CHAPTER 33- AGENCY LIABILITY AND TERMINATION

Liability for agent's misrepresentation

-a principal is exposed to tort liability whenever a third person sustains a loss due to the agent's misrepresentation -the principal's liability depends on whether the agent was actually or apparently authorized to make representations and whether the representations were made within the scope of the agency -the principal is always directly responsible for an agent's misrepresentation made within the scope of the agent's authority

Disclosed principal

-a principal whose identity is known by the third party at the time the contract is made by the agent

Principal's tortious conduct

-a principle who acts through an agent may be liable for harm resulting from the principal's own negligence or recklessness -thus, a principal may be liable if he or she gives improper instructions, authorizes the use of improper materials or tools, or establishes improper rules that result in the agent's committing a tort

The distinction between a "detour" and a "frolic"

-a useful insight into the concept of "scope of employment can be aimed from the classic distinction between a "detour" and a "frolic" in the case of Joel v. Morison -in this case, the English court held that if a servant merely took a detour from his master's business, the master will be responsible -if, however, the servant was on a "frolic of his own" and not in any way "on his master's business," the master will not be liable

Express authority

-authority declared in clear, direct, and definite terms -can be given orally or in writing

Liability for torts and crimes

-principal's tortious conduct -principal's authorization of agent's tortious conduit -liability for agent's misrepresentation -liability for agent's negligence -liability for agent's intentional torts -liability for independent contractor's torts -liability for agent's crimes

Actions by E-Agents

-today the same agency principles also apply to e-agents -an electronic agent, or e-agent, is a semiautonomous software program that is capable of executing specific tasks, such as searching through many databases and retrieving relevant information for the user

Undisclosed principal

-when neither the fact of an agency relationship nor the identity of the principal is disclosed, the undisclosed principal is bound to perform just as if the principal had been fully disclosed at the time the contract was made

Apparent authority and estoppel

-a court can apply the doctrine of agency by (blank) when a principal has given a third party reason to believe that an agent has authority to act -if the third party honestly relies on the principal's representations to his or her detriments, the principal may be (blank) (prevented) from denying that the agent had authority

Principal's authorization of agent's tortious conduct

-a principal who authorizes an agent to commit a tort may be liable to persons or property injured thereby, because the act is considered to be the principal's -an agent acting at the principal's direction can be liable, along with the principal, for committing the tortious act even if the agent was unaware that the act was wrong

Partially disclosed principal

-a principal whose identity is not known by the third party -nevertheless, the third party knows that the agent is or may be acting for a principal at the time the contract is made

Undisclosed principal

-a principal whose identity is totally unknown by the third party -in addition, the third party has no knowledge that the agent is acting in an agency capacity at the time the contract is made

Apparent authority

-actual authority (express or implied) arises form what the principal makes clear *to the agent* -(blank), in contrast, arises from what the principal causes a third party to believe -an agent has (blank) when the principal, by either word or action, causes a *third party* reasonably to believe that the agent has authority to act, even though the agent has no express or implied authority Pattern of conduct: -(blank) usually comes into existence through a principal's pattern of conduct over time

Termination of an agency

-agency law can be terminated by an act of the parties or by operation of law -once the relationship between the principal and the agent has ended, the agent no longer has the right (*actual* authority) to bind the principal -for an agent's *apparent* authority to be terminated, though, third persons may also need to be notified that the agency has been terminated

Lapse of time

-agency terminates automatically at the end of the stated time -if no definite time is stated, then the agency continues for a reasonable time and cannot be terminated at will by either party -what constitutes a reasonable time depends on the circumstances and the nature of the agency relationship

Achievement of purpose

-agency terminates automatically on the completion of the purpose for which it was formed

Mutual agreement

-agency terminates when both parties consent to end the agency relationship

agency coupled with an interest

-an agency, created for the benefit of the agent, in which the agent has some legal right (interest) in the property that is the subject of the agency -an agency relationship in which the agent has some legal right to (an interest in) the property that it is the subject of the agency -this type of agency is not an agency in the usual sense because it is created for the agent's benefit instead of for the principal's benefit

