Business Law - Module 10 -- Agency Law

The agency relationship can be created in two ways: by agreement (expressly) or by ______________ (constructively or impliedly).

operation of law

Apparent Agency

Agency that arises when a principal creates the appearance of an agency that in actuality does not exist.. EXAMPLE: Suppose Arthur is Paul's agent, employed through October 31. On November 1, Arthur buys materials at Lumber Yard—as he has been doing since early spring—and charges them to Paul's account. Lumber Yard, not knowing that Arthur's employment terminated the day before, bills Paul. Should Paul pay? Yes, because the termination of the agency was not communicated to Lumber Yard. It appeared that Arthur was an authorized agent.

Agents liability to Third parties:

Agents must act on behalf of principal & disclose to 3rd party. Agents acting w/in scope of authority not liable Agent exceeds the express authority, her implied authority may bind the principal but not her. Generally, a person signing a contract can avoid personal liability only by showing that he was in fact signing as an agent.

A paper company agrees to share profits with every employee for every paper order sold. However, when it comes time for the company to pay out the profit share, it fails to do so. Which duty is the paper company failing to perform in this situation? Duty to compensate Duty to cooperate Duty to indemnify Duty to reimburse

Correlative with the fiduciary duties of an agent to a principal, the principal's primary duty to the agent is to compensate the agent as agreed.

An unauthorized agent of an automotive glass and claims management company purchases $260,000 worth of glass from a wholesale glass distributor. If the glass and claims management company does not pay the wholesale glass distributor, is the agent who facilitated the purchase liable? a. Yes. Agents are always liable for the transactions they make with third parties. b. Yes. Agents will be liable for purchases made if they did not have the authority to make the purchases. c. No. The company is always liable for transactions its agents make with third parties. d. Yes. The agent becomes liable after one year of the purchase if the company fails to pay.

b. The principal may authorize the agent to perform a variety of tasks or may restrict the agent to specific functions. But if an agent exceeds that authority, liability will not transfer to the principal and, thus, the agent will be held responsible for any damages.

When is the principal liable for injuries that the agent causes another to suffer? Direct Liability

legal obligation of an individual or business because of negligent acts or ommissions resulting in bodily injury and/or property damage or destruction to another party. It comes into play when the principal fails to supervise employees adequately, gives faulty directions, or hires incompetent or unsuitable people for a particular job. Principal is libel also if he directed one to commit a tort or knew consequences of a directed action.

AGENCIES: Consideration: Agencies created by consent—agreement—are not necessarily contractual. It is not uncommon for one person to act as an agent for another without consideration. For example, Abe asks Byron to run some errands for him: to buy some lumber on his account at the local lumberyard. Formalities: Doesn't need to be in _____________. Capacity: A contract is void or voidable when one of the parties lacks capacity to make one. (Minors)

writing. Contracts that agents make with third parties often must be in writing. Sales of goods, $500 plus, realtor compensation & authority to sell property, things that take over 1 year to complete & in some states contracts b/w sales reps and companies.

What is a principal's liability for the agent's criminal acts?

A principal will not be held liable for an agent's unauthorized criminal acts if the crimes are those requiring specific intent. Thus a department store proprietor who tells his chief buyer to get the "best deal possible" on next fall's fashions is not liable if the buyer steals clothes from the manufacturer.

How is an agency relationship created?

A relationship that involves a person called the agent, that is authorized to act on behalf of another, the principal, to create legal relations with a third party.

The owner of a retail store hires a manager to supervise inventory. The manager makes the decision to purchase two orders of widgets. When they arrive, the owner refuses delivery, stating that the order was not authorized and the store did not need them. The widget company sues the owner and the manager individually for breach of contract. Which duty did the manager owe the owner in this situation? Duty to obey Duty to act only as authorized Duty to provide information Duty of good conduct

Duty to privide info. By agency, a principal grants authority to an agent to act on behalf of and under the control of the principal. Here, the manager was tasked with supervising inventory. If ordering widgets, the manager would need to inform the owner of orders made.

