Chapter 32

Agency By Agreement

Most agency relationships are based on an express or implied agreement that the agent will act for the principal and that the principal agrees to have the agent so act. The agency relationship is formed through express consent (oral or written) or implied by conduct.

Agency by Ratification

On occasion, a person who is in fact not an agent (or who is an agent acting outside the scope of her or his authority) may make a contract on behalf of another (a principal). If the principal approves or affirms that contract by word or by action, an agency relationship is created by ratification. The principal either by act or by agreement ratifies the conduct of a person who is not in fact an agent.

Agency by Operation of Law

The courts may find an agency relationship in the absence of a formal agreement in other situations as well. This may occur in family relationships Agency by operation of law may also occur in emergency situations, when the agent is unable to contact the principal and the agent's failure to act outside the scope of her or his authority would cause the principal substantial loss. The agency relationship is based on a social or legal duty (such as the need to support family members) or formed in emergency situations when the agent is unable to contact the principal and failure to act outside the scope of the gent's authority would cause the principal substantial loss.

Agency by Estoppel

When a principal causes a third person to believe that another person is the principal's agent, and the third person acts to his or her detriment in reasonable reliance on that belief, the principal is "estopped to deny" (prevented from denying) the agency relationship. Note that the acts or declarations of a purported agent in and of themselves do not create an agency by estoppel. Rather, it is the deeds or statements of the principal that create an agency by estoppel. The principal causes a third person to believe that another person is the principal's agent, and the third person acts to his or her detriment in reasonable reliance on that belief.

James Blatt hired Marilyn Scott to sell insurance for the Massachusetts Mutual Life Insurance Co. Their contract stated, "Nothing in this contract shall be construed as creating the relationship of employer and employee." The contract was terminable at will by either party. Scott financed her own office and staff, was paid according to performance, had no taxes withheld from her checks, and could legally sell products of Massachusetts Mutual's competitors. But when Blatt learned that Scott was simultaneously selling insurance for Perpetual Life Insurance Corp., one of Massachusetts Mutual's fiercest competitors, Blatt withheld client contact information from Scott that would have assisted her insurance sales for Massachusetts Mutual. Scott complained to Blatt that he was inhibiting her ability to sell insurance for Massachusetts Mutual. Blatt subsequently terminated their contract. Scott filed a suit in a New York state court against Blatt and Massachusetts Mutual. Scott claimed that she had lost sales for Massachusetts Mutual—and her commissions—as a result of Blatt's withholding contact information from her. Using the information presented in the chapter, answer the following questions. 1. Who is the principal and who is the agent in this scenario? By which method was an agency relationship formed between Scott and Blatt? 2. What facts would the court consider most important in determining whether Scott was an employee or an independent contractor? 3. How would the court most likely rule on Scott's employee status? Why? 4. Which of the four duties that Blatt owed Scott in their agency relationship has probably been breached?

1. Agency Relationship Since Blatt hired Scott to assist in sales, Blatt is the principal and Scott is his agent. Both represent Massachusetts Mutual Life, but that part of the relationship matters little here. 2. Key Factor The Restatement (Second) of Agency focuses on if the worker is "controlled by the other." The IRS also focuses on "the degree of control" the business has over the worker. 3. Employment Status Scott is an independent contractor for Blatt. Since she is not under his direct supervision and control, she is not an employee. She operated her own office and staff and sold Massachusetts Mutual insurance and other insurance products. 4. Principal's Duty A principal has a duty to cooperate with an agent and to assist the agent in performing duties. The principal must not take actions that prevent performance. Blatt made it more difficult for Scott to sell Massachusetts Mutual Life policies.

Campbell is a salesperson for DownRiver Enterprises, Inc. In determining whether Campbell is DownRiver's employee or an independent contractor, the most important factor is a. the degree of control that DownRiver exercises over Campbell. b. the distinction between DownRiver's business and Campbell's occupation. c. the length of the working relationship between DownRiver and Campbell. d. the method of payment.

A

Elman is an officer for Fizzy Frothy Confections Concession Corporation. When acting for Fizzy in ordinary business situations, Elman is a. an agent only. b. an agent and a principal. c. a principal only. d. neither an agent nor a principal.

A

Gifford, a salesperson at Hubris Electronics store, tells Irma, a customer, "Buy your home theatre system here, and I'll set it up for less than what Hubris would charge." Irma buys the system, Gifford sets it up, and Irma pays Giffors, who keeps the money. Gifford has breached the duty of a. loyalty. b. notification. c. obedience. d. performance.

