Agency

To establish a principal's liability under the doctrine of respondeat superior, two basic elements must be established:

(i) an employer-employee relationship, and (ii) conduct within the scope of employment. A principal may be vicariously liable in certain instances where her agent acted with apparent authority where respondeat superior does not apply. A principal is not liable for torts committed by an agent functioning as an independent contractor.

For the possessor of goods to be able to transfer good title without authority, she must either have:

(i) some indicia of ownership (e.g., title), or (ii) be a dealer in the goods. Although a dealer in goods will be a merchant, one may be a "merchant" without being a dealer in the goods at issue.

inherent authority

A few courts recognize the concept of inherent authority, which is derived solely from the agency relationship. It results in a principal being bound by his agent's acts in certain situations even though the agent has no actual or apparent authority.

A principal gives his agent authority to enter a contract with a third party. The agent discloses to the third party that a principal exists, but does not disclose the principal's identity. Who can be bound to the contract?

Both the principal and the agent.

Who can be bound on a contract when the principal is undisclosed to the third party and the agent had authority to enter the contract?

Both the principal and the agent.

What is required to create an agency relationship?

Consent by both the principal and the agent. Consideration is not necessary for the creation of an agency relationship and, absent an express statutory provision to the contrary, neither is a writing. It is not necessary for either party to be represented by counsel before entering into an agency relationship.

f a principal negligently selects an incompetent independent contractor, the principal will be liable to the injured third party for:

Her own negligence in selection.

Which of the following is true of a principal's duty to compensate an agent or subagent?

The principal owes the agent a duty to compensate her reasonably for her services unless the agent has agreed to act gratuitously. A principal has no duty to compensate a subagent, even if the agent was authorized to hire subagents, unless the principal agrees otherwise.

Which party must have contractual capacity to enter into an agency relationship?

The principal. Only the principal must have contractual capacity to enter into an agency relationship. To create an agency relationship, the respective parties must have capacity, but the degree of capacity required for a principal differs from that required for an agent. Generally, any person (including entities) having capacity to contract may appoint an agent. Any person may be an agent, even if she has no contractual capacity herself.

A small or minor deviation from an employer's directions, also known as

a detour, generally falls within the scope of employment.

A major deviation from an employer's directions, also known as

a frolic, falls outside the scope of employment.

Apparent authority is created where

a principal holds another out as his agent to a third party. Apparent authority makes the principal a party to the contract—with contractual rights and liabilities. Actual authority is created when the agent and principal agree that the agency shall exist. Authority by proxy is incorrect terminology. Ratification is when the principal agrees to be bound by the previously unauthorized acts of another.

Apparent authority results from

a situation where a principal gives a secret limiting instruction, and the agent, when dealing with a third party, acts beyond the scope of the limitation. In such situations, the principal is bound by the agreement made.

If the law requires an agent to have a license (e.g., brokers, insurance agents), she

cannot act without one. Any person may be an agent, even a minor or a person with minimal mental competency. A person is not required to have contractual capacity to act as an agent.

The principal owes the agent a duty to

compensate her reasonably for her services. The principal also owes the agent a duty to indemnify her for all expenses or losses reasonably incurred in discharging any authorized duties, a duty to cooperate, and whatever duties may be imposed by a contract with an agent. Obedience, reasonable care, and loyalty are all duties owed by the agent to the principal.

The type of actual authority contained within the four corners of an agency agreement is

express authority.

An agent with authority to sell personal property may give

general warranties for quality. Likewise, an agent with authority to sell real property may grant the customary covenants. Payment for property sold must be in cash; the agent may not accept a check or extend credit (unless implied consent in the form of custom, past practices between the parties, etc., can be found). An agent generally has the authority to deliver possession of the property upon receipt of payment.

The single overriding factor in determining whether a person is an employee is whether the principal (i.e., the employer)

has the right to control the manner and method by which the person performs his tasks.

Ratification

is a unilateral act of the principal and requires no consideration.

A disclosed principal

is one whose existence and identity are known to the third party. A disclosed principal is always liable on a contract entered into by an authorized agent. The agent generally is not bound unless the parties intended that the agent would be a party.

The duty to indemnify is a duty

owed by a principal to an agent, not an agent to a principal. In the absence of anything contrary in an agreement, the agent has three major duties implied by law: loyalty, obedience, and reasonable care.

A subagent is a

person appointed by the agent to perform functions assigned to the agent by the principal. The agent will be held liable to the principal for breaches of the subagent. This is so even though the agent exercised diligence and good faith in appointing the subagent. Where the subagent has been appointed without authority, the subagent owes no duties to the principal. The agent alone will be responsible to the principal for performance of the agency duties and for any loss sustained because of the subagent's conduct, with the agent's only recourse being against the subagent. A subagent is not to be confused with a co-agent, who is another agent of the principal.

An employer will be liable for torts that

result from friction naturally engendered by the employer's business, such as the friction inherent in a bill collection business. An employer usually is not liable for the intentional torts of her employee on the simple ground that an intentional tort is clearly outside the scope of employment. However, where the intentional tort occurs as a natural incident to the carrying out of the employer's business, or if any benefit may be found running to the employer, courts tend to hold the employer liable. If an employee intentionally chooses a wrongful means to promote the employer's business, the employer will be held liable for any torts that result. An employer will be held liable for the misrepresentations of her employee if the employee had any authority (actual, apparent, or inherent) to make statements concerning the subject matter involved.

Implied actual authority is

the authority that the agent reasonably believes she has as a result of the actions of the principal.

A principal will not be bound by the agent's acts where

the principal sets limits on an agent's authority, and a third party knows of the limits, but the agent exceeds the limits when dealing with the third party.

The duty to indemnify is a duty owed by

the principal to the agent (rather than owed by an agent to a principal) for all expenses or losses reasonably incurred by the agent in discharging any authorized duties.

Actual authority arises out of

the reasonable belief of agents whereas apparent authority arises out of the reasonable belief of third parties.

Apparent authority arises out of the reasonable beliefs of

third parties, whereas actual authority arises out of the reasonable beliefs of agents. Where the principal "holds out" another as possessing certain authority, thereby inducing third parties to reasonably believe that authority exists, the agent has apparent authority to act, even though as between herself and the principal such authority has not been granted. The mere assertion by an agent of her powers is not sufficient to bind the principal; the principal must have done or failed to do something that causes the third party's belief.

There are two types of agency relationships that may not be unilaterally terminated by the principal (and that generally are not terminated by operation of law):

where (i) the agent has an interest in the subject matter of the agency, or (ii) a power is given for security.