Agency

Respondeat Scope-- work-related travel

i) Commuting Generally, travel between work and home by an employee is not within the scope of employment. An exception exists when the employer provides the employee with a vehicle and asserts control over how the employee uses the vehicle. Restatement (Third) of Agency § 7.07, cmt. e (2006). ii) Travel during the workday Travel required to perform work, such as travel from an employer's office to a job site or between job sites, is generally within the scope of employment

Respondeat Scope--Frolic and detour

i) Frolic When an employee's personal errand involves a significant deviation from the path that otherwise would be taken for the purposes of performing work, the errand is a frolic. Once a frolic begins, an employee is outside the scope of his employment until he resumes performance of his assigned work. ii) Detour Travel by an employee during the workday that involves a personal errand may be within the scope of employment when the errand is merely a detour (i.e., a de minimis departure from an assigned route).

Formalities of an Agency

Creating an agency relationship is relatively easy because: i) An agent need not receive consideration (a gratuitous agent); and ii) A principal's appointment of an agent generally need not be in writing or comply with other formalities. ***Do you need to identify an agent quickly? Look for (i) the types of agents listed below in fact patterns and (ii) persons who work on behalf of, and are subject to the control of, another person/principal.***

Fraudulent concealment

For fraudulent concealment to apply, either the principal or the agent must have notice that the third party would not have dealt with the principal. Mere suspicions or doubts about the third party's willingness to deal with a principal are insufficient to give the principal or agent notice. When the agent does not make an affirmative misrepresentation to the third party, the third party may be able to avoid the contract by establishing a unilateral mistake.

The Agent

Generally, any person with minimal capacity can serve as an agent. An agent is not required to have the capacity to form contracts. Therefore, minors or incompetents can serve as agents. Entities may also serve as agents. Agents may perform a variety of general or specialized tasks. Depending on the level of the agent's authority, or the manner in which the agent conducts business with a third party, the agent may incur personal liability for acts that are unauthorized by the principal or that are illegal, negligent, or outside the scope of the agent's employment. The consensual nature of the agency relationship requires an agent to: i) Have minimal capacity; ii) Manifest assent and consent to act on the principal's behalf; and iii) Manifest assent to be subject to the principal's control.

Duties of Principals to Agents--Duty to indemnify

If a principal has agreed to furnish an agent with an opportunity for work, then a principal has a duty not to interfere with the agent's completion of that work.

Implied actual authority

Implied actual authority allows an agent to take whatever actions (designated or implied in the principal's manifestations) are properly necessary to achieve the principal's objectives, based on the agent's reasonable understanding of the manifestations and objectives of the principal. Restatement (Third) of Agency §2.01, cmt. b (2006). The authority to make purchases on behalf of the principal may create implied authority in an agent to: i) Make payments for goods and services purchased; ii) Accept deliveries; and iii) Collect funds.

Implied authority by acquiescence

Implied authority based upon acquiescence commonly results from: i) A principal's acceptance of the agent's acts as they occur; or ii) The principal's failure to object to the unauthorized actions of the agent that: a) Affirm the agent's belief that those actions further the principal's objectives; and b) Support the agent's perceived authority to act in the future. Thus, it is imperative that a principal stop, correct, and clarify any unacceptable act performed by an agent when the act takes place, so as not to grant implied authority as to the future actions of the agent.

Principal's Right to Control Agent

The agency relationship is, by definition, one in which the agent acts on the principal's behalf and is subject to the principal's control. Therefore, a principal has the right to control the acts of an agent working on the principal's behalf, including third-party negotiations. However, a principal cannot require agents to perform illegal acts or acts against public policy.

Agent's Duty of Loyalty--Duty not to usurp a business opportunity

The agent's duty not to usurp a business opportunity is a component of the duty of loyalty. It arises when either the nature of an opportunity or the circumstances under which the agent learned of it require the agent to offer the opportunity to the principal. Thus, the agent may not seek or accept monetary or beneficial gain from a third party during the course of the agency without the principal's consent. The prohibition on the agent benefitting monetarily from transactions conducted for the principal is often referred to as the "agent's duty to account for profits."

Agent's Duty of Loyalty--Duty to refrain from acquiring a material benefit

The agent's duty of loyalty requires her to refrain from acquiring a material benefit in connection with transactions or other actions undertaken on the principal's behalf, unless the principal consents to the agent acquiring the benefit.

Termination--The principal's loss of capacity

The common-law rule is that an individual principal's loss of capacity terminates the agent's actual authority. There is a modern trend holding that actual authority does not terminate until the agent has notice that the principal has been adjudicated to lack capacity or that the principal's loss of capacity is permanent. Durable power of attorney A principal may override the loss-of-capacity rule by giving an agent a durable power of attorney in advance of the incapacity. An agent's authority under a durable power of attorney continues despite the principal's lack of capacity. A durable power of attorney must be in writing, evidence the agent's appointment, and express the principal's intention that the power will not be affected by the principal's future disability or incapacity or, alternatively, will take effect upon such an event. As long as the principal has capacity, he may revoke a durable power of attorney.

Termination--Death of the agent

The death of the agent automatically terminates the agent's actual authority. Authority does not pass to the agent's estate or heirs.