Dan recently got hired by Jess and they entered into a contract that specifies how much money Dan will make for the job. The contract also specifies how and when the job should be performed. Which type of authority has been formed in this relationship? Apparent Traditional Express Implied

Express authority is the authority that the principal has expressly given to the agent whether orally or in writing.

The company that hired Pete, a web designer, has not provided any detailed instructions for what the company's new website should look like when finished. The company trusts that Pete will analyze the company's needs and use his expertise to design a website that best meets those needs. The lack of detailed instructions indicates that Pete is most likely an employee rather than an independent contractor. True False

False. Less detailed instructions reflect less control, indicating that the worker is more likely an independent contractor.

Family and Medical Leave Act (FMLA)

Federal law requiring organizations with 50 or more employees to provide up to 12 weeks of unpaid leave after childbirth or adoption; to care for a seriously ill family member or for an employee's own serious illness; or to take care of urgent needs that arise when a spouse, child, or parent in the National Guard or Reserve is called to active duty

Example of apparent authority

Meggs sells company to Buyer on July 1. Buyer orders from Central sheet mfg 3 days later. Meggs notified Central of the sale to Buyer on Sept.3. Buyer doesn't pay and Central sues Meggs. Meggs is ordered to pay Central anything that was ordered prior to Sept. 3.

Special Agent

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

How can an agency relationship be terminated?

Termination can be done expressly or implicitly: >Express termination done by agent and/or principal; expiration of a specific time period, event, act (sale of house) >implied termination due to change in market, unspecified events (bankruptcy, disloyalty), change in law >Operation of law; agent/principal death, mental capacity, purpose is illegal

What is an agent's personal liability for torts and contracts entered into on behalf of the principal?

That a principal is held vicariously liable and must pay damages to an injured third person does not excuse the agent who actually committed the tortious acts. A person is always liable for his or her own torts (unless the person is insane, involuntarily intoxicated, or acting under extreme duress). The agent is personally liable for his wrongful acts and must reimburse the principal for any damages the principal was forced to pay, as long as the principal did not authorize the wrongful conduct. The agent directed to commit a tort remains liable for his own conduct but is not obliged to repay the principal.

You hire a driver to deliver floral arrangements purchased by customers from your flower shop. In this scenario, your customers are considered... agents, third parties, principals?

The third party is someone who may be involved but is not a principal party to an arrangement, contract, deal, lawsuit, or transactio

servant

Until the early nineteenth century, any employee whose work duties were subject to an employer's control was called a servant

Apparent Authority

When a reasonable third party reasonably believes that an agent had the authority to act whether or not that was the case. Apparent authority is a manifestation of authority communicated to the third person; it runs from principal to third party, not to the agent.

Which scenario would not result in a valid agency relationship? A homeowner enters into a verbal agreement with the contractor to make repairs, who then hires a painter. A son takes over his mother's estate after her death and in absence of will but with court approval. The owner of a salon hires a part-time nail technician. The truck driver uses his company vehicle to pick up his daughter from a school activity.

While the truck driver is employed and authorized to use the company vehicle, it is only authorized to do work for the company. Excursions with the vehicle outside of the scope of employment are not covered or part of the agency relationship.

wrongful discharge

a legal doctrine that requires employers to have a job-related reason to terminate employees

Implied Agency

an agency that occurs when a principal and an agent do not expressly create an agency, but it is inferred from the conduct of the parties. Ex: Longstanding social policy deems parents are to support dependents....so children in most states may purchase necessary items—food or medical services—on the parent's account.

What are the principal's duties to the agent?

compensation, reimbursement and indemnification (compensate for expenses incurred on job), cooperation, safe working conditions

Most agencies are created by contract. Thus, the general rules of contract law govern the law of agency. But agencies can also be created without contract, by agreement. Therefore, three contract principles are especially important: the first is the requirement for ___________, the second for a writing, and the third concerns contractual __________..

consideration, capacity

The general agent may be the manager of a business or may have a more limited but nevertheless ongoing role—for example, as a purchasing agent or as a life insurance agent authorized to sign up customers for the home office. An example of a general personal agent would be giving another close family/friend the ________.

power of attorney

To restrict the general agent's authority, the _____must spell out the limitations explicitly, and even so the principal may be liable for any of the agent's acts in excess of his authority.

