Ch. 15

The Agent's Relationship with the Principal

. Fiduciary Duties . Duty of Loyalty . Duty of Care

CONSTRUCTIVE NOTICE

: Notice of termination is effective when published in a newspaper of general circulation in the area where the Agent conducted business on behalf of the Principal. Constructive notice is effective except when Actual Notice is required.

Actual Agency Creation

Actual Agency Creation • "Any person having capacity to contract may appoint an agent, and any person may be an agent" • "An agency is either ACTUAL or OSTENSIBLE" • ACTUAL AGENCY is created by a contract between the principal and the agent • Equal Dignities Rule - If statute of frauds is in effect ant the contract is in writing than the agency contract has to be in writing also. (real estate) • Powers of Attorney (General or Special) o MUST be in writing. o Signature MUST be notarized

ACTUAL NOTICE

Must be given to third parties where the third party had previously done business with the Agent on behalf of the Principal or where the Principal knows the Agent had begun to negotiate on behalf of the Principal with the third party. (Ostensible Authority).

• INDEPENDENT CONTRACTORS

are hired to do a job and work "independently" - not under the direction and control of the employer as to the details of how the work is accomplished. An INDEPENDENT CONTRACTOR may be an AGENT. The most significant factor in determining whether a person is an employee is the right to control the details of how the job is done, even if the right to control is not being exercised.

• EMPLOYEES

work for the employer - they may be AGENTS of the employer, though not necessarily or always so.

• AGENTS

work for the employer and can contract on behalf of the principal, to the extent they are authorized to do so.

. Contracts: Undisclosed Principal

• A Principal is an UNDISCLOSED PRINCIPAL when the Agent is retained to carry out the undisclosed Principal's directions and the third party is not made aware of the existence of a principal. The third party believes that the contract is with the Agent. • In the event of a breach of contract: • The agent is liable to the third party as the contracting party. If the undisclosed principal is identified, the third party may seek to hold the agent or the undisclosed principal liable. Election of remedies is required. • If the third party breaches the contract, the agent may sue for breach, or the principal may be disclosed and sue for the breach.

. Principal's Liability For Torts of The Agent Vicarious Liability Wrongful (intentional) Acts of the Agent - Principal Liability

• A Principal is liable for wrongful (intentional) acts committed by an Agent (employee or independent contractor) transacting business for the Principal when the principal authorized or ratified those acts • Ratification occurs when the Principal discovers the wrongful act after it occurred and failed to take corrective action or adopts the actions. • Fraud - includes potential liability for punitive damages.

. Actual Authority

• ACTUAL AUTHORITY - is that which the principal expressly gives the agent, or intentionally or by want of ordinary care, allows the agent to believe the agent has [Civil Code § 2316] • Powers of Attorney • Corporate Resolutions

. Liability to Third Parties: Notice of Termination

• ACTUAL NOTICE • CONSTRUCTIVE NOTICE

Ostensible Agency

• Agency can be created without intent to do so by actions or omissions of the ostensible principal. • OSTENSIBLE AGENCY is created by actions, or inactions, of the principal that cause a third person to believe another to be the agent of the principal when that is not the case

Termination the Agency By The Principal

• Agency can be terminated by revocation by the Principal at any time or the death or incapacity of the Principal. • A contract will be binding on the Principal if a bona fide transaction was entered into through the Agent by a third person acting without knowledge of the revocation, death or incapacity of the Principal

Agency Law Generally

• Agency law allows people and entities to conduct business through third parties (AGENTS). • Agency is an area of contract law - but agents and principals also have tort liability to each other and third parties arising from the Agency relationship o SPECIAL AGENTS are agents for a limited and defined act or transaction. o GENERAL AGENTS are all agents which are not special agents.

. Fiduciary Duties

• An Agent owes the highest degree of diligence and loyal service to the Principal (fiduciary duties). • The Agent must put the interests of the Principal ahead of the interests of others, including their own.