Creation of an Agency Relationship

The most common method of creating an agency relationship is by appointment (oral or written). Generally, a principal's appointment of an agent need not comply with specific formalities (for example, a writing) to be effective. However, many states require an agent's appointment to be in writing when the agency relates to interests in property (e.g., a power of attorney). The principal will generally be bound by any contract created on the principal's behalf, by an agent with the power to bind the principal, whether the power to bind is: i) Expressed orally or in a writing; ii) Implied by a principal's conduct; or iii) Misinterpreted by a third party. ***Partnership and corporations questions often require application of agency law. Be prepared to (i) identify the existence of agency relationships, (ii) discuss whether the principal is subject to liability for the agent's actions, (iii) articulate an agent's fiduciary duty to the principal and whether the agent has breached that duty, and (iv) determine if or when an agency relationship has terminated.***

Statutorily mandated termination

The occurrence of circumstances specified by statute may affect the agency relationship and modify or terminate actual authority. For example, under the Uniform Commercial Code (UCC), a bank may generally pay a customer's checks for 10 days after the customer's death, despite knowledge of the death. UCC§4-405 (2007).

Formation of Agency Relationships--Consideration

The parties may create an agency relationship without consideration.

Termination of an agency agreement

The principal and agent can mutually agree to terminate the agreement that formed their agency relationship. When an existing agreement between the agent and the principal specifies the circumstances under which the agent's actual authority terminates, the occurrence of that circumstance terminates the agency, and the agent should reasonably conclude that the principal no longer would assent to the agent acting on the principal's behalf.

Principal's Rights--Accounting

The principal has the right to receive an accounting from the agent of all property and funds received or paid on behalf of the principal. The agent is obligated to maintain the principal's funds separate from his personal funds

Respondeat superior

Under the doctrine of respondeat superior, a principal may be vicariously liable for a tort committed by an agent acting within the scope of his employment. The principal is liable despite the absence of tortious conduct by the principal. This is also known as "derivative liability." If the agent is not liable, then the principal cannot be vicariously liable. General rule A principal is vicariously liable to a third party harmed by the agent's conduct when: i) The agent is a servant (often referred to as an "employee"); and ii) The agent commits a tort while acting within the scope of employment. Note that an agent who appoints a subagent may be vicariously liable for torts committed by the subagent. EXAM NOTE: The bar exam frequently tests vicarious liability of an employer. Don't forget to use key terminology, such as acting "within the scope of employment" or "scope of the employment relationship."

Agent's Duty of Loyalty--Duty not to deal with the principal as an adverse party

Unless the principal and agent have agreed otherwise, the agent has a duty not to deal with the principal as an adverse party in any transaction connected with the agency without the principal's knowledge. For example, an agent cannot, without the principal's knowledge, purchase goods from the principal if the principal has retained the agent to sell those goods.

Principal's Rights--An agent's duty of care

Principals have the right to expect an agent to follow instructions and to perform duties, tasks, and transactions with reasonable care, diligence, and judgment. Uncompensated agents are expected to perform in an acceptable manner and are subject to the same standard of care as a compensated agent.

Types of Principals--Corporation

A corporation is a legal entity created for the purpose of conducting business. A corporation must have legal existence to be considered a principal in an agency relationship. Corporations that are yet to be formed (i.e., future incorporation pending) cannot be principals. Corporate officers, employees of the corporation, and other persons can serve as agents of the corporation.

General and special agents

A general agent is an agent with broad authority over a wide variety of tasks, involving a continuity of service in a particular kind of business, without renewed authorization for each transaction or decision. General agents include store managers and purchasing agents. Special agents generally have limited authority regarding a specific transaction or a string of repetitious acts. Common types of special agents include real-estate agents, subagents, insurance agents, commission merchants, and bailees.

Types of Agents--Gratuitous agent

A gratuitous agent is an agent who does not receive compensation. This does not prevent the creation of an agency relationship, but it generally does prevent the formation of an enforceable contract between an agent and a principal due to the lack of consideration.

Types of Principals--Master or employer

A master (often referred to as an employer) is a principal who employs an agent to perform services and who controls—or has a right to control—the physical conduct of the employee's performance. Restatement (Second) of Agency § 2(1) (1958). An agent who is subject to this level of control is referred to as a servant or employee. The more control a principal exerts over an agent's actions, the more likely it is that a master-servant (or employer-employee) relationship exists. Courts usually determine a principal's status as a master/employer based upon the control that the principal asserts over the servant/employee. Several factors contribute to this analysis, such as whether: i) The principal exercises significant control over the details of the worker's day-to-day activities; ii) The principal supplies the tools at the place of employment; iii) The principal pays the worker on a structured pay period; iv) The worker's skill level is specialized; and v) The principal directs the work to completion.

Types of Principals--Partnership

A partnership is an association of two or more persons for the purpose of carrying on as co-owners of a business for profit. The partnership can be considered the principal in an agency relationship. Partners, employees of the partnership, and other persons, such as attorneys, can all serve as agents of the partnership.

Minors

A person under the age of majority does not have the legal capacity to form contracts. Therefore, a minor generally may not be bound to a contract by an agent. However, a minor can serve as an agent.

Incompetents

A person who has a factual incapacity, such as incompetence, due to a mental condition related to medication, drugs, alcohol, or illness, does not have the legal capacity to be a principal, but she may be an agent.

