chapter 18 agency law

Self-dealing

Agents are generally prohibited from undisclosed self-dealing with the principal.

Attorney-in-fact

An agent who has been granted the power of attorney.

Direct notice

At the time of termination of an agency, the principal can give direct notice of termination to all persons with whom the agent dealt.

Vicarious liability

Liability without fault.

Constructive notice

Notice of the termination of an agency that is printed in a newspaper that serves the vicinity of the parties is constructive notice.

Scope of employment

Principals are liable for the negligent conduct of agents acting within the scope of their employment.

Agency

The principal-agent relationship: formed by mutual consent of a principal and an agent

Ratification of a contract

When a principal accepts an agent's unauthorized contract.

Frolic and detour

When an agent does something during the course of his employment to further his own interests rather than the principal's.

Independent contractor

"A person who contracts with another to do something for him who is not controlled by the other nor subject to the other's right to control with respect to his physical conduct in the performance of the undertaking" [Restatement (Second) of Agency].

Exclusive agency contract

A contract a principal and agent enter into that says the principal cannot employ any agent other than the exclusive agent.

Right to control

A critical factor in determining whether independent contractor status is whether the employer has the right to control the manner and means of accomplishing the desired result.

Durable power of attorney

A durable power of attorney remains effective even though the principal is incapacitated.

Fiduciary duty

A duty based on confidence or trust.

Duty to compensate

A duty that a principal owes to pay an agreed-upon amount to the agent either upon the completion of the agency or at some other mutually agreeable time.

Duty to account (duty of accountability)

A duty that an agent owes to maintain an accurate accounting of all transactions undertaken on the principal's behalf.

Duty of loyalty

A fiduciary duty owed by an agent not to act adversely to the interests of the principal.

Fully disclosed principal

A fully disclosed principal is liable on the contract but the agent is not.

Special power of attorney (limited power of attorney)

A power of attorney where a principal confers powers on an agent to act in specified matters on the principal's behalf.

Tortious conduct

A principal and an agent are each personally liable for their own tortious conduct.

Duty to indemnify

A principal owes a duty to indemnify the agent for any losses the agent suffers because of the principal's conduct.

Employer-employee relationship

A relationship that results when an employer hires an employee to perform some form of physical service.

"Coming and going" rule

A rule that says a principal is generally not liable for injuries caused by its agents and employees while they are on their way to or from work.

Respondeat superior

A rule that says an employer is liable for the tortious conduct of its employees or agents while they are acting within the scope of his or her authority.

Agency coupled with an interest

A special type of agency that is created for the agent's benefit and that the principal cannot revoke.

Work-related test

A test to determine the liability of a principal; if an agent commits an intentional tort within a work-related time or space, the principal is liable for any injury caused by the agent's intentional tort.

Motivation test

A test to determine the liability of the principal; if the agent's motivation in committing the intentional tort is to promote the principal's business, then the principal is liable for any injury caused by the tort.

Contract liability

Agency law imposes contract liability on principals and agents, depending on the circumstances.

Apparent agency

Agency that arises when a principal creates the appearance of an agency that in actuality does not exist.

Competing with the principal

Agents are prohibited from competing with the principal during the course of an agency unless the principal agrees.

Undisclosed agency

An agency in which a contracting third party does not know of either the existence of the agency or the principal's identity.

Fully disclosed agency

An agency in which a contracting third party knows (1) that the agent is acting for a principal and (2) the identity of the principal.

Partially disclosed agency

An agency in which a contracting third party knows that the agent is acting for a principal but does not know the identity of the principal.

Termination by operation of law

An agency is terminated by operation of law, including: (1) death of the principal or agent, (2) insanity of the principal or agent, (3) bankruptcy of the principal, (4) impossibility of performance, (5) changed circumstances, and (6) war between the principal's and agent's countries.

Terminated by an act of the parties

An agency may be terminated by the following acts of the parties: (1) mutual agreement, (2) lapse of time, (3) purpose achieved, and (4) occurrence of a specified event.

Termination by impossibility of performance

An agency relationship terminates if a situation arises that makes its fulfillment impossible. The following circumstances can lead to termination by impossibility of performance.

Termination by an unusual change in circumstances

An agency terminates when there is an unusual change in circumstances that would lead the agent to believe that the principal's original instructions should no longer be valid.