. Agency by Ratification

• An agency can be created by RATIFICATION • RATIFICATION takes place when the principal accepts the benefits of a transaction done by a person who is not the agent for the principal (accepting tv bought under your name by someone else)

Duty of Loyalty

• An agent must be loyal to the principal at all times. Usually, this means obedience, accounting, and notification of all material information. • (Note: A principal is deemed to have knowledge of I information known to the agent which in the ordinary course would be communicated (and vise versa). • Any secret profit or gifts that an agent acquires as a result of the agency can be recovered by the principal, unless they agree otherwise. • An agent cannot place his or her personal interest ahead of the principal's interest. • An agent must make full and complete accounting of agency affairs if requested by the principal

Duty of Care

• An agent owes a DUTY OF CARE to the principal. That DUTY OF CARE requires the agent to follow the instructions of the principal and to use reasonable care and skill in performance of the job of the agency. • Poile v Stockton Merchants Assn. (Did not exercise due care on collecting on claim) • However, if it is clearly in the best interest of the principal to deviate and there is no time to communicate with the principal for instructions, under some circumstances, the agent may deviate without liability. Obviously, an agent may also refuse to participate in tortious or illegal activities.

When agent is liable or not liable under contract that he made.

• CONTRACTS: Authorized contracts entered by an Agent on behalf of a Principal: The Agent is not a party to that contract and is not liable if the contract is breached. • AGENT LIABLE for contract: o Warranty of authority: When the agent purports to act for the principal, the agent gives a warranty of authority to the third party. Agent is liable if acting in excess of authority!!! o Failure to sign as agent for Principal: o Failure to sign as agent for Principal: o Otis Elevator v B. S. Berry (text pg. 492) - no parole evidence is admissible to show agency. (Parole Evidence Rule). o TORTS: An agent or employee is always liable for his or her own torts - BUT not the torts of the disclosed principal.

Principal Liability for Torts of Independent Contractors No Vicarious Liability for Independent Contractors

• Generally there is no liability of the Principal for acts of the Independent Contractor. • Determining whether one is an Employee or Independent Contractor focuses upon the degree of control the alleged Employer had over the work of the Employee / Independent Contractor. • Exception: When the Principal was negligent in checking the qualifications of the independent contractor and the independent contractor is not competent or has a history of careless acts. (NEGLIGENT HIRING). • Exception: When the work contracted for is INHERENTLY DANGEROUS.

. Contract: Ostensible Authority

• OSTENSIBLE AUTHORITY of the agent, like ostensible agency, comes from acts or statements made by the principal causing a third person to believe that the agent has authority to act on behalf of the principal. • - Ostensible Partnerships ( A bunch of lawyers all in one office with all the names on the door.) • The Principal is liable for performing the contract if the third person changed his or her position in reliance upon the ostensible authority of an agent. • Ostensible authority is sometimes referred to as implied authority.

Ratification of Unauthorized Acts

• RATIFICATION occurs when the Principal agrees to be liable for performance of an agreement by knowingly accepting the benefits of the unauthorized transaction of another. • Ratification requires that the principal be aware of all material facts related to the unauthorized act before ratifying the unauthorized act. • Absent complete information, the principal's ratification may be rescinded and the transaction rescinded.

Principal Liability: Respondeat Superior

• The DOCTRINE OF RESPONDEAT SUPERIOR holds the principal liable for the torts of employees • Requirements: • -- The Agent is an employee (not an Independent Contractor) • -- The employee's act is inherent in, typical of, or created by the work such that it is a foreseeable risk of the employment. • • Employee Carelessness: Was employee in the Course and Scope of employment. • Employee Assaults: Course and Scope? • Fraud: Course and Scope? Authorized? Ratified?

Duties of Principal to Agent

• The primary duties owed by a principal to an agent are established by the contract creating the agency relationship. • The principal must indemnify (reimburse) the agent for costs and expenses incurred in performing the duties of the agency • IF the agent is also an employee, the employer (principal) is obligated to the employee (agent) under the Labor Code, including defense and indemnity for claims. Liable for any judgment against employee - a dropped hammer.