Estoppel

A person who has not represented that an individual is authorized to act as an agent may be estopped from denying the existence of an agency relationship or an agent's authority with respect to a transaction entered into by the agent. Estoppel applies when a third party is justifiably induced to make a detrimental change in position because that third party believed the transaction was entered into for the principal and either the principal: i) Intentionally or carelessly caused the belief; or ii) Having notice of such belief and the possibility that the belief might induce others to change their positions in reliance on it, failed to take reasonable steps to notify them of the facts. In short, a principal, or purported principal, is liable for the *appearance of authority arising solely from the principal's failure to take reasonable steps and use ordinary care.*

Ratification

A principal can ratify an act performed by another person, whether or not the person is an actual agent of the principal. Ratification occurs when a principal affirms a prior act that was done or purported to be done on the principal's behalf. The principal's affirmation may be either express or implied (such as through conduct), and consideration is not required. For ratification to occur, the following elements must exist: i) The principal must ratify the *entire act,* contract, or transaction (either by express manifestation of assent or conduct that justifies a reasonable assumption of consent); ii) The principal must have the *legal capacity* to ratify the transaction at the time it occurs; the third party must also have the legal capacity to engage in the transaction; iii) The principal's ratification must be *timely* (before the third party withdraws from the transaction); and iv) The principal must have knowledge of the material facts involved in the original act. If the principal ratifies the agent's action, then the principal is bound just as if the action had been authorized at the time it occurred. This is true even if the agent acted without power to bind the principal (i.e., with no actual or apparent authority, and when estoppel does not apply).

Contractual Liability of the Principal

A principal is subject to liability on a contract that the agent enters into on the principal's behalf if the agent has the power to bind the principal to the contract. An agent has the power to bind the principal to a contract when: i) The agent has *actual authority (express or implied);* ii) The agent has *apparent authority;* or iii) The principal is *estopped from denying the agent's authority.* In addition, even if an agent acts with no power to bind the principal, the principal can become subject to liability on the contract if the principal ratifies the contract.

The principal's power to revoke/the agent's power to renounce--coupled with an interest

A principal cannot revoke the authority of an agent if the agent's power is coupled with an interest in the subject matter of the power. For example, if a borrower conveys an interest in real property to a lender under a deed of trust, and also confers on the lender the power to sell the property in the event of default, then the lender's interest is coupled with an interest in the property. Therefore, the borrower cannot revoke the lender's authority to sell. Termination of an agency relationship is unilateral; either party may assert the right to terminate the agreement.

Duties of Principals to Agents--Contractual duties

A principal has a duty to act in good faith in accordance with the terms of the contract between the agent and the principal.

Rights of Principals

A principal has the legal right to require an agent to act or refrain from acting on his behalf. A principal has the right to select an agent and control the agent's actions within the scope of the agency relationship.

A Principal's Remedies for Breach by an Agent

A principal has the right to recover for a breach of the agent's fiduciary obligation, as well as for the agent's breach of contract and for actions of the agent that exceed the scope of employment, and for which tort law provides a remedy. A principal may pursue one or more of the following remedies against an agent who breaches a duty: i) An injunction; ii) A breach-of-contract action for monetary damages; iii) A tort action for harm suffered, including punitive damages; iv) Avoidance or rescission of a contract or a transaction; v) Restitution; vi) An accounting to the principal for the value of the agent's use of the principal's property; vii) Termination of the agency relationship; viii) Forfeiture of commission or other compensation paid or payable; and ix) Disgorgement of profits earned by the agent without the principal's consent.

Agent's Liability--Disclosed principal

A principal is a disclosed principal if the third party has notice of both the existence and identity of the principal. Unless the agent and third party agree otherwise, an agent who enters into a contract on behalf of a disclosed principal does not become a party to the contract. To avoid becoming a party to the contract, the agent must: i) Enter into the contract on behalf of the disclosed principal; ii) Affirmatively disclose to the third party both the existence and identity of the principal; and iii) Not agree to become a party to the contract.

Agent's Liability--Partially disclosed principal

A principal is a partially disclosed principal if the third party has notice of the principal's existence but not the principal's identity. Unless the agent and the third party agree otherwise, an agent who enters into a contract on behalf of a partially disclosed principal becomes a party to the contract. If the agent binds the principal to the contract, or if the principal ratifies the contract, then both the principal and agent are parties to the contract with the third party.

Agent's Liability--Undisclosed principal

A principal is an undisclosed principal if the third party has no notice of the principal's existence. An agent who enters into a contract on behalf of an undisclosed principal becomes a party to the contract. Thus, when the agent does not inform a third party of the identity or the existence of the principal, the agent becomes liable to the third party on the contract. If the agent binds the principal to the contract, then both the principal and the agent are parties to the contract with the third person. Once the third party discovers the existence of the principal, however, the election of remedies doctrine requires the third party to choose to hold liable either the principal or the agent. If the third party obtains a judgment against one of them, then the judgment operates as an election, and the third party is precluded from seeking to hold the other party liable on the contract. Generally, a third party is liable to an undisclosed principal on a contract made with an agent on behalf of the principal unless: i) The principal or undisclosed principals are excluded by the form or terms of the contract; or ii) The principal's existence is fraudulently concealed, i.e., the agent falsely represents to the third party that the agent does not act on behalf of the principal. Generally, an undisclosed principal is liable to a third party if: i) The third party is induced to make a detrimental change in position by an agent without actual authority; ii) The principal knew of the agent's conduct and that it might induce others to change positions; and iii) The principal did not take reasonable steps to notify the third party of the facts. An undisclosed principal may not rely on the fact that she gave the agent instructions that effectively reduced the agent's authority to less than what a third party would reasonably believe the agent to have if the principal had been a disclosed principal.