principal

Types of Agents There are five types of agents: general agent, ????

special agent - one transaction or limited transactions subagent (In subagency, the agent bringing the buyer is actually working for the seller as a subagent of the listing broker. This is important, as the agent working with the buyer actually owes fiduciary duties to the seller, not the buyer.) servant independent contractor

Vicarious liability is not limited to harm caused in the course of an agency relationship. It may also be imposed in other areas, including torts of family members, and other torts governed by _______ or regulation

statute

Ratification

subsequent adoption and acdeptance of an act originally done without instructions or authority

Express Authority

the authority which the principal has expressely given to the agent whether written or orally. Examples: letters of introduction, work orders, signature cards at banks.

What are an agent's duties to a principal?

the fiduciary duty or duty of loyalty and a set of general duties imposed by agency law.

If the landowners realized that a major building project was about to be launched, their asking price would be quite high. So the developer obtains two options to purchase land by using two secret agents—Betty and Clem. Betty does not mention to sellers that she is an agent; therefore, to those sellers the developer is an ________ principal. Clem tells those with whom he is dealing that he is an agent but refuses to divulge the developer's name or his business interest in the land. Thus, the developer is, to the latter sellers, a __________ disclosed principal. Suppose the sellers get wind of the impending construction and want to back out of the deal. Who may enforce the contracts against them?

undisclosed, partially The developer and the agents may sue to compel transfer of title. Now suppose the developer attempts to call off the deal. Whom may the sellers sue? Both the developer and the agents are liable.

What is the difference between a disclosed, undisclosed, and partially disclosed principal? An agent need not, and frequently will not, inform the person with whom he is negotiating that he is acting on behalf of a principal. The secret principal is usually called an _______________ principal. Or the agent may tell the other person that he is acting as an agent but not disclose the principal's name, in which event the principal is "___________ disclosed."

undisclosed, partially A real estate developer known for building amusement parks wants to acquire several parcels of land to construct a new park. He wants to keep his identity secret to hold down the land cost so he may want to be undisclosed.

Shop rights doctrine

is a defense to patent infringement that may be raised by an employer when an employee sues an employer based on a patented invention that was created using the employer's resources.

Occupational Safety and Health Act (OSHA)

is a federal law that establishes and promotes workplace safety standards for businesses.

Subagent

is an agent appointed by another agent with the knowledge and consent of the principal.

It is imperative for a principal on termination of authority to notify all those who may still be in a position to deal with the agent. Apparent authority in many instances will still exist; this is called

lingering authority (even though authority has terminated, principal may be subject to liability) Exception: principal death, capacity, or event which makes it impossible.

Which circumstance would result in the termination of an agency relationship? The company the agent represented dissolved. All of the above The agent the company was in a relationship with is no longer acting in a sane manner. The principal has gone bankrupt.

ALL OF ABOVE> An agency relationship will automatically terminate upon the occurrence of certain events. Such events include death, insanity, or bankruptcy of either the principal or agent.

Which option would not result in the termination of an agency relationship? The agent has been doing business for a principal for over a year. The agent competes with the principal. The principal desires the agent to buy a second home but the principal's company goes bankrupt. The agent dies unexpectedly.

Agent has been doing business for a principal over a year: An agreement creating an agency relationship may be express or implied, and both the agent and principal may be either an individual or an entity, such as a corporation or partnership. This agreement can continue as long as the two parties agree.

agency coupled with an interest

An agency, created for the benefit of the agent, in which the agent has some legal right (interest) in the property that is the subject of the agency. Ex: Literary/author agent reimbursement depends on continuing authority as an agent.

agent

An agent is a person who acts in the name of and on behalf of another, a principal, having been given and assumed some degree of legal authority to do so. A tort is no less harmful when committed by an agent; a contract is no less binding when negotiated by an agent.