Implied authority

-an agent has the (blank) to do what is reasonably necessary to carry out express authority and accomplish the objectives of the agency -authority can also be (blank) by custom or inferred from the position the agent occupies -however, an agent's (blank) cannot contradict his or her express authority -thus, if a principal has limited an agent's express authority, then the fact that the agent customarily would have such authority is irrelevant

Occurrence of a specific event

-agency normally terminates automatically on the event's occurrence

Liability for agent's crimes

-an agent is liable for his or her own crimes -a principal or employer normally is *not* liable from an agent's crimes even if the crime was committed within the scope of authority or employment -an exception to this rule is made when the principal or employer participated in the crime by conspiracy or other action -in addition, in some jurisdictions, a principal may be liable under specific statutes if an agent, in the course and scope of employment, violates certain regulations -for instance, a principal might be liable for an agent's violation of sanitation rules or regulations governing prices, weights, or the sale of liquor

Liability for agent's negligence

-an agent is liable for his or her own torts -a principal may also be liable for harm an agent causes to a third party under the doctrine of respondeat superior, a Latin term meaning "let the master respond" -under this doctrine, the principal-employer is liable for any harm caused to a third party by an agent-employee in the course or scope of employment -the doctrine imposes vicarious liability, or indirect liability or torts committed by an agent-employee -when an agent commits a negligent act in such a situation, *both* the agent and the principal are liable

Termination by operation of law

-certain events terminate agency authority automatically because their occurrence makes it impossible for the agent to perform or improbable that the principal would continue to want performance -in these circumstances, there is no duty to notify the third person--unless the agent's authority is coupled with an interest 1) Death or insanity: -termination of the agency is automatic on the death or insanity of either the principal or the agent--except when the agency is coupled with an interest 2) Impossibility: -agency termination occurs any time the agency cannot be performed because of an event beyond the parties' control, such as the destruction of the specific subject matter 3) Changed circumstances: -when events are so unusual that it would be inequitable to allow the agency to exist, the agency will terminate 4) Bankruptcy: -if either principal or the agent petitions for bankruptcy, the agency is *usually* terminated -in certain circumstances, such as when the agent's financial status is irrelevant to the purpose of the agency, the agency relationship may continue -insolvency (an insolvent person is one who cannot pay debts as they come due or whose liabilities exceed his or her assets) does not necessarily terminate the relationship 5) War: -war between the principal's country and the agent's country automatically suspends or terminates agency because there is no way to enforce legal rights

At the option of one party

-either party can terminate the agency relationship without the agreement of the other -the act of termination is called *revocation* if done by the principal and *renunciation* if done by the agent -wrongful termination can lead to liability for breach of contract

Liability for independent contractor's torts

-generally, an employer is not liable for physical harm caused to a third person by the negligent act of an independent contractor in the performance of the contract -this is because the employer doesn't to have *the right to control* the details of an independent contractor's performance -courts make an exception to this rule when the contract involves usually hazardous activities, such as blasting operations, the transportation of highly volatile chemicals, or the use of poisonous gases -in these situations, strict liability is imposed, and an employer cannot be shielded from liability merely by using an independent contractor

Power of attorney

-giving an agent a (blank) confers (grants) express authority -the (blank) is a written document and is usually notarized (document is notarized when a notary public--a person authorized to attest to the authenticity of signatures--signs, dates, and imprints the document with her or his seal of authority) -a (blank) can be *special* (permitting the agent to perform specified acts only), or it can be *general* (permitting the agent to transact all business for the principal)

Authorized acts

-if an agent acts within the scope of her or his authority, normally the principal is obligated to perform the contract regardless of whether the principal was disclosed, partially disclosed, or undisclosed -whether the *agent may also be held liable* under the contract, however, depends on the disclosed, partially disclosed, or undisclosed status of the principal