Principal's Direct Liability to Third Parties

A principal is directly liable to a third person harmed by an agent's conduct if: i) The principal authorizes or ratifies the agent's conduct; ii) The principal is negligent in selecting, supervising, or otherwise controlling the agent; or iii) The principal delegates to an agent performance of a non-delegable duty to use care to protect other persons or their property, and the agent breaches the duty.

Duties of Principals to Agents--Deal fairly and in good faith

A principal is obligated to treat the agent fairly and in good faith and to provide the agent with information concerning risks of physical or financial harm or loss that the principal knows or should know are present in the agent's work but that are unknown to the agent. In addition, although a principal does not owe an agent a duty of loyalty, a principal has a duty to refrain from conduct likely to injure an agent's business reputation or reasonable self-respect.

Principal's Direct Liability--An agent with actual authority or a principal's ratification

A principal is subject to liability for an agent's conduct if the principal authorizes the conduct or intends its consequences. For example, a principal who authorizes an agent to destroy a competitor's place of business is liable to the competitor. If an agent uses means other than those the principal intended, then the principal is nevertheless vicariously liable if the agent's choice of means is within the agent's actual authority. If the agent's conduct is not tortious, the principal may still be liable if the same conduct by the principal would have rendered the principal liable. A principal is also liable if she ratifies an agent's conduct. Ratification requires that the principal affirm a prior act that was done or purportedly done on the principal's behalf.

Liability--Agent's Apparent Authority

A principal is vicariously liable for a tort committed by an agent with apparent authority when the agent's appearance of authority enables him to commit a tort or conceal its commission. Such torts include fraudulent and negligent misrepresentation, defamation, tortious institution of legal proceedings, and conversion of property. For apparent authority to exist, a third person must believe that the agent acted with actual authority, and such *belief must be reasonable and be traceable to a manifestation by the principal.* If the third party's belief in the agent's authority to make the statement is reasonable, then the misrepresentation will be attributed to the principal. The third party might be able to rescind the contract and sue for damages. The fact that an agent's conduct is not beneficial to the principal does not protect the principal from liability for such conduct.

Principal's Liability to Third Parties in Tort for Agent's Conduct

A principal may be vicariously as well as directly liable to a third person who is tortiously harmed by an agent's conduct. The doctrine of vicarious liability asserts that a principal is liable for the acts of an agent, even though the principal is innocent of fault and not directly guilty of any tort or crime. Common torts include negligence, misrepresentation, false imprisonment, and battery.

Implied authority by position

A principal may manifest assent to the actions of his agent by placing the agent in a position that customarily has certain authority, such as vice president or treasurer.

Principal's Direct Liability--Non-delegable duties

A principal who has a non-delegable duty cannot avoid liability by delegating the duty to another person. Generally, a duty is non-delegable when the responsibility is so important to the community that a person should not be permitted to transfer it to another person. Examples include the duty of a landlord to keep premises in a safe condition and the duty to use care in inherently dangerous activities such as the use of explosives.

Principal's Direct Liability--Negligence in selecting or controlling an agent

A principal who is negligent in selecting, supervising, or otherwise controlling an agent runs the risk of liability attaching to that negligence. Basic tort requirements of duty, breach, causation, and damages must be satisfied for the principal to be liable. As a general tort rule: i) A person who conducts an activity through another person; ii) Is liable for harm to a third party; iii) Caused by the actor when the person fails to exercise reasonable care; iv) With respect to the selection of the actor and the actor's performance of the activity. A principal has a duty to a third party with respect to actions by an agent if there is a *special relationship* between a principal and the third party, such as that between a common carrier and a passenger.

Types of Agents--Servant or employee

A servant (often referred to as an employee) is an agent who is subject to the principal's control with respect to the physical conduct of the employee's performance. Generally, employees are paid hourly or by time periods (e.g., weekly, biweekly, monthly). Their work is an integral part of the work of the employer, tasks are generally completed under the employer's direction, and employees are employed for long periods of time with the same employer. The more control an employer exerts over an agent's day-to-day activities, the more likely the agent qualifies as an employee.

Respondeat Superior-- "Servant/employee" defined

A servant or employee is an agent whose principal controls or has the right to control the manner and means of the agent's performance of work. Because of the level of control of their employers, bus drivers, food servers, and corporate officers would all be classified as employees. When a lent employee, also known as a "borrowed servant," commits a tort, the employee's initial employer or the employer for whom the employee is currently working, or both, may be liable to a third party harmed by the lent employee's conduct. Recent court decisions have assessed liability based upon a determination as to which of the employers controlled the agent's actions at the time the harm occurred. EXAM NOTE: Remember that the key to determining liability is whether the employer has the right to control the employee's conduct.