A

Agent's Duties to Principal Su Ru Chen owned the Lucky Duck Fortune Cookie Factory in Everett, Massachusetts, which made Chinese-style fortune cookies for restaurants. In November 2001, Chen listed the business for sale with Bob Sun, a real estate broker, for $35,000. Sun's daughter Frances and her fiancé, Chiu Chung Chan, decided that Chan would buy the business. Acting as a broker on Chen's (the seller's) behalf, Frances asked about the Lucky Duck's finances. Chen said that each month the business sold at least 1,000 boxes of cookies at a $2,000 profit. Frances negotiated a price of $23,000, which Chan (her fiancé) paid. When Chan began to operate the Lucky Duck, it became clear that the demand for the cookies was actually about 500 boxes per month—a rate at which the business would suffer losses. Less than two months later, the factory closed. Chan filed a suit in a Massachusetts state court against Chen, alleging fraud, among other things. Chan's proof included Frances's testimony as to what Chen had said to her. Chen objected to the admission of this testimony. What is the basis for this objection? Should the court admit the testimony? Why or why not?

A basis for the objection to the admission of the testimony is that at the time of the statements about which Frances would testify she was acting as Chen's agent. As Chen's agent, and without Chen's knowledge of Frances's relationship to Chan or Chen's consent to Frances's acting in a dual capacity, Frances owed her principal a duty of loyalty to act solely for Chen's benefit. But Frances also had an interest in the deal as the fiancée of Chan—the buyer and plaintiff—to secure the Lucky Duck at a reduced price, and this created a conflict of interest, which placed Frances in a position opposed to her principal Chen—the seller and defendant. Despite this conflict, the judge admitted the testimony, a jury found that Chen committed fraud, and the court awarded Chan $17,000 in damages. On Chen's appeal, a state intermediate appellate court reversed this judgment, ruling in part that Frances's statements were inadmissible and thus "there was no evidence upon which a jury might base their finding that the defendant had engaged in acts of fraud." The appellate court explained, "Unless otherwise agreed, an agent is subject to a duty not to deal with his principal as an adverse party in a transaction connected with his agency without the principal's knowledge. Violation of an agent's duty against surreptitious self-dealing, regardless of whether the agent intends to harm the principal, is a breach of the agency relationship." In this case, because Chen had neither known about nor consented to Frances's dual role, Frances was in a conflict of interest, and "she could not be found to be authorized to act on matters about which [she] spoke."

Independent Contractor

A person who contracts with another to do something for him but 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. He may or may not be an agent

Agency Formation Paul Gett is a well-known, wealthy financial expert living in the city of Torris. Adam Wade, Gett's friend, tells Timothy Brown that he is Gett's agent for the purchase of rare coins. Wade even shows Brown a local newspaper clipping mentioning Gett's interest in coin collecting. Brown, knowing of Wade's friendship with Gett, contracts with Wade to sell a rare coin valued at $25,000 to Gett. Wade takes the coin and disappears with it. On the payment due date, Brown seeks to collect from Gett, claiming that Wade's agency made Gett liable. Gett does not deny that Wade was a friend, but he claims that Wade was never his agent. Discuss fully whether an agency was in existence at the time the contract for the rare coin was made.

Agency is usually a consensual relationship in that the principal and agent agree that the agent will have the authority to act for the principal, binding the principal to any contract with a third party. If no agency in fact exists, the purported agent's contracts with third parties are not binding on the principal. In this case, no agency by agreement was created. Brown may claim that an agency by estoppel was created; however, this argument will fail. Agency by estoppel is applicable only when a principal causes a third person to believe that another person is the principal's agent. Then the third party's actions in dealing with the agent are in reliance upon the principal's words or actions and the third party's reasonable belief that the agent has authority. This is said to estop the principal from claiming that in fact no agency existed. Acts and declarations of the agent, however, do not in and of themselves create an agency by estoppel, because such actions should not reasonably lead a third person to believe that the purported agent has authority. In this case, Wade's declarations and allegations alone led Brown to believe that Wade was an agent. Gett's actions were not involved. It is not reasonable to believe that someone is an agent solely because he or she is a friend of the principal. Therefore, Brown cannot hold Gett liable unless Gett ratifies Wade's contract—which is unlikely, as Wade has disappeared with the rare coin