Unauthorized acts

-if an agent has no authority but nevertheless contracts with a third party, the *principal* cannot be held liable on the contract -it does not matter whether the principal was disclosed, partially disclosed, or undisclosed -the *agent* is liable

implied warranty

-if the principal is disclosed or partially disclosed, and the agent contracts with a third party without authorization, the agent is liable to the third party -the agent't liability here is based on his or her breach of the *implied warranty of authority*, not on the breach of the contract itself -an agent (blanks) that he or she has the authority to enter a contract on behalf of the principal

Third party knowledge

-if the third party knows at the time the contract is made that the agent does not have authority, then the agent is not liable -similarly, if the agent expresses to the third party *uncertainty* as to the extent of her of his authority, the agent is not personally liable

The equal dignity rule

-in most states, the (blank) requires that if the contract being executed is or must be in writing, then the agent's authority must also be in writing -failure to comply with this rule can make a contract voidable *at the option of the principal* -the law regards the contract at that point as a mere offer -if the principal decides to accept the offer, the acceptance must be ratified, or affirmed, in writing

Termination by act of the parties

-lapse of time -achievement of purpose -occurrence of a specific event -mutual agreement -at the option of one party

Liability for contracts

-liability for contracts formed by an agent depends on how the principal is classified and on whether the actions of the agent were authorized or unauthorized -principals are classified as disclosed, partially disclosed, or undisclosed

disclosed or partially disclosed principal

-liable to a third party for a contract made by the agent -if the principal is (blank 1), the agent has no contractural liability for the nonperformance of the principal or the third party -if the principal is (blank 2), in most states the agent is also treated as a party to the contract -thus, the third party can hold the agent liable for contractural nonperformance

Liability for agent's intentional torts

-most intentional torts that individuals commit have no relation to their employment, and their employers will not be held liable -nevertheless, under the doctrine of respondeat superior, the employer can be liable for intentional torts that an employee commits within the house and scope of employment -for instance, a department store owner is liable when a security guard who is a store employee commits the tort of false imprisonment while acting within the scope of employment -in addition, an employer who knows or should know that an employee has a propensity for committing tortious acts is liable for the employee's acts even if they would not ordinarily be considered within the scope of employment -an employer is also liable for permitting an employer to engage in reckless actions that can injure others

Ratification

-occurs when the principal affirms, or accepts responsibility for, an agent's *unauthorized* act -when (blank) occurs, the principal is bound to the agent's act and the act is treated as if it had been authorized by the principal *from the outset* -can be either express or implied -if the principal does not (blank) the contract, the principal is not bound, and the third party's agreement with the agent is viewed as merely an unaccepted offer -because the third party's agreement is an unaccepted offer, the third party can revoke it at any time, without liability, before the principal (blanks) the contract -the agent, however, may be liable to the third party for misrepresenting her or his authority

Performance

-once the undisclosed principal's identity is revealed, the third party generally can elect to hold either the principal or the agent liable on the contract -conversely, the undisclosed principal can require the third party to fulfill the contract, *unless* one of the following is true: 1. the undisclosed principal was expressly excluded as a party in the written contract 2. the contract is a negotiable instrument signed by the agent with no indication of signing in a representative capacity 3. the performance of the agent is personal to the contract, thus allowing the third party to reduce the principal's performance

Determining the scope of employment

-the key to determining whether a principal may be liable for the torts of an agent under the doctrine of respondeat superior is whether the torts are committed within the scope of the agency -courts consider the following factors in determining whether a particular act occurred within the course and scope of employment: 1. whether the employee's act was authorized by the employer 2. the time, place, and purpose of the ac 3. whether the act was one commonly performed by employees on behalf of their employers 4. the extent to which the employer's interest was advanced by the act 5. the extent to which the private interests of the employee were involved 6. whether the employer furnished the means or instrumentality (such as a truck or a machine) by which an injury was inflicted 7.whether the employer had reason to know that the employee would perform the act in question and whether the employee had done it before 8. whether the act involve the commission of a serious crime