Subagents

A subagent is a person appointed by an agent to perform functions that the agent has agreed to perform on behalf of a principal. The agent is liable to the principal for the conduct of the subagent. When an appointing agent hires employees, those employees are presumed to be subagents of the appointing agent, acting on behalf of the appointing agent's principal. 1) Power to appoint a subagent An agent may appoint a subagent only if the agent has actual or apparent authority to do so. 2) Duties of a subagent A subagent owes a duty of loyalty to the principal as well as to the appointing agent. -------- An agent who appoints a subagent may be vicariously liable for torts committed by the subagent.

A trustee as an agent

A trustee is an agent and is subject to the control of the settlor of the trust or one or more of its beneficiaries. A trustee maintains a fiduciary relationship with and holds property for the benefit of the settlor. Restatement (Third) of Agency § 1.04(10) (2006).

Formation of Agency Relationships--Writing Requirement

A writing is generally not necessary to create an agency relationship. In some jurisdictions, statutes require that the principal's authorization of the agent be in writing and comply with specific requirements. The most common example is when the agent contracts to sell or buy real property. When a statute requires the principal's authorization to be in writing, the requirement is often referred to as the "equal-dignities rule," i.e., the authorization must be of equal dignity to the underlying transaction. The equal-dignities rule operates to protect the principal against third-party actions. Therefore, a principal can raise the lack of written authorization as a defense. It does not apply in a contract action brought by a principal against a third party or in an action brought by an agent against the principal. Restatement (Third) of Agency § 3.02, cmt. b (2006).

Principal's Rights--An agent's duties of loyalty and obedience

Agency is a special relationship that gives rise to fiduciary duties on the part of the agent. A principal has the right to expect loyalty and obedience from her agent. A principal is entitled to expect the agent to avoid acts in the agent's self-interest in matters connected with the agency and to refrain from secretly profiting from transactions on behalf of the principal. The fiduciary duty owed by the agent to the principal implies that the agent will not breach the trust imposed by the agency relationship. An agent may be liable to a principal for breach under either contract or tort law.

Duties of an Agent--Duty of loyalty

Agency is a special relationship that gives rise to fiduciary duties on the part of the agent. As a fiduciary, the agent owes the principal a duty of loyalty, which generally requires the agent to act solely for the benefit of the principal (and not for the benefit of the agent or third parties) in matters connected with the agency. This duty applies to all agents, whether they are gratuitous or compensated and can vary depending on the parties' agreement. The agent's general duty of loyalty requires the agent to do, or not do, many specific things, which are discussed below.

Agency Relationship

Agency relationships are consensual, requiring assent by both parties. For this reason, whenever two parties with the necessary legal capacity mutually consent to a relationship in which one will act on behalf of the other and subject to the other's control, they have formed an agency relationship. The most recognized principals are employers who control the actions of their employees (agents). A corporation or other business organization can be a principal, and the officers and other employees of the corporation are agents (just as partners are agents of a partnership). Although agency relationships are generally based on consent, agency may be imposed by operation of law (e.g., estoppel or a state motorist statute).

Termination-- Changed circumstances

Agency relationships may end as a result of: i) A change in a statute relating to the subject matter; ii) Insolvency of either party; iii) A dramatic change in business conditions; iv) The destruction of the subject matter of the agency relationship; or v) A disaster (natural or unnatural). The agency relationship terminates when the changed circumstance should cause the agent to reasonably believe that the principal no longer consents to the agent acting on the principal's behalf.

The agent's breach of fiduciary duty

Agent's authority terminates

Implied authority due to emergency

Agents have implied authority to take all reasonably necessary measures in cases of emergency, in the absence of the principal and/or specific instructions to act.

Respondeat Scope--An employee's use of physical force against another

Although most jobs do not include the use of physical force against another person, an employee's assigned work may contemplate the necessity of using physical force to complete the assigned task, such as a "runner" for a bail bondsperson, who tracks down individuals who have jumped bail and returns them to custody.

Determining the Existence of an Agency Relationship

An agency relationship is created when: i) A principal manifests assent to an agent; ii) The agent acts on the principal's behalf; iii) The agent's actions are subject to the principal's control; and iv) The agent manifests assent or otherwise consents. ***Points are obtained for agency questions by listing the elements that create an agency relationship and demonstrating how they are or are not present.***

The Principal's Control

An agent agrees to be subject to the principal's control, and a principal agrees to be bound by the acts of its agent within the scope of the agent's authority. The fact that a principal lacks the right to control the full range of an agent's actions (professional judgment), or fails to exercise the right to control the agent, does not eliminate the principal's rights or affect the existence of an agency relationship. It is sufficient that the principal has the right to control the result or the ultimate objectives of the agent's work. ***Do you need to identify a principal quickly? Look for (i) the types of principals listed below when reading fact patterns and (ii) examples of any person, individual, or entity that exerts control over another party. The key word is "control."***

Agent's Duty of Loyalty--Duty not to compete

An agent has a duty to refrain from competing with the principal concerning the subject matter of the agency and from assisting the principal's competitors.

Agent's Duty of Loyalty--Duty not to use the principal's confidential information

An agent has a duty to refrain from using the principal's confidential information for the benefit of anyone other than the principal, including the agent. This duty survives termination of the agency relationship.

