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Ch. 17: Agency
Ch. 17: Agency
Ch. 17: Agency
17: Agency
AGENCY RELATIONSHIPS
Agency: A fiduciary relationship that results when one person (the principal) manifests her
consent that another person (the agent) will act on her behalf and subject to her control, and
the agent manifests his consent to so act.
Fiduciary: A person who undertakes to act on behalf of and primarily for the benefit of
another.
Fiduciary Duty: A duty arising from the trust and confidence placed in a fiduciary by
those on whose behalf and for whose benefit she acts.
EMPLOYER-EMPLOYEE RELATIONSHIPS
Employee: A person
(2) whose working conditions and methods are controlled by the employer, and
(3) for whose acts and omissions occurring in the scope of employment the employer is
liable.
(2) but whose working conditions and methods are not controlled by the employer, and
(3) for whose acts and omissions the employer is not liable.
(1) how much direction and control the employer exercises over the details of the person’s
work,
(2) whether the person is engaged in an occupation or business distinct from that of the
employer,
(3) whether the work the person performs is usually done under the employer’s direction or
without employer supervision,
By contrast, the IRS bases its determination whether a person is an employee using a single
factor: the degree of control the business exercises over the worker.
AGENCY FORMATION
Performance: An agent implicitly agrees to use reasonable diligence and skill (except for a
specialist, who is held to a higher degree of skill) in performing the task in its entirety.
Notification: An agent must notify the principal of all matters that come to the agent’s attention
concerning the subject matter of the agency.
Loyalty: An agent must act solely for the benefit of his or her principal, and not in the interest
of the agent or a third party. Moreover, any information or knowledge obtained in the course of
the agency is confidential.
Obedience: An agent must follow all lawful and clearly stated instructions of the principal.
Accounting: Unless otherwise agreed, an agent must keep and make available to the principal an
account of all property and money received and paid out on the principal’s behalf, including
gifts received from third persons.
Compensation: When a principal requests certain services from an agent, the principal must pay
the agent, in a timely manner, for those services rendered.
Reimbursement: Whenever an agent disburses sums of money to fulfill the principal’s request or
to pay for necessary expenses incurred in the reasonable performance of his or her duties, the
principal must reimburse the agent.
Ch. 17: Agency
Indemnification: Subject to the terms of the agency agreement, the principal must compensate,
or indemnify, the agent for liabilities arising from the agent’s lawful and authorized acts on the
principal’s behalf.
Cooperation: A principal must cooperate with the agent and assist the agent in performing his or
her duties.
Safe Working Conditions: A principal must
(1) provide its agents and employees with safe working premises, equipment, and conditions,
and
(2) inspect working conditions and warn agents and employees of unsafe areas.
ACTUAL AUTHORITY
Express Authority: Authority declared in clear, direct, and definite terms, orally or in writing.
Equal Dignity Rule: If a contract being executed by an agent on the principal’s behalf is
written, most states require that the agent’s authority must also be evidenced by a writing;
otherwise, the contract executed by the agent is voidable at the principal’s option.
The equal dignity rule does not apply when the agent acts in the principal’s presence or
when the agent’s act is merely perfunctory.
Power of Attorney: A written document, usually notarized, authorizing an agent to act
for a principal.
conferred by custom,
inferred from the position the agent occupies, or
inferred as being reasonably necessary to carry out express authority.
APPARENT AUTHORITY
Apparent Authority: Authority that arises when a principal, by either words or actions, causes a
third party to believe that an agent has authority to act, even though the agent has no express or
implied authority to act with regard to the particular matter at hand.
If the third party changes his or her position in reliance on the principal’s
representations regarding the agent’s authority, the principal may be estopped from
denying that the agent had authority to act.
Apparent authority may arise due to
RATIFICATION
Ch. 17: Agency
(1) the agent must have acted on behalf of the principal who subsequently ratified the
action;
(2) the principal must know all material facts;
If the principal ratifies without full knowledge, she can rescind her ratification,
but must reimburse the third party for any costs incurred as a result of reasonably
relying on the apparent contract.
(3) the principal must affirm the agent’s act in its entirety;
(4) the principal must have the legal capacity to affirm the transaction both
(a) at the time the agent acts, and
(b) at the time the principal ratifies; and
(5) the principal must affirm before the third party withdraws from the transaction.
AUTHORIZED CONTRACTS
A disclosed or partially disclosed principal is liable to a third party for a contract made by an
agent who is acting within the scope of his or her authority.
Disclosed Principal: A principal whose identity is known to the third party at the time
the agent makes a contract for the principal with the third party.
Partially Disclosed Principal: A principal whose identity is not known to the third party,
but the third party does know that the agent is representing some principal at the time the
agent makes a contract with the third party. In many states, the agent is also liable on a
contract with a partially disclosed principal.
Undisclosed Principal: When neither the fact of her agency nor the identity of the principal is
disclosed by an agent to the third party at the time a contract is made, the agent is presumed to be
acting on her own behalf, and will be liable as a party to the contract.
If the agent was authorized to act on behalf of the undisclosed principal, then the
principal will generally also be liable to the third party and will owe the agent indemnity.
UNAUTHORIZED CONTRACTS
If an unauthorized agent contracts with a third party, the principal cannot be held liable on the
contract, regardless of whether the principal was disclosed, partially disclosed, or undisclosed.
Rather, the agent will be solely liable.
However, if the third party knows or should know at the time of the contract that the agent lacks
authority – or may lack authority – to contract on behalf of the principal, the agent will not be
liable to the third party.
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E-AGENTS
(1) e-agents may enter into binding agreements on behalf of their principals; and
(2) if the e-agent does not provide the third party with an opportunity to prevent
errors at the time of the transaction, the third party may avoid the transaction
without liability.
An agent is liable for her own torts. In addition, a principal may be liable for its agent’s torts if
the agent’s tort resulted from:
Respondeat Superior: A principal is liable, along with the agent, for any tort committed by the
agent while acting within the scope of their agency.
To determine whether a tort was within the scope of the agency, courts look at the
following:
“Frolics”: A principal is not liable for the acts of an agent who substantially departs
from the principal’s business.
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Intentional Torts: Principals are liable only for those intentional torts that are committed
within the course and scope of the agent’s actions on behalf of the principal.
Misrepresentations by an Agent: Principals are liable to third parties who are injured
by an agent’s misrepresentation.
Crimes: As a general rule, a principal is not liable for an agent’s crime – even if
committed while otherwise acting in the course and scope of the agency – unless the
agent committed the crime at the principal’s direction, or with the principal’s knowledge
and consent.
As a general rule, an employer who has no legal power to control the details of the independent
contractor’s performance is not liable for any torts committed by the independent contractor, even
if committed while performing the contract.
Notice of Termination: If an agency terminates by any of the above, the principal must give
notice of that fact to (i) any third party who knows of the agency and (ii) the agent.
No particular form of notification is required, and the principal’s notice to the agent (but
not to third parties with knowledge) may be either constructive or actual.
Exception: If the agent derives her authority from a written agreement, the principal
must revoke the agency in writing and show the written revocation to all third parties
who saw the written agency agreement.