Duty of Notification / Duty to Inform

An agent is required to notify the principal of all matters that come to her or his attention concerning the subject matter of the agency

Principal's Remedies against Agent Ankir is hired by Jamison as a traveling salesperson. Ankir not only solicits orders but also delivers the goods and collects payments from his customers. Ankir deposits all payments in his private checking account and at the end of each month draws sufficient cash from his bank to cover the payments made. Jamison is totally unaware of this procedure. Because of a slowdown in the economy, Jamison tells all his salespeople to offer 20 percent discounts on orders. Ankir solicits orders, but he offers only 15 percent discounts, pocketing the extra 5 percent paid by customers. Ankir has not lost any orders by this practice, and he is rated as one of Jamison's top salespersons. Jamison learns of Ankir's actions. Discuss fully Jamison's rights in this matter.

An agent owes fiduciary duties to the principal. Two such duties are the duty of obedience and the duty to account. Because the agent is acting on behalf of the principal, it is only fitting that a duty be imposed on the agent to follow all lawful, clearly stated instructions of the principal. Whenever an agent deviates from these instructions, the agent is usually in breach of the fiduciary duty owed. In addition, the agent has a duty to account to the principal for all property or money received by the agent on behalf of the principal. This duty also requires the agent (in the absence of agreement) to maintain separate accounts for the principal's funds and personal funds. No intermingling is allowed. Any funds received by the agent by virtue of the agency belong to the principal. It is a breach of an agent's fiduciary duty to account to secretly retain benefits or profits that by right belong to the principal. Funds so retained by the agent are held in constructive trust on behalf of the principal. Thus, Peters can recover these funds from Ankir. Also, because Ankir breached his duty of obedience, Peters has grounds for termination of the agency-employment relationship

Estimable Finance Company hires Flotilda, who holds herself out as possessing special accounting skills, to act as its agent. As an agent, Flotilda must use the degree of skill or care expected of a. an average, unskilled person. b. a person having those special skills. c. a reasonable person. d. Estimable Company.

B

Seaway Shipbuilders, Inc., hires Rowena and Querida as employees to deal with third-party purchasers and suppliers. Rowena and Querida are a. agents and principals. b. agents only. c. neither agents nor principals. d. principals only.

B

Stetson asks Toni, a real estate broker, to sell his land. Toni learns that Rancho Grande LLC is willing to pay a high price for the land. Without telling Stetson about Rancho Grande, Toni says that she will buy the land. Instead, however, Stetson sells the land to United Cattle Corporation. Toni sues Stetson. Toni will a. lose, because Stetson was not Toni's principal. b. lose, because Toni breached her duty to Stetson. c. win, because Stetson breached his duty to Toni. d. win, because Toni was never Stetson's agent.

B

Principal's Rights and Remedies against the Agent

Constructive Trust Anything that an agent obtains by virtue of the employment or agency relationship belongs to the principal Avoidance When an agent breaches the agency agreement under a contract, the principal has a right to avoid any contract entered into with the agent. Indemnification In certain situations, when a principal is sued by a third party for an agent's negligent conduct, the principal can sue the agent for indemnification—that is, for an equal amount of damages.

NY Cupcakes, Inc. (NYC), tells Milena, whose business is purchasing for others, to select and buy $2,000 worth of fresh fruit ship it to NYC's bakery. Milena buys the goods from Fresh Express and ships the fruit as directed, keeping an account for the expense in NYC's name. NYC and Milena a. do not have an agency relationship, because Milena's business is buying for others. b. do not have an agency relationship, because Milena did not indicate that she was acting for NYC. c. do not have an agency relationship, because their agreement is not in writing. d. have an agency relationship.

D

Sympatico Symphonic Instruments, Inc., and Rudy wish to enter into an agency relationship for the purpose of buying musical instruments for Sympatico's inventory. This relationship requires a. a written agreement and consideration. b. a written agreement only. c. consideration only. d. neither a written agreement nor consideration.

D

Myra gives Noel the impression that Opal is Myra's agent, when in fact she is not. Noel deals with Opal as Myra's agent. Regarding any agency relationship, Myra a. can deny it to the extent of any activity in which Opal might engage. b. can deny it to the extent of any injury suffered by Noel. c. can deny it to the extent of any liability that might be imposed on Myra. d. cannot deny it.