Types of Principals--Individual

An agent has a duty to refrain from using the principal's confidential information for the benefit of anyone other than the principal, including the agent. This duty survives termination of the agency relationship.

Rights of an Agent--Right to receive compensation

An agent has a right to receive compensation for her services if the principal expressly or impliedly promises to compensate the agent. When no amount has been specified in the agency relationship, an agent has the right to be compensated in the customary manner of the business trade. However, a principal does not have a duty to pay compensation to subagents engaged by an agent, unless the principal agrees to do so.

Rights of an Agent--Right to indemnification and reimbursement

An agent has the right to indemnification for losses incurred when the agent transacted lawful business with actual authority. An agent also has the right to be reimbursed by the principal for expenses incurred by the agent in connection with the agency relationship. Generally, this right is limited to payments made or necessary expenses incurred by an agent within the scope of the agency. An agent does not have the right to be indemnified for losses that result from an agent's own negligence, illegal acts, or other wrongful conduct.

An Agent's Tort Liability to a 3rd Party

An agent is subject to liability to a third party harmed by the agent's tortious conduct. An agent's individual tort liability extends to negligent acts and omissions as well as intentional conduct. An agent is not liable for torts committed by the principal.

Remedies available to an agent

An agent might have a claim against the principal founded in contract or tort law. However, the agent is required to choose the remedy sought and to mitigate his damages prior to and during the period that the agent seeks relief. To sue for breach of contract, the agent must establish that a right to compensation exists. This normally means that the agent must be a compensated agent, i.e., there must have been consideration to support the agency relationship. The agent may file a claim for compensation owed to him under the terms of the contract with the principal. Such a claim could take the form of a suit in damages to recover compensation or a lien against the principal.

An agent's warranty of authority

An agent or actor purporting to be an agent for a principal gives an implied warranty of authority to a third person with whom the agent enters into a contract on the principal's behalf. If the agent or actor lacks the power to bind the principal, then a breach of the implied warranty has occurred, and the agent is liable to the third party for breach. An agent is treated as giving an implied warranty of authority when the principal is disclosed or partially disclosed, but not when the principal is undisclosed. An agent may give an express warranty of authority to induce a third party to deal with the agent.

Agent's Performance-based Duties

An agent owes performance-based duties to the principal, including a duty of obedience and a duty to perform with reasonable care. 1) Contractual duties Although an agency relationship does not require a contract between the agent and the principal, an agent has an implied duty to act in accordance with the terms of any contract between the parties. 2) Duty of care An agent has a duty to act with the care, competence, and diligence normally exercised by agents in similar circumstances, as reflected by local community standards. The agent's special skills and knowledge are taken into account in determining whether the agent employed due care and diligence. 3) Duty of obedience An agent must act within the scope of her actual authority and comply with a principal's lawful and reasonable instructions. 4) Duty to provide information An agent has a duty to provide relevant information to the principal pertaining to the subject matter of the agency and that the agent knows (or should know) the principal would wish to have. 5) Duty to keep and render accounts An agent has the duty to keep the principal's property separate from the agent's property. Also, an agent has a duty to keep and render an accounting of the principal's money and other property.

Agent's Duty of Loyalty--Duty to disclose—multiple principals

An agent who acts for more than one principal in a transaction between or among them owes duties of disclosure, good faith, and fair dealing to each.

Types of Agents--Independent Contractor

An agent who is not a servant/employee is referred to as an independent contractor. Courts examine several factors to determine whether an agent is an employee or an independent contractor. The most important factor is that an independent contractor is not subject to the principal's control regarding the physical conduct of the agent's performance. An independent contractor can be identified as a person who: i) Bears the risk and benefits from good management; ii) Maintains a high level of independence; iii) Is free to work for others; iv) Agrees to be paid a fixed fee; v) Receives payment based on results; vi) Is liable for work performed; and vii) Accepts responsibility to remedy defects at her own expense. EXAM NOTE: Questions may refer to an independent contractor as a "nonemployee agent."

Termination of Authority

An agent's actual authority may be terminated by: i) The principal's revocation; ii) The principal's agreement with the agent; iii) A change of circumstances; iv) The passage of time; v) The principal's death or suspension of powers; vi) The agent's death or suspension of powers; vii) The principal's loss of capacity; or viii) A statutorily mandated termination.

Respondeat Superior--Scope of employment

An employee acts within the scope of employment when either: i) Performing work assigned by the employer; or ii) Engaging in a course of conduct subject to the employer's control. When an employee acts independently of any intent to serve any purpose of the employer, the employer may escape liability. ***To attach liability and hold the employer vicariously liable, you must establish that (i) there is an employer/employee relationship, and (ii) the employee's harmful conduct was committed while working within the scope of employment.*** An employee does not act outside the scope of employment merely because he performs the work carelessly, makes a mistake in performing the work, or fails to perform assigned work. Moreover, an employee who disregards an employer's instructions or violates a generally applicable law, such as a speed limit, is not necessarily acting outside the scope of employment when the employee believes that compliance would jeopardize the employee's timely completion of his assigned task.

Unincorporated associations

An unincorporated association is a non-legal entity in which two or more persons voluntarily associate with mutual consent or purpose. Examples of unincorporated associations include religious, literary, professional, charitable, or social associations; they each lack the capacity to form agency relationships.

