Chapter 20: Agency

Introduction Agency = Principal and Agent. Agency is the most common and most important legal relationship. Understanding agency is crucial to understanding the legal environment of business.

Introduction [2] Principals use agents to be able to conduct multiple business operations simultaneously in various locations. The principal has the right to control the agent in matters entrusted to the agent.

§ 1: Agency Relationships Agency is a “fiduciary” relationship based on trust and confidence. Distinguish Employee vs. Independent Contractor Relationships. Employer Employee Independent Contractor

Employee vs. Independent Contractor Relationships Factors Courts Consider: Emp’ee I.C. Does the Employer exercise a great degree of control over the details of the work? Yes No Is the worker engaged in an occupation or business distinct from Employer? Is the work usually done under Employer’s supervision? Does Employer provide the tools? Has the worker been employed a long time? Is the worker paid at the end of the job? Is there a great degree of skill required?

Employer Liability Determining whether the worker is an employee or an independent contract affects liability of Principal/Employer. Tax Liability: Employer liable if worker is an employee. Contract Liability: Employer not necessarily liable. Tort Liability: Employer liable for torts of employee within scope of employment. Case 20.1: Graham v. James (1998).

§2: Formation of the Agency Relationship Consensual Agreement. No consideration required. Principal needs contractual capacity, Agent does not. For any legal purpose.

Types of Agencies Agency by Agreement. Agency by Ratification. Agency by Estoppel. Agency by Operation of Law: Necessaries for family; or Emergency.

Agency By Agreement Formed through express consent (oral or written) or implied by conduct.

Agency by Ratification Principal either by act or by agreement ratifies conduct of a person who is not in fact an agent.

Agency by Estoppel Principal causes a third person to believe that another person is the Principal’s Agent, and the third person acts to her detriment in reasonable reliance on that belief. Case 20.2: Williams v. Inverness Corp (1995).

Agency by Operation of Law Agency based on social duty is formed in certain situations when the Agent is unable to contact the Principal. Necessaries. Emergencies.

§ 3: Duties of Agents and Principals Agents Owe Principals Duties of: Performance with reasonable diligence and skill (special skills). Notification to Principal. Loyalty (no conflict of interest). Case 20.3: American Express v. Topel (1999). Obedience. Accounting.

Principal’s Duties to the Agent Principals Owe Agents a Duty of: Compensation (Express or Implied). Reimbursement and Indemnification. Cooperation. Safe working conditions.

§ 4: Agent’s Rights & Remedies Against Principal Right to compensation, reimbursement, indemnification and cooperation. Agent can withhold performance and demand an accounting. Agent can recover damages for past services and future damages.

Principal’s Rights & Remedies Against Agent Contract remedies for breach of fiduciary duty and performance. Can sue in tort: libel, slander, trespass, deceit, fraud. Constructive Trust – money/ property agent steals from Principal. Avoidance of contract if agent does not do as told. Indemnification.

§ 5: Scope of Agent’s Authority Principal is liable for acts entered into by Agent when she gives Agent either actual or apparent authority: Actual Authority: express or implied. Apparent Authority: estoppel, emergency and ratification.

Express Authority Can be oral or written. “Equal Dignity Rule”: if law requires written contract, Agent’s authority must be in writing. Failure to comply with the rule renders contract voidable. Exceptions: Officer acting for Corporation. Agent acts in Principal’s presence. Power of Attorney (ordinary v durable).

Implied Authority Inferred or conferred by custom, Agent’s position or what is reasonably necessary to carry out express authority. What the Agent reasonably thinks the Principal means.

Apparent Authority Principal, by either word or act, causes 3rd party to reasonably believe that Agent has authority to act for Principal. If 3rd party changes legal position by relying on Principal’s representations, Principal is estopped from denying Agent had authority to contract. Case 20.4: Cargill v. Mountain Cement (1995).

Emergency Powers Arise when: Agent should protect Principal. Agent cannot communicate with Principal.

Ratification Occurs when a Principal affirms an Agent’s unauthorized act and binds Principal as if the act had been authorized from the outset. Requirements: Agent must act on behalf of Principal. Principal must affirm entire deal. Principal must affirm before 3rd party withdraws from transaction. Principal and 3rd party must have legal capacity to contract when Agent made the deal. Principals must know all the material facts involved in the transaction.