D - If a principal causes a third person to believe that another person is his or her agent, and the third person deals with the supposed agent, the principal is estopped to deny the agency relationship. The third person must reasonably believe that the relationship existed and that the agent had authority. An ordinary, prudent person familiar with business practice and custom would have been justified in making the same conclusion.

T/F - A third party cannot sue a principal for an agent's negligence.

F

T/F - An agent must act solely in his or her own interest.

F

T/F - A minor can be a principal but not an agent.

F - Although anyone can be an agent, a principal must have capacity to contract. Thus, in most states, a minor can be an agent but not a principal.

T/F - A principal cannot avoid a contract that a third party enters into with an agent.

F - When an agent breaches an agency contract, the principal can choose to avoid the contract.

Fiduciary

Fiduciary is at the heart of agency law. This term can be used both as a noun and as an adjective. When used as a noun, it refers to a person having a duty created by his or her undertaking to act primarily for another's benefit in matters connected with the undertaking. When used as an adjective, as in the phrase fiduciary relationship, it means that the relationship involves trust and confidence

You are the chief executive officer for Game Sportz Corporation with the duty to determine the firm's business goals, strategies, and tactics. Felicity manages the daily operations of the firm. Ethan is its marketing executive. Desiree is your creative resource, sometimes sparkling with new game ideas, sometimes fulfilling those of others. Cody writes and edits the games' manuals on a per-project basis. As a chief executive officer, you are responsible only to the board of directors. Felicity, Ethan, Desiree, and Cody do your bidding to varying degrees. Felicity, Ethan, and Desiree—and you of course—deal with third parties on the firm's behalf. Who is a principal? Who is an agent? Who is an employee? Who is an independent contractor?

Game Sportz is a principal. Felicity, Ethan, Desiree, and you are its agents and employees. Cody is an independent contractor. In an agency relationship, an agent agrees to act on behalf of a principal. An agent is subject to the principal's control. An employee is subject to an employer's control—an independent contractor is not. A corporation is has contractual capacity but can act only through its agents. As a corporation,Game Sportz acts through its agents, whom it grants authority to so act. Felicity, Ethan, Desiree, and you act on behalf of Game Sportz. Of course, the authority is different in its extent, but under the facts as stared, each party can bind the firm for certain purposes in deals with third parties. Cody does not have the authority to legally bind the company, however. Felicity, Ethan, and Desiree, are subject to Games Sportz's control through you, and you are subject to the firm through its board. All of you are employees. Because Cody is not subject to the company's control with respect to the physical conduct in the performance of his contracts, he is an independent contractor.

Vicarious Liability with Relationships

Imposes legal responsibility on one because of the relation you have with another o Parent/Child - Parent must pay for child's torts o Owner/Pet - Owner must pay for pet's torts o Employer/Employee - Depends on whether the tort was committed within the scope of employment Respondeat Superior

Agent's Duties to Principal. In July 2001, John Warren viewed a condominium in Woodland Hills, California, as a potential buyer. Hildegard Merrill was the agent for the seller. Because Warren's credit rating was poor, Merrill told him he needed a co-borrower to obtain a mortgage at a reasonable rate. Merrill said that her daughter Charmaine would "go on title" until the loan and sale were complete if Warren would pay her $10,000. Merrill also offered to defer her commission on the sale as a loan to Warren so that he could make a 20 percent down payment on the property. He agreed to both plans. Merrill applied for and secured the mortgage in Charmaine's name alone by misrepresenting her daughter's address, business, and income. To close the sale, Merrill had Warren remove his name from the title to the property. In October, Warren moved into the condominium, repaid Merrill the amount of her deferred commission, and began paying the mortgage. Within a few months, Merrill had Warren evicted. Warren filed a suit in a California state court against Merrill and Charmaine. Who among these parties was in an agency relationship? What is the basic duty that an agent owes a principal? Was the duty breached here? Explain.