Types of Principals--Entrepreneur

Any business owner who has the legal capacity to contract with a person to represent him and conduct business on his behalf can be a principal. EXAM NOTE: Look for business owners (e.g., sole proprietors without partners) to be frequently highlighted as principals in agency and partnership fact patterns.

Types of Agents--Individual

Any individual with minimal capacity (some understanding that a contract is being initiated and the general nature of its subject matter) has the requisite capacity to be an agent. Status as an agent is established by the agreement to act on behalf of, and subject to the control of, the principal.

Apparent Authority

Apparent authority derives from the reasonable reliance of a third party on that party's perception of the level of authority granted to the agent by the principal. The perception is based on the principal's behavior over a period of time. To determine if a third party has a reasonable belief of apparent authority, look for a principal's manifestation that reaches the third party and could reasonably cause the third party to believe that the agent is authorized. The key is the principal's behavior, not the agent's, and the third party's perception that results from it. Apparent authority, unlike estoppel, does not require the third party to establish that she acted in reliance on the principal's manifestations or that she suffered a detriment as a consequence of such reliance. A change in position by the third party may be evidence of the third party's belief in the agent's possession of actual authority.

Formation of Agency Relationships--Consent

Both the principal and the agent must consent to the agency relationship. The agent does not have to verbally consent, but she may manifest assent by performing acts on behalf of the principal. Restatement (Third) of Agency § 1.01, cmts. c, d; § 103 (2006). Note that termination of an agency relationship may be unilateral. The principal or agent may terminate the agency without the other's consent.

Implied Authority v. Apparent Authority

EXAM NOTE: The bar exam frequently tests your ability to differentiate between implied actual authority and apparent authority. Implied authority results when the principal's words or actions cause an agent to reasonably believe in the agent's authority to act. Apparent authority results when the principal causes a third party to reasonably believe that the agent has authority to act.

Agent's "must have" duties

EXAM NOTE: When answering questions that require you to address the duties of an agent to the principal, make sure you state the "must have" duties: i) Duty of care to perform with reasonable diligence and skill; ii) Duty to provide information to the principal regarding all matters relating to the agency relationship; iii) Duty of loyalty to the principal and to work only for his benefit; iv) Duty of obedience to the principal; and v) Duties not to usurp a business opportunity from the principal; not to take financial gain from the principal; to provide an accounting; and not to commingle the principal's property with that of a third party.

The principal's power to revoke/the agent's power to renounce

Either party to the agency relationship may revoke or renounce consent that was previously given. A revocation or renunciation is effective as soon as the other party has notice of it. Either party has the power to terminate the agency relationship, even if they contracted not to do so. In that case, either party may be liable for breach of contract. The remedy for breach is limited to damages.

Express Actual Authority

Express actual authority can be created via: i) Oral or written words; ii) Clear, direct, and definite language; or iii) Specific detailed terms and instructions. *1) Objective and subjective standard of intent* For express (actual) authority to exist, the principal's manifestation must cause the agent to believe that the agent is doing what the principal wants (subjective standard), and the agent's belief must be reasonable (objective standard). A principal's unexpressed subjective intent regarding an agent's authority is ineffective. Remember, it is the manifestation of a principal's intent (spoken/written words, instructions, statements, or any conduct by the principal) that forms the basis for actual authority. Restatement (Third) of Agency § 2.01, cmt. c (2006). *2) The principal's manifestations (assent/intent)* For actual authority to exist, a principal must make a manifestation that causes the agent reasonably to believe that the agent is authorized. Silence or the failure to dissent by a principal to the actions or words of an agent when a reasonable person would do so can constitute a manifestation of assent for an agent to act on the principal's behalf. A principal must give the agent *clear notice* if the principal disagrees with the agent's actions. *3) Manifestation must reach the agent* A principal's manifestation must reach the agent to create actual authority. The principal might communicate with the agent directly, or the manifestation might reach the agent by some other means, such as through another agent of the principal. *4) Express authority granted in error* A principal's manifestation intended for one agent and given to another agent in error can create express authority to the agent who received the manifestation by mistake. The same result occurs when a principal's manifestation concerning the subject matter is incorrect. *5) A third person's knowledge of actual authority is irrelevant* For express actual authority to exist, the agent must believe that the agent is doing what the principal wants (subjective standard), and the agent's belief must be reasonable (objective standard). Awareness of the agent's authority by a third party does not determine the nature or extent of the authority.

Implied authority to delegate

In general, agents are prohibited from delegating either express or implied authority to a third person without the principal's express authorization. The rationale for the rule is that the agency relationship is consensual, and the principal has not agreed to a third party acting in the place of the known agent. Yet, in certain cases, a principal may be shown to have granted implied authority to the agent to delegate his duties to a third person or subagent. Once an agency relationship has been created, the principal potentially can be bound to contracts by the agent and subject to vicarious liability for the agent's tortious conduct. c) Custom or usage An agent may delegate duties to a subagent to facilitate a transaction because of business or industry customs or trade usage. d) Impossibility The agent may delegate acts that she could not perform for a variety of reasons.

Rights of an Agent

In general, an agent has a right to be compensated, allowed to work without interference, reimbursed for losses, provided with a safe work environment, and indemnified for working on behalf of a principal.

