high degree f cntrl ver the agent/emplyee The principal has the right t cntrl the agent's physical cnduct (the manner f the wrk, the tls used in the wrk) b. Independent cntractrs/nn-emplyee agent The principal exerts minimal cntrl ver the agent The principal des nt have the right t cntrl the agent's physical cnduct at wrk Characteristics f an independent cntractr: Maintain a high level f independence Free t wrk fr ther principals Paid n a fixed fee r n the result f the wrk Example 4: Law firm partner tells an assciate t drive him t a meeting dwntwn. That will be an emplyer/emplyee relatinship. Example 5: The partner tells the assciate t get a cab t drive t the meeting. The cab driver is likely an independent cntractr. Why this is relevant? Because generally, the mre the principal exerts, the mre the principal will endure. C. Terminating an Agency Relatinship can terminate an agency relatinship. CHAPTER 2: LIABILITY OF PRINCIPALS TO THIRD PARTIES FOR CONTRACTS Typical agency law fact pattern: 1) Frmatin f an agency relatinship between the principal and the agent and the principal asks the agent t d sme wrk (either explicitly r implicitly); 2) The agent des 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 TX Agency 2016 Themis Bar Review, LLC 3

4 3) The principal is sued by a third party a cntractual third-party r a trt victim Agency law is really abut hlding the principal liable fr the agent's cnduct (extends the chain f liability) The third party culd sue the agent, but may als want t sue the principal. The Agent may nt have enugh wealth t recver all the damages The Agent may have died Rule: The principal is bund n a cntract when the principal the agent t The agent acted with. A. Legal Authrity There are fur types f legal authrity: 1) authrity 2) authrity 3) authrity 4) 1. Actual Express Authrity Parties: cmmunicatin between principal and agent The principal creates actual express authrity by using, r t cnvey authrity t the agent. Example 6: The principal whispers in the agent's ear a request t have his car refurbished. Or the principal writes the request n a piece paper, shws it t the agent, and then burns the paper. The agent takes the car t the bdy shp and the bdy shp sends the bill t the principal. Is the principal bund t that cntract? Answer:. Intent: Subjective intent: The agent must believe that he is ding what the principal wants. Objective intent: The agent's belief must be. Terminatin: Upn the death r lack f capacity f the principal Upn the death f the agent Themis Bar Review, LLC TX Agency

5 Editr's Nte 1: Actual authrity (whether express r implied) can be terminated in ther ways as well, such as thrugh the principal's revcatin. Please refer t the Texas Agency Outline fr a mre detailed discussin. 2. Actual Implied Authrity Parties: cmmunicatin between principal and agent The principal creates actual implied authrity by using wrds, written r spken, r ther cnduct t cnvey authrity t the agent t take whatever actin is necessary t achieve the principal s bjectives. The agent has (absent instructins t the cntrary) actual implied authrity t act within accepted r general. Example 7: The principal tells the agent t get him a rle in the new Aquaman film. The agent takes the prducer f the film ut t a fancy dinner. The restaurant sends the bill t the principal. Is the principal bund by the bill? Did the agent act with actual express authrity? Did the agent act with actual implied authrity?, if taking the prducer t dinner is part f the custm in this industry. Example 8: 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. If the manager signs the next invice, will the wner be bund fr the next shipment f wine? Answer:, the past curse f prir dealings has bund the wner, absent instructins t the cntrary. 3. Apparent Authrity Parties: cmmunicatin between the principal and the third party The principal creates apparent authrity by wrds, written r spken, that cause the third party t that the principal t have acts dne n the principal's behalf, by. Exam Tip 2: The exam will ften test the difference between actual implied authrity and apparent authrity. Remember that actual implied authrity invlves the principal and the agent. Apparent authrity invlves the principal and the third party. Is the third party s belief reasnable? Is there a pattern f the principal's behavir t establish that the third party's belief is reasnable? TX Agency 2016 Themis Bar Review, LLC 5