Merrill and Warren were in an agency relationship in this case, with Merrill acting as Warren's agent. That relationship began when Merrill undertook to represent Warren in the purchase of the condominium. Under the fiduciary duty that an agent owes a principal, and that thus Merrill owed Warren, she was required to place his interests above her own in the real estate transaction. Also, an agent is charged with a duty to disclose all material facts that might affect a principal's decision. Merrill breached her duties to Warren, and committed fraud, by falsely promising that she would put his name on the title to the condominium if he went along with her plan to structure the transaction in a certain way. Furthermore, she misappropriated his funds by having him evicted soon after the transaction was completed but not before he had made several mortgage payments. This conduct was more than sufficient to show violations of the agent's duty of loyalty. A court should at least order that the title in the condominium be transferred to Warren

Agent's Duties to the Principal

Performance An implied condition in every agency contract is the agent's agreement to use reasonable diligence and skill in performing the work. Notification An agent is required to notify the principal of all matters that come to her or his attention concerning the subject matter of the agency. This is the duty of notification, or the duty to inform. Loyalty Loyalty is one of the most fundamental duties in a fiduciary relationship. Basically, the agent has the duty to act solely for the benefit of his or her principal and not in the interest of the agent or a third party. Obedience When acting on behalf of the principal, an agent has a duty to follow all lawful and clearly stated instructions of the principal. Any deviation from such instructions is a violation of this duty. Accounting Unless an agent and a principal agree otherwise, the agent has a duty to keep and make available to the principal an account of all property and funds received and paid out on behalf of the principal.

T/F - An agent can perform legal acts that bind his or her principal.

T

T/F - An agent must keep separate accounts for the principal's funds.

T

T/F - An agent owes his or her principal a duty to act in good faith.

T

T/F - Employees who deal with third parties are agents of their employers.

T

T/F - Information obtained through an agency relationship is confidential.

T

T/F - Unless the parties agree otherwise, a principal must pay for an agent's services.

T

Principal's Duties to Agent Josef Boehm was an officer and the majority shareholder of Alaska Industrial Hardware, Inc. (AIH), in Anchorage, Alaska. In August 2001, Lincolnshire Management, Inc., in New York, created AIH Acquisition Corp. to buy AIH. The three firms signed a "commitment letter" to negotiate "a definitive stock purchase agreement" (SPA). In September, Harold Snow and Ronald Braley began to work, on Boehm's behalf, with Vincent Coyle, an agent for AIH Acquisition, to produce an SPA. They exchanged many drafts and dozens of e-mails. Finally, in February 2002, Braley told Coyle that Boehm would sign the SPA "early next week." That did not occur, however, and at the end of March, after more negotiations and drafts, Boehm demanded a larger payment. AIH Acquisition agreed, and, following more work by the agents, another SPA was drafted. In April, the parties met in Anchorage. Boehm still refused to sign. AIH Acquisition and others filed a suit in a federal district court against AIH. Did Boehm violate any of the duties that principals owe to their agents? If so, which duty, and how was it violated? Explain.

The court held in part that Boehm, as the principal, was bound to the stock purchase agreement (SPA) under the principles of agency law and that Boehm had violated the principal's duty of cooperation. The court stated, "Snow and Braley acted as Boehm's agents for the purpose of reaching a binding stock purchase agreement. An agency relationship requires that both the principal and the agents take affirmative steps to assure the success of a cooperative effort. The burden is not solely on the agent. The principal, too, must use his best efforts to cooperate and cannot by act or omission thwart the effectiveness of the agency. Moreover, a principal must avoid conduct towards third persons that prevents the accomplishment of the work of the agent. Thus, Boehm, who at least twice told [Snow and Braley] he was satisfied and there was a deal, may not defeat the efforts and good faith representations that [the agents] made in furtherance of the Commitment [letter] by capriciously refusing at the last instant to sign an agreement which all had agreed was in final form." The court ruled that the April SPA was "a valid contract for the sale of AIH to AIH Acquisition even absent Boehm's signature, and it is so declared enforceable forthwith today."

Agency Formation Ford Motor Credit Co. is a subsidiary of Ford Motor Co. with its own offices, officers, and directors. Ford Credit buys contracts and leases of automobiles entered into by dealers and consumers. Ford Credit also provides inventory financing for dealers' purchases of Ford and non-Ford vehicles and makes loans to Ford and non-Ford dealers. Dealers and consumers are not required to finance their purchases or leases of Ford vehicles through Ford Credit. Ford Motor is not a party to the agreements between Ford Credit and its customers and does not directly receive any payments under those agreements. Also, Ford Credit is not subject to any agreement with Ford Motor "restricting or conditioning" its ability to finance the dealers' inventories or the consumers' purchases or leases of vehicles. A number of plaintiffs filed a product liability suit in a Missouri state court against Ford Motor. Ford Motor claimed that the court did not have venue. The plaintiffs asserted that Ford Credit, which had an office in the jurisdiction, acted as Ford's "agent for the transaction of its usual and customary business" there. Is Ford Credit an agent of Ford Motor? Discuss.