A local lawn service has been mowing the lawn for a neighbor for many years. Every year, the neighbor pays the lawn service at the end of the summer. At the end of the most recent summer season, the lawn service asks the neighbor for payment. The neighbor insists this service was unwanted and refuses to pay. The lawn service seeks the advice of an attorney, who believes payment should still be required. Under which type of authority does the attorney believe payment is required? Express Legitimate Implied Apparent

An implied contract is a legal substitute for a contract. An implied contract is an agreement created by actions of the parties involved, but it is not written or spoken. Here, based on past actions between the parties, an implied contract for the lawn services was created.

__________ authority is sometimes said to be based on the principle of estoppel. Estoppel is the doctrine that a person will not now be allowed to deny a promise or assertion she previously made where there has been detrimental reliance on that promise or assertion.

Apparent authority Estoppel: when person A, by act or words, gives person B reason to believe a certain set of facts upon which person B takes action, person A cannot later, to his (or her) benefit, deny those facts or say that his (or her) earlier act was improper. The concept of estoppel in agency law is a doctrine by which one can be estopped to deny that another person is his or her agent. The doctrine typically applies when (1) a third party believes that a person is an agent for another person through intentional conduct, carelessness, or neglect to correct the mistaken belief by the second person, (2) the third party reasonably relies on the belief that an agency relationship exists, and (3) the third party suffers a **detriment.

Implied Authority

Authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business in a reasonable necessary way. May be implied from job title....President of operations or implied from prior dealings with the company. in an emergency the agent may act in ways that would in the normal course require specific permission from the principal.

A trainer agrees to fly to another state to train a new group of employees. Her flight home is delayed due to a major storm and she must pay to stay in a hotel for two nights. What duty does the company who requested the training owe the trainer? Duty to reimburse Duty to indemnify Duty to compensate Duty to cooperate

Correct! A company must reimburse the agent or employee for expenses they incur while performing the authorized tasks and duties on behalf of the company or principal.

An employee of a flower shop has been purchasing buckets of flowers for the shop from a farmer's market weekly for almost six months. What type of authority does the flower shop employee have at the market? Implied Limited Apparent Express

Correct! An agent is given power to act on behalf of a principal, even though this is not expressly or impliedly granted. This power arises only if a third party (the market) reasonably infers from the principal's conduct that the principal (the flower shop owner) granted such power to the agent (the flower shop employee). Here the owner has not said anything approving or disapproving the actions taken. Thus, the market is presuming apparent authority.

A real estate agent representing the buyer tells the seller that the buyer would be willing to pay much more than the asking price. Which duty did the agent owe the principal in this situation? Duty to indemnify Duty of loyalty Duty to compensate Duty of skill and care

Correct! Duty of loyalty is an agent's responsibility to act at all times in the best interests of their principal. Sharing confidential information that goes against the principal's best interest breaches loyalty.

Kathy hires an attorney to file a patent on her behalf. In this scenario, the attorney's role is that of third party, principal, or agent?

Correct! The agent acts on behalf of the principle to deal with the third party. It is the principle that is bound and liable for actions of the agent.

Angela is an agent of ABC Corp., a technology company that sells subscriptions to its cloud-based software. Angela has the general title of manager, but has no express authority in her employment agreement. Angela routinely negotiates sales agreements with large companies that are clients of ABC Corp. Angela enters into an agreement with Tech LLC that is far larger than any deal Angela previously negotiated. The agreement is very poorly negotiated and will cause a huge loss for ABC Corp. In entering into the agreement with Tech LLC, Angela exceeded her authority. True False

Correct! The scope of an agent's actual authority is determined by the intention of the principal. Here, even though there is no express authority, there can be implied authority via the title of manager and her past abilities to negotiate agreements. However, this negotiation was larger than any other and an agent does owe a duty of appropriate care and skill. It would have been incumbent upon Angela to seek assistance when the negotiations started going poorly.

A publishing company recently hired Peg, an editor. Peg is required to attend a number of scheduled ongoing trainings that will teach her the procedures and methods essential to her role. The fact that the company is offering required, scheduled, and ongoing training is strong evidence that Peg is an employee rather than an independent contractor. True False .