6 Example 9: I call the wine stre and say that my butler can charge items t my accunt. The butler has. Example 10: I send a letter t the wine stre instead. Same result, the butler has apparent authrity. Example 11: I tell the wine stre the same thing. But, I tell my butler t stp buying certain wines. If my butler rders thse certain wines anyway, will I be bund?, if I did nt cmmunicate the change in authrity t the wine stre. Example 12: If I fire my butler, but he cntinues buying wine n my accunt, I am still bund if I have nt tld the wine stre. Authrity can be cmmunicated by cnduct as well, including business cards, letterhead, etc. 4. Ratificatin The principal's actins after the agent has acted Ratificatin requires that: (i) the principal have f material facts abut the cntract; and (ii) the principal then the cntract's benefits. Example 13: I hire a new butler and I have nt given authrizatin t my butler r said anything t the wine stre. The butler ges t the wine stre, withut my authrizatin, and rders me a bunch f wine. When the wine is delivered, I can either ratify r nt ratify the activity. If I apprve the act, I am bund. B. Disclsure f Principals 1. Principal is disclsed The third party knws: (i) the agent is acting fr the and (ii) the principal's identity The parties t the cntract are the third party and the principal. 2. Principal is partially disclsed The third party knws that the agent is wrking n behalf f a principal, but nt the f the principal. The parties t the cntract are the third party, the principal, and the agent Themis Bar Review, LLC TX Agency

7 3. Principal is undisclsed The third party des nt knw that the agent is acting fr the principal and des nt knw the principal's identity. The third-party des nt even knw that there is a principal-agent relatinship The parties t the cntract are the third party and the agent. Editr's Nte 2: This is nly the case when the principal is undisclsed AND the agent had n authrity t bind the principal. In that case, there is n principal-agent relatinship in the transactin. The agent is liable n the cntract. But, if the principal is undisclsed and the agent had authrity t bind the principal, all three parties (the third party, the agent, and the principal) are bund by the cntract. If the third party discvers the existence f the principal, the third party can elect whether t enfrce the cntract against the agent r the principal, but nt bth. CHAPTER 3: LIABILITY OF PRINCIPALS FOR TORTS; DUTIES A. 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 emplyeremplyee; and 2) The trt was cmmitted by the agent while acting the agency relatinship 1. Cntrl An agent ver whm the principal has greater cntrl is an emplyee. Principal cntrls r has the right t cntrl the physical cnduct (manner and means) f the agent's perfrmance f the wrk Cntrl ver what the wrk is and when and hw the jb is dne A principal des nt cntrl r have the right t cntrl an independent cntractr (r a nn-emplyee agent) Independent cntractrs ften prvide their wn tls, are paid upn cmpletin f a specific task, etc. The mre cntrl the principal exerts ver the agent, the mre likely the principal will be liable fr the agent's trts. TX Agency 2016 Themis Bar Review, LLC 7

8 Typically, principals are NOT vicariusly liable fr trts cmmitted by an independent cntractr. Exceptins: The task is. Example 14: Yu hire smene t demlish a building. The principal was negligent in the independent cntractr. The principal retains a certain amunt f cntrl and the trt ccurs within thse cntrlled tasks. 2. Scpe f Emplyment Did the agent intend t benefit the principal? OR Was the agent acting independently? Was the agent s cnduct f the kind that the agent was hired t perfrm? Did the trt ccur n the jb? Frlic: A frm an assigned path. Falls utside the scpe f emplyment Example 15: A UPS driver, while making deliveries n his assigned rute, 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. Falls within the scpe f emplyment Example 16: A UPS driver takes a shrtcut and gets in an accident with anther driver. The principal is liable. B. Intentinal Trts Generally, intentinal trts the scpe f emplyment. Exceptins fr intentinal trts that may be within the scpe f emplyment: The cnduct ccurred within the 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 Example 17: 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 18: A salespersn intentinally lies abut a prduct Themis Bar Review, LLC TX Agency

9 C. Fiduciary Duties Exam Tip 3: Remember that agents will be liable fr their wn trts, even if the principal is als liable. Three duties that all agents we t principals: 1) Duty t exercise reasnable care 2) Duty t bey reasnable instructins 3) Duty f lyalty 1. Duty f Lyalty The agent cannt f the principal. The agent cannt take in. The agent cannt with the principal. Exam Tip 4: After identifying that there is an agency relatinship and determining whether the principal is liable, remember that the principal can pursue a claim fr the agent's vilatin f these fiduciary duties. [END OF HANDOUT] TX Agency 2016 Themis Bar Review, LLC 9

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