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AGENCY LAW

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Principal Agent

Third Party

There are THREE relationships involved in Agency Law:Principal – Agent

Principal – Third PartyAgent – Third Party

In any situation, the rules relating to each relationship must be appliedINDEPENDENTLY of the others.

The result in one relationship may have an influence on results (liability)in one or both of the other relationships

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Principal Agent

The Principal – Agent relationship is governed primarily by:a. the Principal—Agent agreement,b. the law-imposed duties each owes to the other, and c. ______________________

A. The Principal – Agent relationship is created by ________________

1. The Principal requests [consent] the Agent to do something forthe Principal

2. The Agent agrees [consent] to do the act(s) requested by the Principal

3. Except to the extent expressly agreed otherwise, the law:

a. Assumes the _____________ in the Principal, which carries with it responsibility for the Agent’s acts while carrying out the agreed tasks (contrary agreement = no agency)

b. Imposes many _____________________ on the Agent

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IMPORTANT NOTE:

1. The distinction between “employee” and “independent contractor”is irrelevant to the “principal”–“agent” relationship.

2. The rules governing the principal – agent relationship apply equallyto employees and independent contractors.

3. If the parties to the agency relationship also have a contract:

a. The contract terms may clarify or modify (to some degree)general agency-law rules

b. The extent to which the parties perform, breach, can enforce,etc., the contract depend on contract law, not agency law

c. The extent to which the parties perform, breach, can enforce, etc., the agency agreement/relationship depend on agencylaw, not contract law

4. Mixing agency law with contract and/or employment law causesconfusion and, frequently, incorrect conclusions

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B. Among the things NOT needed to create an agency relationship:

1. A _______________, i.e. consideration is not required

2. Something in writing, unless the act to be done by the agent mustbe in writing (e.g. signing a real property deed).

3. _________________, such as “principal,” “agent,” “agency,” etc.

4. An _____________ concerning the agent’s duties, the principal’sresponsibilities, or other rights and responsibilities» E.G. giving a person the job/title of store manager implies

that person has the authority to do what is necessary toperform the functions of store manager(a/k/a “implied actual authority”)

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Ratification:

“Ratification” happens (in any situation) when one party does someact that may benefit or obligate (intentionally or unintentionally)another party to perform some act(s).

The second party can, if it chooses, to perform the obligation/contract.

That agreement or actual performance “ratifies” the other party’sact and assumes the obligations (maybe contract) created by that act.

One person’s ratification of a contract negotiated by someone whowas not the ratifier’s agent is only a ratification of the contract. Thatdoes not retroactively create an agency relationship.

If the ratifying person/entity ratifies a number of contracts negotiatedby the not-agent, a court (applying equity principles) may hold that theratifying party created “apparent authority” in the negotiating person.That would be something like ratifying the agency relationship.

It would also be much like creating an agency “by estoppel”

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D. An Agent’s fiduciary duties (imposed by law)

1. The duty of _________________

a. Act only within the __________her/his/its _________________

b. To always place the principal’sinterests higher than anyoneelse’s (including the agent’s)

c. To deliver all property and opportunities to the principal

d. To act exclusively for the principal _______________________________________________ otherwise, including

(1) Not acting as agent for another party at the same time(2) Not competing with the principal(3) Not personally benefiting as a result of acts or incidents

occurring while acting as agent

ALL fiduciaries have duties similar to an agent’s, some-times requiring an even higher duty of care (such as a trustee of property). Having a fidu-ciary duty, however, does NOT necessarily imply the power to legally bind someone else to a contract

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E. An agent’s other duties to the Principal

1. To ________________ (except ones to do illegal or unethical things)

2. To act with __________________

a. If the agent is a professional, he/she/it is held to professionalstandards of care

b. Applies to all related acts, from driving a car, to renting ahotel room, to dealing with third parties

3. To provide the principal with complete and timely information (because the principal is assumed to know everything its agentknows)

An agent’s duties might be summarized as: “An agent has a duty to actin all respects ___________________ if the principal were acting insteadof the agent.” The agent is a legal alter ego of the principal and must actaccordingly.

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F. Principal’s remedies in case of Agent’s breach of duty

1. The agent must ____________________________ received beyondthose expressly provided for in the principal – agent agreement

2. Damages for ________________ incurred by the principal (includingprofits the principal could have made if the agent had acted properly)

a. Includes losses [indemnification] and costs incurred [reimburse-ment] in performing contracts with third parties when the agent did not have actual authority to agree on the principal’s behalf

b. Includes tort damages paid by the principal to third partiesinjured by the agent’s negligence

3. Rescission of any contracts between the principal and agent

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G. Principal’s duties to Agent

1. To ______________________ for costs incurred while carrying out theagency

a. Applies even if the agent is a friend acting gratuitouslyb. Assumes that the costs were reasonable and appropriate

(if not, agent would have breached a duty)

2. To __________________ for any contract liability imposed on agent

3. To indemnify agent for any tort liability imposed on agent for actswhich were specifically authorized (and agent did not know it was a tort)

4. To _______________ with the agent so that the agent can perform

a. Other agents of the principal may not do anything the principalcould not do directly

b. Not unreasonably interfere with the agent’s performance [But if the agency is not exclusive (area, subject matter) the principal can compete]

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TERMINATION of a Principal – Agent Relationship

The course text (and most others) do not make sufficient

distinction between the agency relationship, which is based

on consent, and the related contract, if any.