§ 6: Liability for Contracts Principal’s liability for Agent’s contract depends on whether Agent’s actions were authorized or unauthorized. Principals are classified as: Disclosed: identity known to 3rd P. Partially Disclosed: 3rd P knows he is dealing with Agent, but doesn’t know Principal’s identity. Undisclosed: 3rd party does not know he is dealing with an Agent, and Principal’s identity is totally unknown.

Liability for Authorized Acts Disclosed or partially disclosed Principal is liable to 3rd party if Agent acts within his scope of authority. Agent has no liability to 3rd party for disclosed Principal’s non-performance. (But Agent may be liable if Principal is partially disclosed).

Liability for Authorized Acts [2] If undisclosed Principal, no liability unless: Principal expressly excluded. Contract is a negotiable instrument. Agent’s performance is personal. 3rd party would have contracted if he knew the Principal’s identity.

Unauthorized Acts Unauthorized acts are outside of Agent’s express, implied or apparent authority. If Agent has no authority, Principal is not liable, but Agent is liable.

§ 7: Principal’s Liability For Agent’s Torts Agent is liable to 3rd party for his own torts. Principal may be liable for Agent’s torts if they result from: Principal’s own tort. Principal’s authorization of tort. Agent’s unauthorized but fraudulent conduct made within scope of agency.

Respondeat Superior Applies only to Employer-Employee relationships. Principal/Employer is vicariously liable for Agent/Employee’s negligent torts committed within the Agent’s “course and scope of employment.” Emerging Trends: Intelligent Agents.

“Scope of Employment” Factors for Principal to Be Liable, Agent’s Act must have occurred within the Course and Scope of Employment. Employer Liable Employer NOT Liable Was Employee’s act authorized by Employer? Yes No The Time place and purpose of act (factually based) ? Was act commonly performed by Employees? Did act advance Employer’s interests? Did Employer furnish instrumentality (tools)? Did Employer have reason to know Employee would do the act? Did the act involved a serious crime?

Departures from Employer’s Business Was departure minor or substantial? Case 20.5: Joel v. Morrison (1834). Borrowed Servants. Notice of Dangerous Conditions: Employer charged with knowledge of any dangerous conditions discovered by the Employee.

Liability for Employee’s Intentional Torts Principal liable for intentional torts committed within the scope of employment. Employee is a tortfeasor as well. Employer is liable for Employee’s acts which Employer knew or should have known the Employee had a propensity to commit.

§ 8: Liability for Independent Contractor’s Torts First determine whether worker is employee or independent contractor. General rule: Employer is not liable for acts of independent contractors because Employer has no right to control. Exception: hazardous activities. Independent Contractor is liable for her own torts. Case 20.6: Haag v. Bongers (1999).

Review: P’s Liability Analysis Independent Contractor Employee Factors p. 435 P Generally Not Liable (unless strict liability) Outside CSE-P Not Liable Within CSE -P Liable “Course and Scope of Employment” p. 449 Worker

§ 9: Liability for Agent’s Crimes General Rule: Agent is liable, Principal is not, unless: Principal authorized or participated in crime. Some jurisdictions hold Principal liable for violating statutes.

§ 10: Termination of An Agency Agency can be terminated by: An Act of the Parties; or By Operation of Law. Once agency terminated Agent has no actual authority to bind the Principal, but may have apparent authority to bind Principal.

Termination By Action of the Parties Lapse of Time. Purpose Achieved. Occurrence of a Specific Event. Mutual Agreement. Termination by One Party. Notice of Termination.

Termination By Operation of Law Death or Insanity of either Principal or Agent: automatic. Impossibility. Changed Circumstances. Bankruptcy. War.

Law on the Web Agency at Cornell U. Agency at ‘Lectric Law Library. Legal Research Exercises on the Web.

Emerging Trends Intelligent Agents: autonomous or semi-autonomous internet programs that interact with people or other programs to execute specific tasks, including the searching, ordering and delivery of goods via “point and click” electronic contracts on the internet. Generally, these agents have at least apparent authority to act for and bind Principal who is estopped. Return