Customary implied authority

In the absence of instructions to the contrary, an agent has implied authority to act within accepted business customs or general trade usage within an industry. The agent must be aware of the normal business customs or usage before she acts.

Respondeat Scope--Intentional torts

Intentional torts are not automatically excluded from the scope of employment. They may fall within the scope of employment when *(i)the conduct is within the space and time limits of the employment; (ii)the agent was motivated in part to act for the employer's benefit; and (iii) the act was the kind of act that the employee was hired to perform.*

Agency Liability

Once an agency relationship has been created, the principal potentially can be bound to contracts by the agent and subject to vicarious liability for the agent's tortious conduct.

Duties of Principals to Agents--Duty not to interfere with an agent's work

Subject to an agreement to the contrary, a principal has a duty to indemnify the agent against pecuniary loss suffered in connection with the agency relationship and within the scope of the agent's actual authority. The principal's duty to indemnify includes expenses and other losses incurred by an agent (such as attorney's fees) in defending an action brought by a third party. A principal is not obligated to indemnify losses that result from an agent's own negligence, illegal acts, or other wrongful conduct.

Principal's Rights--Notification

The principal is entitled to notice from the agent of all issues relevant to the subject matter of the agency relationship. Generally, the law of agency assumes that the principal is aware of all relevant knowledge of and information provided to the agent. A core tenet of agency law is that knowledge of or notice to the agent is notice to the principal.

Rights of an Agent--Right to work in a safe environment

The principal must provide a safe working environment, including tools, equipment, and conditions for an agent or employee.

Termination--Death of the principal

The traditional common-law rule is that the principal's death terminates all power of the agent to act, including actual authority, regardless of whether the agent or third party has notice of the principal's death. There is a modern judicial trend to hold that the principal's death does not terminate an agent's authority until the agent has notice of the principal's death. Durable power of attorney If a principal grants an agent authority in a durable power of attorney (discussed below), then the principal's death may not necessarily terminate the agent's authority, depending on the circumstances under which the durable power of attorney is granted. For example, in certain cases, an agent under a durable power of attorney may order an autopsy and demand and receive medical records for the deceased principal. Power coupled with an interest The principal's death does not terminate the authority of an agent if the agent's power is coupled with an interest in the subject matter of the power.

Formation of Agency Relationships--Capacity

To become a principal and be bound by an agent's actions, a person must have capacity both to consent to the agency relationship and to enter into the transaction to which the agent purports to bind the principal. In contrast, virtually any person can serve as an agent. A person can serve as an agent as long as he has the physical and mental capability to do whatever he has been appointed to do.

Apparent Authority-Third party's reasonable belief

Unlike implied actual authority, which is based on the agent's reasonable belief as to the agent's authority, apparent authority focuses on the reasonable belief of the third party. 1) Reasonable belief factors To determine whether a third party's belief is reasonable, look to: i) Past dealings between the principal and the agent of which the third party is aware; ii) Trade customs regarding how a similar transaction is normally accomplished; iii) Relevant industry standards; iv) The principal's written statements of authority; v) Transactions that do not benefit the principal; or vi) Extraordinary or novel transactions for the principal or similar types of principals. -------- 2) The agent's position Information, known by a third party, that a person is an agent for an organization without knowledge of the person's position in the organization (e.g., president) is an insufficient basis to support a belief in the agent's authority to act for the organization. However, by appointing an agent to a specific position (e.g., vice president, treasurer, general manager), the principal makes a manifestation to the public that the agent has the customary level of authority possessed by a person in the agent's position.

An agent's liability as a party to a contract

When an agent enters into a contract on the principal's behalf and binds the principal to the contract, the agent might also become a party to (and liable on) the contract. Whether the agent becomes a party depends on the terms of the contract and the degree to which the agent discloses to the third party the existence and identity of the principal.

Termination--Passage of time

When the principal and agent do not specify the duration of an agent's authority, such authority terminates after a reasonable period of time.

Duties of Principals to Agents--Duty to pay compensation

Whether a principal is obligated to compensate an agent depends on the terms of their agreement. To recover compensation, an agent must show that the principal expressly or impliedly agreed to pay compensation. If a principal has promised to pay compensation, then the agent can maintain an action for damages if the principal fails to pay.

Subagent--Contractual liability

a) Agent The agent is responsible to the principal for the subagent's conduct. Thus, the agent may be liable for a loss incurred by the principal as a consequence of the subagent's misconduct. b) Principal A principal is bound by the subagent's acts to the same extent as if the agent had undertaken the acts. Notice received by a subagent is treated as notice to the principal; knowledge possessed by the subagent is imputed to the principal. The principal is not obligated to compensate the subagent when the subagent and the agent create an agreement between them concerning compensation or other duties. c) An agent serving co-principals An agent has a duty of loyalty to the principal. In a situation in which an agent is serving more than one principal, and there is no substantial conflict among the principals' interests or their instructions to the agent, the agent may fulfill duties owed to all principals. If a conflict exists between the principals, then the agent may not work for the conflicting principals.

Apparent Authority--Actor/imposter agent

t is not uncommon for an individual purporting to be an agent at the time of his acts to have no agency relationship or authority delegated by a principal. This person is called an "actor" or "imposter," and a principal may be held liable for the imposter's acts when the principal negligently allows an imposter to have the appearance of actual authority to act on the principal's behalf.