Chapter 18

 A fiduciary relationship “which results from the

manifestation of consent by one person to another
that the other shall act in his behalf and subject to his
control, and consent by the other so to act”
 Principal: The party who employs another person to act on
his or her behalf
 Agent: The party who agrees to act on behalf of another

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 Principal–agent relationship: A relationship
formed when an employer hires an employee
and gives that employee authority to act and
enter into contracts on his or her behalf

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 Employer-employee relationship: A relationship
that results when an employer hires an employee to
perform some task or service but the employee has
not been authorized to enter into contracts on behalf
of the employer

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 Express agency: An agency that occurs when a
principal and an agent expressly agree to enter into
an agency agreement with each other
 Exclusive agency contract: A contract a principal and an
agent enter into that says the principal cannot employ any
agent other than the exclusive agent

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 An express agency agreement that is often used to
give an agent the power to sign legal documents on
behalf of the principal
 General power of attorney: A power of attorney in which
a principal confers broad powers on the agent to act in any
matters on the principal’s behalf
 Special power of attorney: A power of attorney in which a
principal confers powers on an agent to act in specified
matters on the principal’s behalf

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 Implied agency: An agency that occurs when a
principal and an agent do not expressly create an
agency, but it is implied from the conduct of the
parties
 Agency by ratification: Occurs when
 A person misrepresents himself or herself as another’s
agent when in fact he or she is not
 The purported principal ratifies (accepts) the unauthorized
act

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 Apparent agency (agency by estoppel): Agency
that arises when a principal creates the appearance of
an agency that in actuality does not exist

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 Duty of compensate: Owed by a principal to pay an
agreed-upon amount to the agent either upon the
completion of the agency or at some other mutually
agreeable time
 Duty of reimbursement: Unless otherwise agreed, a
duty a principal owes to reimburse an agent for
expenses incurred by the agent if the expenses were:
 Authorized by the principal
 Within the scope of the agency
 Necessary to discharge the agent’s duties in carrying out the
agency

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 Duty to indemnify
 Duty to cooperate: Unless otherwise agreed, a
principal’s duty to cooperate with and assist an agent
in the performance of the agent’s duties and the
accomplishment of the agency

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 Duty of perform: An agent’s duty to a principal that
includes
 Performing the lawful duties expressed in the contract
 Meeting the standards of reasonable care, skill, and
diligence implicit in all contracts
 Duty of notify: An agent’s duty to notify the
principal of important information concerning the
agency
 Imputed knowledge: Information that is learned by an
agent that is attributed to the principal

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 Duty to account: A duty that an agent owes to
maintain an accurate accounting of all transactions
undertaken on the principal’s behalf
 Duty of loyalty: A fiduciary duty owed by an agent
not to act adversely to the interests of the principal

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 Principal and agent are each liable for their own
tortious conduct
 Three main sources of tort liability:
 Negligence:
▪ Respondeat superior: A rule that says an employer is liable for the
tortious conduct of its employees or agents while they are acting
within the scope of the employer’s authority
▪ Vicarious liability: Liability without fault that occurs where a
principal is liable for an agent’s tortious conduct because of the
employment contract between the principal and agent, not because
the principal was personally at fault

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▪ Frolic and detour: A situation in which an agent does something
during the course of his or her employment to further his or her own
interests rather than the principal’s
▪ Coming and going rule (going and coming rule): A rule that says a
principal is generally not liable for injuries caused by its agents and
employees while they are on their way to or from work
▪ Dual-purpose mission: A situation that occurs when a principal
requests an employee or agent to run an errand or do another act for
the principal while the agent is on his or her own personal business

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 Intentional torts include acts such as assault, battery, false
imprisonment, and other intentional conduct that causes injury
to another person
▪ Motivation test: A test that determines whether an agent’s motivation in
committing an intentional tort is to promote the principal’s business; if
so, the principal is liable for any injury caused by the tort
▪ Work-related test: A test that determines whether an agent committed
an intentional tort within a work-related time or space; if so, the
principal is liable for any injury caused by the agent’s intentional tort
 Misrepresentation: A deceit in which an agent makes an
untrue statement that he or she knows is not true
▪ Innocent misrepresentation

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 Fully disclosed agency: An agency in which a
contracting third party knows
 That the agent is acting for a principal
 The identity of the principal
 Partially disclosed agency: An agency in which a
contracting third party knows that the agent is acting
for a principal but does not know the identity of the
principal

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 Undisclosed agency: An agency in which a
contracting third party does not know of either the
existence of the agency or the principal’s identity
 Agent exceeding scope of authority
 Implied warranty of authority: A warranty of an agent who
enters into a contract on behalf of another party that he or
she has the authority to do so
 Ratification of a contract: A situation in which a principal
accepts an agent’s unauthorized contract

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 “A person who contracts with another to do
something for him who is not controlled by the other
nor subject to the other’s right to control with respect
to his physical conduct in the performance of the
undertaking”
 Principal–independent contractor relationship: A
relationship between a principal and an independent
contractor who is not an employee of the principal
but has been employed by the principal to perform a
certain task on behalf of the principal
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 The crucial factor in determining whether someone is
an independent contractor or an employee is the
degree of control that the principal has over that
party
 Generally, a principal is not liable for the torts of its
independent contractors
 Principals cannot avoid liability for inherently dangerous
activities that they assign to independent contractors
 A principal can authorize an independent contractor
to enter into contracts
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 An agency contract is similar to other contracts in
that it can be terminated by an act of the parties
 The mutual assent of the parties
 The passage of a stated time
 The achievement of a specified purpose
 The occurrence of a stated event

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 Notice of termination: If the principal fails to give
the proper notice of termination to a third party, the
agent still has apparent authority to bind the principal
to contracts with these third parties
 Direct notice
 Constructive notice
 An agency terminates when there is an unusual
change in circumstances that would lead the agent to
believe that the principal’s original instructions
should no longer be valid
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 An agency relationship terminates if a situation arises
that makes its fulfillment impossible
 The loss or destruction of the subject matter of the agency
 The loss of a required qualification
 A change in the law

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 Agency contracts can be terminated by operation of
law
 The death of either the principal or the agent
 The insanity of either the principal or the agent
 The bankruptcy of the principal
 The outbreak of a war between the principal’s country and
the agent’s country

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 Wrongful termination: The termination of an
agency contract in violation of the terms of the
agency contract
 In such a situation, the nonbreaching party may recover
damages from the breaching party

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