The court held that Ford Motor could be sued in the jurisdiction in which the suit was filed, on the basis that Ford Credit operated as the defendant's agent there. Ford Motor appealed to the Missouri Supreme Court, which reversed this determination. The state supreme court explained, "A corporation does not become an agent of another corporation merely because a majority of its voting shares is held by the other. Therefore, an agency relationship between a parent and its subsidiary may only be established if the elements of an agency relationship exist." Among the elements establishing an agency relationship is that the purported agent hold the power to alter legal relations between the principal and a third party. That element was lacking in this case. The court cited in particular that Ford Motor is not a party to any of Ford Credit's financing contracts and that Ford Credit is not subject to any agreement with Ford Motor "restricting or conditioning" its ability to finance the dealers' inventories or the customers' purchases or leases of vehicles. These facts "establish that Ford Credit has no power to alter legal relations between Ford Motor Company and third parties. Therefore, Ford Credit does not act as agent for Ford Motor."

Agent's Duties to Principal Sam and Theresa Daigle decided to build a home in Cameron Parish, Louisiana. To obtain financing, they contacted Trinity United Mortgage Co. At a meeting with Joe Diez on Trinity's behalf, on July 18, 2001, the Daigles signed a temporary loan agreement with Union Planters Bank. Diez assured them that they did not need to make payments on this loan until their house was built and permanent financing had been secured. Because the Daigles did not make payments on the Union loan, Trinity declined to make the permanent loan. Meanwhile, Diez left Trinity's employ. On November 1, the Daigles moved into their new house. They tried to contact Diez at Trinity but were told that he was unavailable and would get back to them. Three weeks later, Diez came to the Daigles' home and had them sign documents that they believed were to secure a permanent loan but that were actually an application with Diez's new employer. Union filed a suit in a Louisiana state court against the Daigles for failing to pay on its loan. The Daigles paid Union, obtained permanent financing through another source, and filed a suit against Trinity to recover the cost. Who should have told the Daigles that Diez was no longer Trinity's agent? Could Trinity be liable to the Daigles on this basis? Explain.

The court ruled in favor of the Daigles and awarded damages of more than $26,000. Trinity appealed to a state intermediate appellate court, arguing in part that the acts by Diez that caused the harm to the Daigles occurred after Diez left Trinity's employ. The appellate court affirmed the lower court's ruling and the award. The appellate court pointed out that "many of the representations made by Diez and relied upon by the Daigles, including the representations that he had secured permanent financing for them upon completion of the home and that it was . . . not required that interest payments be made on the [temporary] loan, were made by him prior to the termination of his relationship with Trinity." The court also explained that a principal must notify third persons with whom its agent is authorized to contract on the termination of the agency. "If the principal fails to do so, he is bound to perform the obligations that the [agent] has undertaken." Here, "Trinity never notified the Daigles that Diez was no longer associated with their office in spite of the fact the Daigles made numerous calls to Trinity attempting to contact Diez. Trinity is, therefore, responsible for Diez's actions under the facts of this case."

Agency by Ratification Wesley Hall, an independent contractor managing property for Acree Investments, Ltd., lost control of a fire he had set to clear ten acres of Acree land. The runaway fire burned seventy-eight acres of Earl Barrs's property. Russell Acree, one of the owners of Acree Investments, had previously owned the ten acres, but he had put it into the company and was no longer the principal owner. Hall had worked for Russell Acree in the past and had told the state forestry department that he was burning the land for Acree. Barrs sued Russell Acree for the acts of his agent, Hall. In his suit, Barrs noted that Hall had been an employee of Russell Acree, Hall had talked about burning the land "for Acree," Russell Acree had apologized to Barrs for the fire, and Acree Investments had not been identified as the principal property owner until Barrs had filed his lawsuit. Barrs argued that those facts were sufficient to create an agency by ratification to impose liability on Russell Acree. Was Barrs's agency by ratification claim valid? Why or why not?

