ChapPrincipal: A person who has someone else acting for him ter 28: Agency Law

Principal's Liability for Torts

An employer is liable for a physical tort committed by an employee acting within the scope of employment and a nonphysical tort of an employee acting with authority This principle of liability is called respondeat superior (an employer is liable for a physical tort committed by an employee acting within the scope of employment, and a nonphysical tort of an employee acting with authority),

Duty of principals to agents: Duty to Indemnify

As a general rule, the principal must indemnify (i.e., reimburse) the agent for any expenses she has reasonably incurred

Principal's Remedies when the Agent Breaches a Duty

Damages. The principal can recover from the agent any damages the breach has caused Profits. If an agent breaches, the duty of loyalty, he must turn over to the principal any profits he has earned as a result of his wrongdoing Recission. If the agent has violated her duty of loyalty, the principal may rescind the transaction

Duty of principals to agents:

Duty to compensate as provided by the agreement Duty to reimburse reasonable expenses Duty to cooperate with the agent

Terminating an Agency Relationship

Termination by Agent or Principal Principal or Agent Can No Longer Perform Required Duties Change in Circumstances

Express Authority

The principal grants express authority by words or conduct that, reasonably interpreted, cause the agent to believe the principal desires her to act on the principal's account Eg. asking to do something , agent has express authority to do it

Abandonment

The principal is liable for the actions of the employee that occur while the employee is at work, but not for actions that occur after the employee has abandoned the principal's business

Principal's Liability for Contracts

The principal is liable for the acts and statements of his agent if (1) the agent had authority, or (2) the principal ratified the acts of the agent

Nonphysical torts (whether intentional or unintentional) are treated like a contract claim:

The principal is liable only if the employee acted with express, implied, or apparent authority

when determining if agents are employees or independent contractors, courts consider whether:

The principal supervises details of the work The principal supplies the tools and place of work The agents work full time for the principal The agents receive a salary or hourly wages, not a fixed job price for the job The work is part of the regular business of the principal The principal and agents believe they have an employer-employee relationship The principal is in business

Term Agreement.

Time. Eg. last 2 years Achieving a Purpose Eg. When goals met Mutual Agreement Eg. change mind later as long as it is mutual

Duties of Agents to Principals: Conflict of Interest Between Two Principals

Unless otherwise agreed, an agent may not act for two principals whose interests conflict

Implied Authority

Unless otherwise agreed, authority to conduct a transaction includes authority to do acts that are reasonably necessary to accomplish it Eg. he hires to auction house, agent hires others

The following elements are not required for an agency relationship:

Written Agreement, Formal Agreement, Compensation.

The beneficiary places special confidence in the fiduciary who, in turn, is

obligated to act in good faith and candor, doing what is best for the beneficiary.

A fiduciary relationship is

one of trust: A trustee acts for the benefit of the beneficiary, always putting the interests of the beneficiary before his own

A principal is not liable for the intentional physical torts of an employee unless

(1) the employee intended to serve some purpose of the employer, or (2) the employer was negligent in hiring or supervising this employee

To create an agency relationship, there must be:

A principal and An agent, Who mutually consent that the agent will act on behalf of the principal and Be subject to the principal's control Thereby creating a fiduciary duty

There are two kinds of agents:

There are two kinds of agents: (1) employee and (2) independent contractor

Agent

A person who acts for someone else

Principal

A person who has someone else acting for him

These reimbursable expenses fall into three categories:

A principal must indemnify an agent for any expenses or damages reasonably incurred in carrying out his agency responsibilities A principal must indemnify an agent for tort claims brought by a third party if the principal authorized the agent's behavior and the agent did not realize he was committing a tort The principal must indemnify the agent for any liability to third parties that she incurs as a result of entering into a contract on the principal's behalf, including attorney's fees and reasonable settlements

Duties of Agents to Principals: Competition with the Principal

Agents are not allowed to compete with their principal in any matter within the scope of the agency business

Duties of Agents to Principals: Confidential Information

Agents can neither disclose nor use for their own benefit any confidential information they acquire during their agency

Authorization

An act is within the scope of employment, even is expressly forbidden, if it is of the same general nature as that authorized or if it is incidental to the conduct authorized

Other Duties of an Agent: Duty of Care

An agent has a duty to act with reasonable care An agent with special skills is held to a higher standard because she is expected to use those skills

Other Duties of an Agent: Duty to Provide Information

An agent has a duty to provide the principal with all information in her possession that she has reason to believe the principal wants to know She also has a duty to provide accurate information

Duties of Agents to Principals: Duty of Loyalty

An agent has a fiduciary duty to act loyally for the principal's benefit in all matters connected with the agency relationship

Fully disclosed principal

An agent is not liable for any contracts she makes on behalf of a fully disclosed principal A principal is fully disclosed if the third party knows of his existence and his identity Eg. Tracey friend recommendation, friend not responsible for recommendation

Duties of Agents to Principals: Appropriate Behavior

An agent may not engage in inappropriate behavior that reflects badly on the principal

Duties of Agents to Principals: Outside Benefits

An agent may not receive profits unless the principal knows and approves

Other Duties of an Agent: Duty to Obey Instructions

An agent must obey her principal's instructions unless the principal directs her to behave illegally or unethically

Agent's Liability for Contracts:

Fully Disclosed Principal Unidentified Principal Undisclosed Principal

Ratification

If a person accepts the benefit of an unauthorized transaction or fails to repudiate it, then he is as bound by the act as if he hd originally authorized it He has blank the act Even if an agent acts without authority, the principal can decide later to be bound by her actions as long as these requirements are met:

Duties of Agents to Principals: Secretly Dealing with the Principal

If a principal hires an agent to arrange a transaction, the agent may not become a party to the transaction without the principal's permission

Wrongful Termination.

