BLAW 23: The Agency Relationship - Creation, Duties, and Termination BLAW 24: Liabilities of Principles and Agents to Third Parties

Ch. 23 LO

1. Determine whether our not an agency relationship has been created. 2. Duties that an agent owes her principal. 3. Duties a principal owes his agent. 4. Legal restrictions on a principal's right to terminate an agent. 5. How to end agent's apparent authority upon termination of agency.

Ch. 24 LO

1. Whether or not an agent has authority to bind a principle to a contract. 2. When an otherwise unauthorized act has been ratified by a principal. 3. When an agent is personally liable for contract negotiated with a third party. 4. When a principle is liable for the torts/crimes of the agent.

23.3. Duties a principal owes his agent.

Duty to: 1. compensate 2. reimburse and indemnify 3. keep accounts Remedies for agent: 1. lien on principal's property 2. bring lawsuit 3. terminate agency Compensate (entitled reasonable value of services if not otherwise provided); Procuring cause Reimburse and indemnify; Keep accounts.

23.2. Duties that an agent owes her principal.

Duty to: 1. loyalty 2. obey instructions 3. exercise care & skills 4. communication information 5. account for funds/property Remedies for principal: 1. deduct damages from agent's compensation 2. bring lawsuit 3. pay no compensation 4. terminate agency Loyalty (breach of fiduciary duty); Disclosure of conflicts Follow instructions; Exercise ordinary care and skill for position; Communicate information; Accounts for funds and property.

Termination of Agency

Expressly provided Agency at will (power to terminate) Exception: Agency coupled with an interest; Legislative restrictions (protected class, violation of law) Death, capacity, illegality , impossibility, change in conditions. Notice issues (apparent authority)

Agent's duty of loyalty

Fiduciary Duty: best interests of principal, honesty, no eliminated by agreement. avoid conflicts of interest, dual agencies, misuse of confidential information need consent/full & open disclosure to engage in otherwise prohibited activity Acts for the benefit of and under the direction of another (principal). Can do many of the same things that a principal do (some restrictions). Agreement to act as agent may or may not be written/paid or unpaid. Party may be an agent even when parties expressly provide otherwise. Capacity

Types of agents

General agent v. special agent Commercial agents Employees Independent contractors

Principal's liability for notice and payments to agent

Imputation doctrine—Notice to agent is notice to principal if it relates to agency. Principal may not bound if agent willfully withholds information (breach of fiduciary duty). Debts owed by a 3rd party to principal that are paid to the agent may be dischargeable if agent has authority to accept payments. (Exception: collusion by debtor and agent to avoid debt).

special agent

One limited in authority to transact a single business affair or a specific series of business affairs or to perform restricted acts for the principal. (Listing one property for sale) different than a general agent

Principal's liability for subagent

Subagent—An agent of the agent (Agent is a corporation, employee of corporation is a subagent). Authority of subagent to principal is implied. Subagent can bind principal and agent but agent is ultimately liable. Employees of agent (non-corporation)—Principal is only liable for acts if he or she would be liable if agent performed the act.

Duty of Third Persons to Determine Agent's Authority

generally should figure that out. Implied or apparent authority does not end the inquiry.

agency relationship Principal-Agent Relationship

one person (agent) acts for the benefit of and under the direction of another (principal) When is the principal liable for the torts of the agent? Agency occurs when actions, word or evidence show that: One party (a principal) consents to another party (an agent) to act on their (principal's) behalf ; or A party (an agent) is acting under the control and direction of another party (a principal). Common law vs. statute

23.4. Legal restrictions on a principal's right to terminate an agent.

power/right: may terminate w/out penalty power/no right: terminate but liable for contract damages no power/no right: may not terminate operation of law: death/insanity, agency bankruptcy, illegal/impossible objective, destruction of subject matter, material change in business conditions will of parties: terms of contract, agency objective is accomplished, mutual agreement of parties

apparent authority

principal is liable to the third party, but the agent is liable to the principle

How to end agent's apparent authority upon termination of agency.

principal must give actual notice to those who have dealt with the former agent (direct personal communication) and constructive (general announcement) for anyone else that might have know about the agency but never dealt with it before termination

liability for torts and crimes

see pg. 405 Agent-personally liable Principal-may be liable Respondent superior/vicarious liability-Principal is liable if harm occurs within the scope of the agency. Factors considered by court: Committed within the time and space of agency? Was action leading to offending result incidental to, or of the same general nature as, the responsibility agent is authorized to perform? Agent motivated, at least in part, to benefit the principal when the offending result occurred? Principal: Direct liability Principal liable because he or she directed the conduct that caused offending result. (Negligent hiring/supervision of agent). Criminal liability Commission of crime was a direct order from principal. Pollution cases.

23.1. Determine whether our not an agency relationship has been created.

typically formed by contract written or oral/ compensated or uncompensated types: commercial, employees, independent contractors

Effect of ratification

Agent or non-agent released from liability or responsibility. Principal is bound (liable) for actions of agent or non-agent. Gains benefits. Assumes liabilities. ratification is necessary when agent exceed authority or a nonagent acts as an agent.

Agent's Authority to Bind Principal

Principal is bound (liable) to third parties in agreements, contracts or other acts done by agent on behalf of a principal or in furtherance of a principal's interest. Authority - Power to do some act. Actual authority Express authority-Power of agent is expressly describes an agent's power. Implied authority-Power reasonably necessary for agent to carry out or accomplish the directive of the principal. Apparent authority Conduct by principal that causes a third party to reasonably believe that another has the authority (power) to act for the principal even though no actual authority has been conferred or granted to the party. Acts of agent do not create apparent authority. Principal must communicate to 3rd parties if there is a restriction or termination of an agent's authority. Apparent agent-Failure of principal to inform 3rd party that another party is not agent of the principal.

Principal's liability for agent's representations

Principal is liable for representations that are expressly authorized and those that are customary for an industry or trade unless the third party is informed of limits on agent's authority. A 3rd party can sue an agent (or non-agent) for a misrepresentation not authorized or known by a principal if the misrepresentation induces the 3rd party to act in reliance of the misrepresentation.

Contract Liability of Agent

Scenario: Agent represents principal in making contract with 3rd party. Intent: Contract is to bind principal and 3rd party. Generally, agent is not liable or bound to the agreement. Some exceptions (contract must be within the authority given to the agent) Unauthorized action by agent (implied warranty of authority)-exceeded authority or has no authority to make contract. No liability if principal ratifies agreement or if 3rd party has knowledge that agent lacks authority. Nonexistent or incompetent principal. Agreement by agent to assume liability. Undisclosed principal. Partially disclosed principal (Identity of principal is not disclosed).