To impose liability for the acts of one's employees or agents under respondeat superior, some relationship must exist between the principal and agent or between the employer and employee. Barrs' argument is not correct. The evidence that Mr. Acree, the presumed landowner. instructed Hall, his alleged employee, to clear the land by controlled burn, was insufficient to establish that an actual agency relationship existed between the parties. Hall was the property manager; Mr. Acree only observed what happened. There was no evidence that Mr. Acree, visiting at the time of burn, had the right to control the time and manner of burn. Mr. Acree testified that Hall worked independently for Acree Investments. Mr. Acree could express regret for Hall's conduct without ratifying Hall's acts such that an agency relationship was created. Similarly, Barrs' claim of agency creation by Hall's saying he was doing the burn "for Acree" was not sufficient to establish an agency. The forestry department that allowed the burn did not know or care if Hall was acting for Mr. Acree, Acree Investments, or himself as property manager

Agent's Rights and Remedies against the Principal

Tort and Contract Remedies Demand for an Accounting Example, a sales agent may demand an accounting if the agent and principal disagree on the amount of commissions the agent should have received for sales made during a specific period of time. NO RIGHT TO SPECIFIC PERFORMANCE When the principal-agent relationship is not contractual, the agent has no right to specific performance. An agent can recover for past services and future damages but cannot force the principal to allow him or her to continue acting as an agent.

You are the chief executive officer for Game Sportz Corporation with the duty to determine the firm's business goals, strategies, and tactics. Felicity manages the daily operations of the firm. Ethan is its marketing executive. Desiree is your creative resource, sometimes sparkling with new game ideas, sometimes fulfilling those of others. Cody writes and edits the games' manuals on a per-project basis. Ethan negotiates on Games Sportz's behalf a marketing campaign that includes rebates to the firm based on the number of hits to links on the company's Web site and its games. Ethan arranges for the payments to be made to his own account, however. When the company learns of this shenanigan, it files a suit against Ethan. What remedies are possible?

Transgressions in these facts include breach of contract and conversion. Thus, possible remedies include the normal contract and tort remedies. Also, when an agent breaches his or her duty to the principal by retaining benefits that belong to the principal—which happened here—a court can impose a constructive trust and declare that the agent holds the benefits for the principal's behalf. A constructive trust may also be imposed when an agent retains profits that belong to the principal. Here, the benefits were the rebate payments, which were paid to Ethan's account.

Duty of Loyalty. Peter hires Alice as an agent to sell a piece of property he owns. The price is to be at least $30,000. Alice discovers that the fair market value of Peter's property is actually at least $45,000 and could be higher because a shopping mall is going to be built nearby. Alice forms a real estate partnership with her cousin Carl, and she prepares for Peter's signature a contract for the sale of the property to Carl for $32,000. Peter signs the contract. Just before closing and passage of title, Peter learns about the shopping mall and the increased fair market value of his property. Peter refuses to deed the property to Carl. Carl claims that Alice, as agent, solicited a price above that agreed on when the agency was created and that the contract is therefore binding and enforceable. Discuss fully whether Peter is bound to this contract.

Upon creation of an agency, the agent owes certain fiduciary duties to the principal. Two such duties are the duty of loyalty and the duty to inform or notify. The duty of loyalty is a fundamental concept of the fiduciary relationship. The agent must act solely for the benefit of the principal, not in the agent's own interest or in the interest of another person. One of the principles invoked by this duty is that an agent employed to sell cannot become a purchaser without the principal's consent. When the agent is a partner, contracting to sell to another partner is equivalent to selling to oneself and is therefore a breach of the agent's duty. In addition, the agent has a duty to disclose to the principal any facts pertinent to the subject matter of the agency. Failure to disclose to Peter the knowledge of the shopping mall and the increased market value of the property also was a breach of Alice's fiduciary duties. When an agent breaches fiduciary duties owed to the principal by becoming a recipient of a contract, the contract is voidable at the election of the principal. Neither Carl nor Alice can hold Peter to the contract, and Alice's breach of fiduciary duties also allows Peter to terminate the agency relationship

Types of Agency Relationships

o Agency By Agreement o Agency by Ratification o Agency by Estoppel o Agency by Operation of Law

Principal's Duties to the Agent

o Compensation o Reimbursement / Indemnification o Cooperation o Safe Working Conditions

Some Criteria used by Courts to determine Contractor vs Employee

o How much control does the employer exercise o Is the worker engaged in a separate business distinct from the employer o Work done by the employer's direction o How long is person employed o What is the method of payment o What degree of skill is required of the worker