The agency relationship can be terminated by either party at any time.

Whenever an agency relationship ends, one or bothparties may have a cause of action against the otherfor relationship-related things (indemnification, etc.)

IF the agency relationship is part of, or related to,a contract, the act terminating the agency relation-ship may breach that contract.

IF there was a contract involved, the non-breachingparty might also have a cause of action based on

thecontract (separate from any concerning the

agency).

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A. Things that terminate a Principal – Agent Relationship

1. The ________________ by either Principal or Agent(with notice, of course).

2. Any event that would terminate a contract between the parties:

a. Agreement between Principal and Agent to terminate

b. Completion of the agency’s purpose

c. Performance of agency becomes impossible

(1) Act/purpose becomes illegal(2) The subject matter ceases to exist (cow died)(3) Agent or Principal looses necessary qualification

(which usually makes performance illegal)

d. The Agent _____________ his/her ___________________

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3. Termination of the agency ONLY terminates the agent’s ______________________ for the principal

a. Obligations between the parties that were created duringthe relationship are not automatically terminated

(1) Any duty to ______________________________ continues

(2) Duty of indemnification and reimbursement continueuntil fulfilled

(3) Duty to surrender Principal’s property and accountcontinue until fulfilled

b. Agent’s general duty of loyalty does terminate

In all aspects of the Principal—Agent—Third Party situation, it is VERY important to keep a clear separation between the rights, duties and obligations imposed by _____________ and any rights or obligations ____________________________.

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Principal Agent

Third Party

There are THREE relationships involved in Agency Law:Principal – Agent

Principal – Third PartyAgent – Third Party

In any situation, the rules relating to each relationship must be appliedINDEPENDENTLY of the others.

The result in one relationship may influence results in on one or both of the other relationships

AGENCY LAW – Part 2The “Outside” Relationship

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I. Principal – Agent & AUTHORITY

A. This relationship is governed by agreement between Principal and Agent

B. Most important with respect to third parties is Agent’s authority

C. In Principal – Agent relationship, the key is “_____________________”

1. Actual authority can be either _______________________

a. Express actual authority includes all the actions,authorities, duties, etc., Principal expressly grants Agentauthority through:

(1) Contract, if any(2) Job description of Agent’s position(3) Specific instructions (oral or written) on any topic

b. Implied authority is based on ______________________ ofscope of authority normally associated with a particular job

2. May vary over the term of the relationship

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D. Relationship between actual authority and Agent’s andPrincipal’s liability to each other

1. If Agent is acting within her/his actual authority, Principal isresponsible ________________ for carrying out any obligation agreed to by Agent

Example: Agent agrees with Zelda that Principal will sell Zelda 100 purple widgets at $5.25 each. Principal mustperform that contract, even if Principal did not really want tosell to Zelda. (If Agent knew Principal did not want to sell toZelda, the contract would not be within her actual authority.)

2. If Agent acts outside of actual authority, Principal is _______responsible ________________ to perform the contract, andAgent must indemnify Principal for any resulting losses, costs[Principal may still be ______________________ to performthe contract.]

3. If Agent acts within actual authority but Principal does notmeet the obligation incurred, Principal must _________ Agentfor any losses, etc., suffered by the Agent

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II. THE PRINCIPAL – THIRD PARTY RELATIONSHIP

A. The Principal – Third Party Relationship is controlled by_______________________ rules

1. “Apparent authority” is based on what a third party canreasonably conclude about the Agent’s authority _________________________________________

2. Relevant acts of the Principal include (among other things)

a. The Agent’s job titleb. Giving the agent business cards, company forms,

company car, telephone number at company offices,c. _____________________________________________

about the Agent and her/his relationship with principald. General publicity concerning the Principal and Agente. Actually performing contracts arranged by Agent can

become apparent authority only after that becomes apattern known to the third party

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B. Relationship between “apparent authority” and parties’liability to each other

1. If an agreement made by Agent with a third party is within the scope of Agent’s apparent authority, Principal is responsible ___________________________ for performance

2. An agent has ______________________________ based on apparent authority rules for any agreement made by Agent onbehalf of the Principal

(Third party may have some other basis for going after the Agent.)

3. Apparent authority, as such, is _____________ to the Principal –Agent relationship

(But some factors used to deter-mine the scope of implied actual authority are nearly the same asfactors used to determine apparentauthority.)