Agency by ratification

An agency that occurs when (1) a person misrepresents him- or herself as another's agent when in fact he or she is not and (2) the purported principal ratifies the unauthorized act.

Implied agency

An agency that occurs when a principal and an agent do not expressly create an agency, but it is inferred from the conduct of the parties.

Express agency

An agency that occurs when a principal and an agent expressly agree to enter into an agency agreement with each other.

Usurping an opportunity

An agent cannot personally usurp an opportunity that belongs to the principal.

Duty to notify

An agent owes a duty to notify the principal of important information concerning the agency.

Implied warranty of authority

An agent who enters into a contract on behalf of another party impliedly warrants that he or she has the authority to do so.

Duty to perform

An agent's duty to a principal that includes (1) performing the lawful duties expressed in the contract and (2) meeting the standards of reasonable care, skill, and diligence implicit in all contracts.

Principal-agent relationship

An employer hires an employee and gives that employee authority to act and enter into contracts on his or her behalf.

Dual-purpose mission

An errand or other act that a principal requests of an agent while the agent is on his or her own personal business.

Power of attorney

An express agency agreement that is often used to give an agent the power to sign legal documents on behalf of the principal.

Dual agency

Dual agency occurs when an agent acts for two or more different principals in the same transaction.

General power of attorney

General power of attorney confers broad powers on the agent to act in any matters on the principal's behalf.

Partially disclosed principal

If an agent discloses his or her agency status but does not reveal the principal's identity, then the principal is known as a partially disclosed principal.

Confidential information

In the course of an agency, the agent often acquires confidential information about the principal's affairs (e.g., business plans, technological innovations, customer lists, trade secrets). The agent is under a legal duty not to disclose or misuse confidential information either during or after the course of the agency.

Imputed knowledge

Information that is learned by an agent that is attributed to the principal.

Intentional tort

Occurs when a person has intentionally committed a wrong against (1) another person or his or her character, or (2) another person's property.

Innocent misrepresentation

Occurs when an agent makes an untrue statement that he or she honestly and reasonably believes to be true.

Intentional misrepresentation

Occurs when an agent makes an untrue statement that he or she knows is not true.

Inherently dangerous activity

Principals cannot avoid liability for inherently dangerous activities that they assign to independent contractors.

Principal-independent contractor relationship

Principals often employ outsiders—that is, persons and businesses that are not employees—to perform certain tasks on their behalf.

Misuse of confidential information

The agent is under a legal duty not to disclose or misuse confidential information either during or after the course of the agency.

Constructive trust

The court can impose a constructive trust on any secret profits made by the agent or property purchased with the secret profits and it is for the benefit of the principal.

Degree of control

The crucial factor in determining whether someone is an independent contractor or an employee is the degree of control that the principal has over that party.

Negligence

The doctrine of negligence rests on the principle that if someone (i.e., the principal) expects to derive certain benefits from acting through others (i.e., an agent), that person should also bear the liability for injuries caused to third persons by the negligent conduct of an agent who is acting within their scope of employment.

Agency law

The large body of common law that governs agency; a mixture of contract law and tort law.

Agent

The party who agrees to act on behalf of another.

Principal

The party who employs another person to act on his or her behalf.

Undisclosed principal

The principal in an undisclosed agency.

Restatement (Second) of Agency

The reference source for the rules of agency.

Wrongful termination

The termination of an agency contract in violation of the terms of the agency contract. The nonbreaching party may recover damages from the breaching party.

Notice of termination

The termination of an agency extinguishes an agent's actual authority to act on the principal's behalf. However, if the principal fails to give the proper notice of termination to a third party, the agent still has apparent authority to bind the principal to contracts with these third parties.

Tort liability

Three main sources of tort liability for principals and agents are negligence, intentional torts, and misrepresentation.

Contingency-fee basis

Under this type of arrangement, the principal owes a duty to pay the agent the agreed-upon contingency fee only if the agency is completed.

Duty to cooperate

Unless otherwise agreed, the principal owes a duty to cooperate with and assist the agent in the performance of the agent's duties and the accomplishment of the agency.

Duty to reimburse

Unless otherwise agreed, the principal owes a duty to reimburse the agent for expenses incurred by the agent if the expenses were (1) authorized by the principal, (2) within the scope of the agency, and (3) necessary to discharge the agent's duties in carrying out the agency.