TRUE. Training a worker on how to do the job—or periodic or ongoing training about procedures and methods—is strong evidence that the worker is an employee

Module 10: Wrap-Up An agent is one who acts on behalf of another. The law recognizes several types of agents, including the general agent, one who possesses authority to carry out a broad range of transactions in the name of and on behalf of the principal; the special agent, one with authority to act only in a specifically designated instance or set of transactions; the agent whose agency is coupled with an interest, one who has a property interest in addition to authority to act as an agent; the subagent, one appointed by an agent with authority to do so; and the servant ("employee" in modern English), one whose physical conduct is subject to control of the principal. A servant should be distinguished from an independent contractor, whose work is not subject to the control of the principal. The difference is important for purposes of taxation, workers' compensation, and liability insurance. The agency relationship is usually created by contract, and sometimes governed by the Statute of Frauds, but some agencies are created by operation of law. An agent owes his principal the highest duty of loyalty, that of a fiduciary. The agent must avoid self-dealing, preserve confidential information, perform with skill and care, conduct his personal life so as not to bring disrepute on the business for which he acts as agent, keep and render accounts, and give appropriate information to the principal. Although the principal is not the agent's fiduciary, the principal does have certain obligations toward the agent—for example, to refrain from interfering with the agent's work and to indemnify.

The employer's common-law tort liability toward his employees has been replaced by the workers' compensation system, under which the employee gives up the right to sue for damages in return for prompt payment of medical and job-loss expenses. Injuries must have been work related and the injured person must have been an employee. Courts today allow awards for psychological trauma in the absence of physical injury. The principal is liable on an agent's contract only if the agent was authorized by the principal to make the contract. Such authority is express, implied, or apparent. Express means made in words, orally or in writing; implied means the agent has authority to perform acts incidental to or reasonably necessary to carrying out the transaction for which she has express authority. Apparent authority arises where the principal gives the third party reason to believe that the agent had authority. The reasonableness of the third party's belief is based on all the circumstances—all the facts. Even if the agent has no authority, the principal may, after the fact, ratify the contract made by the agent. The principal will be liable for the employee's torts in two circumstances: if the principal was directly responsible, as in hiring a person the principal knew or should have known was incompetent or dangerous if the employee committed the tort in the scope of business for the principal This is the master-servant doctrine or respondeat superior. It imposes vicarious liability on the employer: the master (employer) will be liable if the employee was in the zone of activity creating a risk for the employer ("zone of risk" test), that is—generally—if the employee was where he was supposed to be, when he was supposed to be there, and the incident arose out of the employee's interest (however perverted) in promoting the employer's business. Special cases of vicarious liability arise in several circumstances. For example, the owner of an automobile may be liable for torts committed by one who borrows it, or if it is—even if indirectly—used for family purposes. Parents are, by statute in many states, liable for their children's torts. Similarly by statute, the sellers and employers of sellers of alcohol or adulterated or short-weight foodstuffs may be liable. The employer of one who commits a crime is not usually liable unless the employer put the employee up to the crime or knew that a crime was being committed. But some prophylactic statutes impose liability on the employer for the employee's crime—even if the employee had no intention to commit it—as a means to force the employer to prevent such actions. A person is always liable for her own torts, so an agent who commits a tort is liable; if the tort was in the scope of employment the principal is liable too. Unless the principal put the agent up to committing the tort, the agent will have to reimburse the principal. An agent is not generally liable for contracts made; the principal is liable. But the agent will be liable if he is undisclosed or partially disclosed, if the agent lacks authority or exceeds it, or, of course, if the agent entered into the contract in a personal capacity. Agencies terminate expressly or impliedly or by operation of law. An agency terminates expressly by the terms of the agreement or mutual consent, or by the principal's revocation or the agent's renunciation. An agency terminates impliedly by any number of circumstances in which it is reasonable to assume one or both of the parties would not want the relationship to continue. An agency will terminate by operation of law when one or the other party dies or becomes incompetent, or if the object of the agency becomes illegal. However, an agent may have apparent lingering authority, so the principal, upon termination of the agency, should notify those who might deal with the agent that the relationship is severed.

An architecture firm hires a landscape architect. In this scenario, the architecture firm's role is that of third party principal attorney agent .

The principal is the one who grants authority to the agent, to act on behalf of and under the control of the principal to deal with a third party

What is the purpose of the "zone of risk" test?