Scope of agent's liability

-the liability of a principal to third parties with whom an agent contracts depends on whether the agent had the authority to enter into legally binding contracts on the principal's behalf -an agent's authority can be either *actual* (express or implied) or *apparent* -if an agent contracts outside the scope of his or her authority, the principal may still become liable by ratifying the contract

The doctrine of respondeat superior

-this doctrine is similar to the theory of strict liability in that liability is imposed regardless of fault -a doctrine under which a principal employer is liable for any harm caused to a third party by an agent-employee in the course or scope of employment -the rationale of the doctrine is based on the social duty that requires every person to manage his or her affairs so as not to injure another -this duty applies even when a person acts through an agent (controls the conduct of another) Public policy: -generally, public policy requires that an injured person be afforded effective relief, and a business enterprise is usually better able to provide that relief than is an individual employee -employers normally carry liability insurance to cover any damages awarded as a result of such lawsuits -they are also able to spread the cost of risk over the entire business enterprise

Innocent misrepresentation (Liability for agent's misrepresentation)

-tort liability based on fraud requires proof that a material misstatement was made knowingly and with the intent to deceive -an agent's *innocent* misstatements in a contract or warranty transaction can also provide grounds for the third party's rescission of the contract and the award of damages -justice dictates that when a principal knows that an agent is not accurately advised of facts but does not correct either the agent's or the third party's impressions, the principal is responsible -the point is that the principal is always directly responsible for an agent's misrepresentation made within the scope of authority

Apparent implied authority (Liability for agent's misrepresentation)

-when a principal has placed an agent's in a position of apparent authority--making it possible for the agent's to defraud a third party--the principal may also be liable for the agent's fraudulent acts -for instance, partners in a partnership generally have the apparent implied authority to act as agents of the firm -thus, if one of the partners commits a tort or crime, the partnership itself--and often the other partners personally--can be held liable for the loss

Indemnification

-when a principal's identity is undisclosed and the agent is forced to pay the third party, the agent is entitled to be (blank) (compensated) by the principal -the principal had a duty to perform, even though his or her identity was undisclosed, and failure to do so will make the principal ultimately liable

Emergency powers

-when an unforeseen emergency demands action by the agent to protect or preserve the property and rights of the principal, but the agent is unable to communicate with the principal, the agent has (blank)

Notice of termination

-when the parties terminate an agency, it is the principal's duty to inform any third parties who know of the existence of the agency that is has been terminated -no particular form is required for notice of termination to be effective -the principal can personally notify the agent, or the agent can learn of the termination through smoother means -although an agent's actual authority ends when the agency is terminated, an agents *apparent authority* continues until the third party receives notice (from any source that such authority has been terminated) -if the principal knows that a third party has dealt with the agent, the principal is expected to notify that person *directly* -for third parties who have heard about the agency but have not yet dealt with the agent, *constructive notice* is sufficient -if the agent's authority is written, however, normally it must be revoked in writing (unless the written document contains an expiration date)

Exceptions to the equal dignity rule

1. an executive offer of a corporation normally can conduct *ordinary* business transactions without obtaining written authority from the corporation 2. when the agent acts in the presence of the principal, the rule does not apply 3. when the agent's act of signing is merely a formality, then the agent does not need written authority to sign

The requirements for ratification

1. the agent must have acted on behalf of an identified principal who subsequently ratifies the action 2. the principal must know all of the material facts involved in the transaction -if the principal ratifies a contract without knowing all of the facts, the principal can rescind (cancel) the contract 3. the principal must affirm the agent's act in its entirety 4. the principal must have the legal capacity to authorize the transaction at the time the agent engages in the act and at the time the principal ratifies -the third party must also have the legal capacity to engage in the transaction 5. the principal's affirmation (ratification) must occur before the third party withdraws from the transaction 6. the principal must observe the same formalities when ratifying the act as would have been required to authorize it initially