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III. AGENT – THIRD PARTY RELATIONSHIP

A. The Agent – Third Party relationship is governed principally by theextent to which the agent’s status is known by the third party

1. _______________________ Agency

a. The third party knows that the agent is __________________and _____________________ of the principal

b. The _________________ to the third party for the performanceof any agreement made on the principal’s behalf, UNLESS theagent somehow indicates his/her personal agreement

(1) An agent may join with his/her principal as a contract party

(2) If an agent signs a contract document without indicatinghe/she is signing as an agent, law assumes that he/sheintends to be a party to the contract

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2. _______________________ Agency

a. The third party knows that the agent is acting as an agent,but ______________________ the identity of the principal

b. ________ the agent and the principal are liable to the third partyfor agreements made on the principal’s behalf

(1) The principal is liable because it was the third party’sintent to enter into a contract with the principal

(2) The agent is liable because, in fact, the third party was__________________________________________ andother facts when making the agreement

c. There can be no _________________ in this situation becausethere is no information flowing directly from the principalto the third party

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3. _____________________ Agency

a. The _________________ that the agent is acting as anagent, or (obviously) the identity of the principal

b. The agent is personally liable _____________________ forperformance of the agreement

c. The agent can _______________________________ to the principal, so long as that is consistent with contract-lawrules on assignment and delegation

d. The __________________________ an assigned/delegatedagreement is governed by Principal – Agent relationship rules

e. The third party’s obligation to accept performance from theprincipal is based on contract-law rules concerning assign-ment and delegation

f. If the agent is acting beyond the scope of his/her actualauthority, the principal has ______________________, unlessshe/he/it ratifies the agreement

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IV. ON AGENTS and EMPLOYEES

A. Text says all employees are agents.

1. That is true in the limited sense that all employees do something for the employer. However, the term “agent” is normally usedwith respect to persons who have some authority to deal with third parties on the principal’s behalf.

a. A person can be an agent without being an employee

b. Many employees have no authority (actual or apparent) todeal with third parties on their employer’s behalf

2. Whether a particular person is an employee (or not) is based onthe extent to which the employer has the __________________ thedetails of that person’s actions

a. An employer has the right to specifically control every aspectof an employee’s work

b. An ________________________ agrees to provide a result, andhas the right to decide how that is done

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B. It is better to intellectually separate “employees” and “agents”

1. The rules and considerations applicable to “agency” are principallyconcerned with third-party contract problems

2. The rules and considerations applicable to employer-employeerelationships and third parties are principally concerned withtort problems (i.e. non-contract injuries to third parties)

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V. PRINCIPAL’S LIABILITY FOR INTENTIONAL TORTS

A. Agent or Employee is always liable for his/her own torts (intentionalor otherwise)

B. Principal is liable for Agent’s torts committed __________________ byPrincipal

1. If a person commits a tort on the instructions of, and for thebenefit of, another person, that other person is liable as principal(Implicit agency agreement)

2. Agent may receive indemnification from Principal if Agent hadno reason to believe that the instructed act would be a tort

C. Principal MAY be liable for ____________ committed by employee oragent

1. If employee/agent is ________________________________ and just happens to commit a tort in the process, principal/employeris probably liable

2. If agent’s purpose when committing the tort was personal, principal is probably NOT liable

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VI. EMPLOYER’S LIABILITY FOR EMPLOYEE’S NEGLIGENCE

A. Employer’s liability for employees’ acts is based on“_________________________”

1. Theory is based on the assumption that the employer has the_________________________________________

2. If the person committing the tort fits the definition of “employee”the employer does have that power

3. If a person/firm is acting as an “independent contractor” the otherparty to the contract (sometimes called “employer”) does nothave the necessary power to control

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B. An employer is liable for an employee’s negligence when the employeewas ___________________________________ when the tort occurred

1. “Scope of employment” is interpreted ________________

2. A person is acting within the scope of his/her employment if

a. He/she is properly following instructions and doing what theemployer hired her/him to do

b. She/he is attempting to do the job, but may not be doing itstrictly as instructed

c. He/she is at a particular place at a particular time ______________________________, with the possibility of doing particular acts, even if they violate instructions

EXAMPLE: Bus driver assigned to drive a long route. Rulesrequire that he rest before driving again. Driver stays in motel, goes to restaurant/bar for dinner, after dinner drinks. Drivergets in a fight in the bar, injures third party. Bus operator isliable as employer.

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3. Employer is NOT liable if employee has “abandoned” acting forthe employer and is, instead, pursuing his/her personal interests

a. An employee’s abandonment of employer’s interest is neverassumed

b. That the employee is pursuing only his own interests must beobvious

c. So long as the employee is doing something within the scopeof his/her employment, the fact that she/he is also doing somethingfor personal benefit or enjoyment does not exempt the employer. (Think talking on cell phone while delivering pizza.)

d. As soon as the employee resumes doing the employer’s work,she/he is back within the scope of employment, even if she/heis far from where she/he would have been if there had beenno abandonment.

EXAMPLE: Zeke is told to drive to Dallas with a truck load of widgets. Zeke

drives north on US 59 to Texarkana, then turns east to visit his girlfriend in

Little Rock. When he turns east, he is on his own. When Zeke finishes his visit

in Little Rock and gets back on I-30, he is back within the scope of employment,

even though he is still deep in Arkansas.