Chapter 20: Agency and Liability to Third Parties

Principal's Duties to the Agent

When a principal contractually agrees that another person can make agreements on his or her behalf, the principal owes certain duties to the agent.

Indemnification

When sued by a third party, a principal may sue his agent to recover the amount assessed to the third party if the breach of contract is the agent's fault.

Employee-Employee Relationship

Whenever an employer hires and employee to perform some sort of physical service, the parties have created this relationship.

Partially Disclosed Principal

A principal whose identity is not known by a third party, although the third party is award that the agent is making an agreement on behalf of the principal.

Duty of Cooperation

A principal's obligation to assist an agent in the performance of the agent's duties and not to interfere with reasonable conduct of the agent.

Duty of Compensation

A principal's obligation to pay an agent for his or her services.

Power of Attorney

A specific form of express authority that grants an agent specif powers.

Duty of Obedience

An agent's obligation to follow the lawful instruction and direction of the principal

Duty of Accounting

An agent's obligation to keep an accurate account of the transactions of money and property made on behalf of the principal.

Agent Misrepresentation

If a agent misrepresents himself or herself, the principal may be tortiously liable for the agent's misrepresentation.

Change in Law

When a new law is passed subsequent to the formation of an agency agreement that makes the commission of the agency agreement illegal, the agency agreement is terminated

Bankruptcy

If the principal or agent file a bankruptcy petition, the agency relationship is generally no longer in relationship.

Apparent Authority and Estoppel

If the third parry reasonably believes that the agent has authority to represent the principal,the principal must uphold any agreements made with the agent, who has apparent authority. The principal is prevented (estopped) from acting as if the agent had no such authority.

Fulfillment of Purpose

If the very basis for the relationship is a function or purpose (selling a house), once the property is sold the agent no longer has the authority to act on the seller's behalf. The agent has fulfilled there purpose of the agency relationship.

Constructive Trust

An equitable trust imposed on a person who wrongfully obtains or holds legal right to property he or she should not possess.

Principal

The party that an agent's authority can bind or act on behalf of.

Duty of Notification

An agent's obligation to inform the principal of the agent's actions on the principal's behalf and of all relevant information

Duty of Performance

An agent's obligation to perform the duties specified in the agency agreement and to do so with reasonable skill and care.

Revocation of Authority

At any time, a principal can revoke an agent's authority. If the agent does not want the principal to act on his behalf, the principal can revoke the agent's authority.

Implied Authority

The authority of an agent that arises by inference from words and actions of the principal

Express Authority

The authority of an agent that arises when the principal explicitly instruct the agent to do something.

Agency

The fiduciary relationship that arises when one person consents to have another act on his behalf and subject to his control and the other consents to do so.

Vicarious Liability

The liability or responsibility imposed on a person, a party. or an organization for damages caused by another; most commonly used in relation to employment, with the employer held vicariously liable for damages caused by its employees.

Principal-Agent Relationship

Typically exists when an employer hires an employee to enter into contracts on behalf of the employer. This relationship is the most basic type of agency relationship

Specific Performance

When contract exists and a principal agrees to certain conditions but fails to perform, under contract remedies the agent may seek court assistance in forcing the principal to perform the contract as stipulated. However, when the agency relationship is not contractual or the contract is for personal services, an agent does not have the right to seek specific performance.

Constructive Notice

Notice of agency termination that is usually given by publishing an announcement in a newspaper.

Durable Power of Attorney

A document that specifies that an agent's authority is intended to continue beyond the principal's incapacitation.

Agent

A party who has the authority to act on behalf of and bind another party

Fiduciary

A person who has a duty to act primarily for another person's benefit.

Independent Contractor

A person who is hired to perform a task for another but who is not the other's employee

Insanity

If a principal or agent becomes insane, the ageny relationship is finished.

Termination by Operation of Law

Includes: - Death - Insanity - Bankruptcy - Changed Circumstances - Change in Law - Impossibility - Disloyalty of Agent - War

Respondent Superior

"let the superior speak"; the principle by which liability for harm caused by an agent employee is held by the principal/employer

Two Requirements for Agency Ratification

- An individual must misrepresent himself or herself as an agent for another party - The principal accepts or ratifies the unauthorized act.

Termination by Acts of Parties

- Lapse of Time - Fulfillment of Purpose - Occurrence of a Specific Event - Mutual Agreement by the Parties - Revocation of Authority - Renunciation by the Agent - Agency Coupled with Interest

Additional Requirements for Ratification to be Successful

- The principal must have complete knowledge of all material facts regarding the contract. - The principal must ratify the entirety of the agent's act.

Two Options After Agent Misrepresentation

- The third party can cancel the contract with the principal and be compensated for any money lost - The third party can affirm the contract and sue the principal to recover damages.

Undisclosed Principal

A principal whose existence is not known by a third party. That is, the third party does not know an agent is acting on behalf of a principle.

Disclosed Principal

A principal whose identity is known to a third party. The third party is aware that the agent is making an agreement on behalf of the principal.

Duty to Provide Safe Working Conditions

A principal's obligation to proved proper equipment, suitable premises and a safe working environment in accordance with federal and state statutes.

Duty of Reimbursement and Indemnification

A principal's obligation to reimburse an agent for any expenses or losses incurred by the agent on the principal's behalf.

Equal Dignity Rule

A rule requiring that contracts that would normally fall under the statute of frauds and need a writing if negotiated by the principal must be in writing even if negotiated by an agent.

Tort and Contract Remedies

Agents, much like principals, have certain tort and contract remedies available for situations in which a principal violates an agency agreement.

Avoidance

Allows a principal to nullify any contract the agent negotiated.

Occurrence of a Specific Event

An additional means of ending an agency relationship is a specific event, once the event is complete the relationship is terminated.

Disloyalty of Agent

An agency agreement is terminated whenever the agen, unknown to the principal, acquires an interest against the principal of the agent. The agency agreement is terminated if the agent breaches the loyalty he or she has to the principal.

Expressed Agency

An agency created in a written or oral agreement.

Apparent Agency

An agency relationship created by operation of law when one party, by his actions, causes a third party to believe someone is his agent when that person actually has no authority.

Agency by Ratification

An agency relationship that arises when an individual misrepresents himself or herself as an agent for another party and that party accepts the unauthorized act.

Agency Coupled with an Interest

An agency relationship that is created for the benefit of the agent, not the principal.

Renunciation by the Agent

An agent can terminate the agency relationship by renouncing the authority given to the agent.

Gratuitous Agent

An agent who acts without being paid for his or her services.

Duty of Loyalty

An agent's obligation to act in the interest of the principal

Lapse of Time

If an agency agreement specifies that the agency relationship will exist for a certain amount of time, the relationship will end when the amount of time expires.

Changed Circumstances

If an unusual change in circumstances leads the agent to believe that the principal's instructions do not apply, the agency relationship is terminated.

Death

If either the principal or the agent dies, the agency relationship is automatically terminated.

Impossibility

If it is impossible for an agent to sell a product or service, the agency agreement is terminated.

War

If the United States goes to war, the agency relationship will no longer exist because there is no way to enforce the rights of the partie.

Mutual Agreement by the Parties

If two parties mutually decide they do not wish to continue working together, the cancel the agreement terminating the agency relationship.

Agency Relationship

The association between one party and an agent who acts on behalf of that party.

Demand for an Accounting

When an agent feels she is not being properly compensated, especially when working on commission, the agent may demand an accounting. When this occurs, she may withhold further performance of her duties until the principal supplies appropriate accounting data.