If an agency relationship is not working out, the courts will not force the agent and principal to stay together Either party always has the power to terminate They may not, however, have the right If leaves, pay damages, but can still leave Gratuitous agent can leave anytime without penalty

Principal or Agent Can No Longer Perform Required Duties

If either the agent or the principal fails to obtain (or keep) a license necessary to perform duties under the agency agreement, the agreement ends Lawyer The bankruptcy of the agent or the principal terminates an agency relationship only if it affects the ability to perform An agency relationship terminates upon the death or incapacity of either the principal or the agent If the agent violates her duty of loyalty, the agency argument automatically terminates

Unauthorized Agent

If the agent has no authority (express, implied or apparent), the principal is not liable to the third party, and the agent is

Change in Circumstances

If these changes are significant enough to undermine the purpose of the agreement, the relationship ends automatically Eg. market value for something skyrockets Other changes: Change of law. Agent's responsibilities become illegal Eg. ordering avocados, fruit flies quarantine shipment Loss or destruction of subject matter

Agency at Will.

If they make no agreement in advance about the term of the agreement, either principal or agent can terminate at any time

Undisclosed Principal

In the case of an undisclosed principal, the third party can recover from either the agent or the principal A principal is undisclosed if the third party did not know of his existence Eg. buying the horse for a third party without mentioning the third party, he is undisclosed principal A third party is not bound to the contract with an undisclosed principal if (1) the contract specifically provides that the third party is not bound to anyone other than the agent, or (2) the agent lies about the principal because she knows the third party would refuse to contract with him

Unidentified Principal

In the case of an unidentified principal, the third party can recover from either the agent or the principal An unidentified principal is also sometimes called a "partially disclosed principal" A principal is unidentified if the third party knew of his existence but not his identity Eg. unidentified friend so cannot research (definition below) Jointly and severally liable (all members of a group are liable. They can be sued as a group, or any one of them can be sued individually for the full amount owed. But the plaintiff cannot recover more than the total she is owed

An employee is acting within the scope of employment if the act:

Is one that employees are generally responsible for, Takes place during hours that the employee is generally employed, Is part of the principal's business Is similar to the one the principal authorized Is one for which the principal supplied the tools, and Is not seriously criminal

Liability to Third Parties

Once a principal hires an agent, she may be liable to third parties for his acts, even if he disobeys instructions Agents may also find themselves liable to third parties

Effects of Termination

Once an agency relationship ends, the agent no longer has the authority to act for the principal If she continues to act, she is liable to the principal for any damages he incurs as a result Eg. avocado fruit fly sends anyway, agent is liable not principal

The agent loses her authority to act, but some of the duties of both the principal and agent continue even after the relationship ends:

Principal's duty to indemnify agent. Eg. avocado gas mileage must pay Confidential information. Cannot use confidential information

Duty of principals to agents: Duty to Cooperate

Principals have a duty to cooperate with their agent: The principal must furnish the agent with the opportunity to work. If someone hires a person to sell their house, they have to give them access to the house The principal cannot unreasonably interfere with the agent's ability to accomplish his task. Has to clean house and cannot make disparaging comments to customers The principal must perform her part of the contract.

The two parties- principal and agent- have these choices in terminating their relationship:

Term Agreement. Agency at Will. Wrongful Termination.

All three elements- blank- are necessary to create an agency relationship

consent, control, and a fiduciary duty

Authority A principal is bound by the acts of an agent if the agent had authority There are three types of authority:

express, implied, and apparent

Agents have a blank to their principals

fiduciary duty

A nonphysical tort is one that

harms only reputation, feelings, or waller

A principal is liable for the physical torts of an independent contractor if

the principal has been negligent in hiring or supervising her

Subagents

intermediary agent- someone who hires subagents (someone appointed by an agent to perform the agent's duties) for the principal. Typically agent cannot hire someone to do their job But when an agent is authorized to hire a subagent, the principal is as liable for the acts of a subagent as he is for the acts of a regular agent

If principals direct their agents to commit an act,

it seems fair to hold the principal liable when that act causes harm

In an agency relationship,

someone (the agent) agrees to perform a task for, and under the control of, someone else (the principal).

gratuitous agent

someone not paid for performing duties Gratuitous agents are liable if they commit gross negligence, but not ordinary negligence

Generally a principal is liable for the physical torts of an employee but is not liable for

the physical torts of an independent contractor

Apparent authority,

the principal is liable for the agent's actions even though the agent was not authorized A principal can be liable for the acts of an agent who is not, in fact, acting with authority if the principal's conduct causes a third party reasonably to believe that the agent is authorized Apparent authority is different: The principal has not authorized the agent, but has done something to make an innocent third party believe the agent is authorized Remember that the issue in apparent authority is always what the principal has done to make the third party believe that the agent has authority

under respondeat superior,

the principal is liable without fault for the torts of employees

To establish consent,

the principal must ask the agent to do something, and the agent must agree

It is important to remember that agents are always liable for

their own torts

Principals are liable for an agent's acts because

they exercise control over that person