The realm in which the employer may be vicariously libel for an incident in which the employee (agent) was on pursuit of the employer's interest. (More or less...if employee was missing and sent out search party, should be in realm of same area/location)

Ordinarily, an individual or a company is not vicariously liable for the tortious acts of independent contractors. Except in certain circumstances.

a homeowner has a duty to ensure that physical conditions in and around the home are not unreasonably dangerous. If the owner hires an independent contracting firm to dig a sewer line and the contractor negligently fails to guard passersby against the danger of falling into an open trench, the homeowner is liable because the duty of care in this instance cannot be delegated

operation of law

a legal term that indicates a right or liability has been created for a party, irrespective of the right of that party because it is dictated by existing legal principles. EX: if a person dies without a will, his or her heirs are determined by operation of law. If a person marries after his will is executed, the spouse will be the heir.

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." Not an employee.

The key to determining whether a principal is liable for contracts made by his agent is _______: was the agent authorized to negotiate the agreement and close the deal?

authority To be liable, the principal must have authorized the agent in some manner to act in his behalf, and that authorization must be communicated to the third party by the principal.

What is a subagent? A. An agent who lives in the basement. B. The agent of an agent. C. An agent of the principal hired by another agent of the principal. D. An agent with limited agency authority.

b. lawfully appointed by another agent

Anything done by an agent within his express or implied authority ___________ the principal.

binds

A plumber salaried to a building contractor is an employee and agent of the contractor. But a plumber who hires himself out to repair pipes in people's homes is an ______________________.

independent contractor

After attending a sales conference where the message was to do whatever it takes to increase profits, a sales representative for a custom clothing company overcharges a customer for his purchases and adds purchases to the customer's orders for which the customer has not approved. Is the custom clothing company responsible to the customer for the sales representative's actions? a. No. The sales representative acted intentionally, therefore the company is not responsible. b. Yes. The company directed the sales representative to behave in a way that resulted in criminal acts. c. Yes. Liability for intentional torts is transferred to the principal if the agent is acting to further the principal's business. d. The company and the sales representative are both responsible.

c. In the agency relationship, the principal has a duty to indemnify the agent against any claims and liabilities that stem from discharging their duties assigned by the principal. Arguably, the agent was told at a sponsored conference to do whatever it takes and, thus, they bear responsibility for the actions taken against their customer.

liability for _________________ torts is transferred to the principal if the agent is acting to further the principal's business.

intentional

Vicarious Liability

in the context of the principal-agent relationship means a responsibility on the principal on the acts of the agent. This form of liability finds its basis on the common agency law principle of respondeat superior or "let the master answer," imputing the actions of the servant agent) on the master (principal).

This distinction between agent and independent contractor has important legal consequences for taxation, ____________________, and liability insurance. For example, employers are required to withhold income taxes from their employees' paychecks. But payment to an independent contractor, such as the plumber for hire, does not require such withholding. Deciding who is an independent contractor is not always easy; there is no single factor or mechanical answer.

workers' compensation

Agent's Duty to Principal: ______________ duty/Duty of ___________. Must act without _________ conflict. Duty to avoid self-_____________. Duty to preserve_______________. Duty of good ___________. Duty to keep & render ___________. Duty to act only as ______________. Duty not to attempt the _________. Duty to obey. Duty to provide ___________.

~As a fiduciary of the principal, the agent owes the principal duty of loyalty and must act without personal economic conflict. His responsibility is to subordinate his self-interest to that of his principal. ~A fiduciary may not lawfully profit from a conflict between his personal interest in a transaction and his principal's interest in that same transaction.(Broker hired as purch. agent can't sell property to his principal). Confidential information. Even if resigned, can't use trade sercrets, customer lists. ~ conduct~~A lecturer at an anti-alcohol clinic may be directed to refrain from frequenting bars. ~ accounts ~~The agent must keep accurate financial records, take receipts, and otherwise act in conformity to standard business practices. ~ authorized. (reasonableness) ~ impossible/impractable. Agent is not obligated to go without food/sleep because the principal mis. how long it would take to complete the job ~ obey; agent must obey reasonable directions. ~ agent needs to provide info to principal.