Ch 28 - Relationship of Principal & Agent - Week 5 (E2)

irrevocable powers - restatement 3rd - power given as security

"a holder of a power may sell or transfer the property of a third party"

how capacity is determined

- agent is considered the clone of principal - depends on the principal's ______but not necessarily the agents (ex: can appoint teen daughter as agent if choose to do so)

formalities of agency

- can be oral or written except when required by the statute of frauds - agency can be inferred from principal's conduct (not the agents) - can exist without consideration (gratuitous)

irrevocable powers - Restatement 2nd - agency coupled with an interest

- ex: 100% shareholder in a business - owner asks to borrow $100,000 from bank - bank may be concerned about loan with no security - bank may ask for proxy to vote shares if owner defaults and bank can take control of business by voting shares

employee vs independent contractor

- extent of control exercised by principal (stating someone is an indp contractor is not enough) - whether employed person is engaged in a distinct occupation - kind of occupation - customs of locality - skill required in the particular occupation - who supplies the instrumentalities or place for doing the work - duration of the work - whether payment is by the time or the job

fidicuiary duty of loyalty

- law will not tolerate breach - material breach of contract - damages in tort for losses caused - punitive damages - restitution of profits derived - no compensation - principal can void the contract

how to create an agency

- must be consensual and by agreement - can be gratuitous or paid - agent entitled to indeminification whether compensated or not agents assent + principals control + agents act critical that the principal has control

exceptions to formalities of agency - when statute of frauds applies

- must be written when agency cannot be performed within one year - some states require agency for sale or real estate be in writing - some apply equal dignities statue or philosophy meaning.... - if the contract the agent is making must be in writing, then the contract between the principal and agent must be writing

principal's incompetence vs agent's incompetence

- principals incompetence affects contracts agent enters into - agents incompetence does not affect contracts made for principal - agents incompetence can affect agents liability to principal and third parties -- incompetent agent may void a contract with the principal -- agent may use incompetence as a defense to a 3rd party for her own liability but not for the principal's liability

additional principal duties

- tort duties: warn agent of risks pricnipal knows or should have known - if employee: -- provide reasonable safe conditions of employment -- warn of unreasonable risks involved in employment -- liable for injury caused by negligence of other employees to agent - good faith

duties of the principal to the agent

1 - compensation 2 - reimbursement 3 - indeminification 4 - good faith (book)

duties of the agent to the principal

1 - obedience ** 2 - diligence 3 - loyalty ** 4 - good conduct (book) 5 - account (book) ** lose right to compensation if breach

covenant not to compete: options for enforcement

1. enforce entire contract as written (injunction) 2. enforce the covenant not to compete but limit it (reformation and injunction) - principal must request from the court 3. enforce contract without the covenant not to compete

4 types of POA

1. general POA 2. special POA 3. durable POA 4. springing POA not mutually exclusive - can have a general, springing POA

Question 6) Piedmont Electric Co. gave a list of delinquent accounts to Alexander, an employee, with instructions to discontinue electric service to delinquent customers. Among those listed was Todd Hatchery, which was then in the process of hatching chickens in a large, electrically heated incubator. Todd Hatchery told Alexander that it did not consider its account delinquent, but Alexander nevertheless cut the wires leading to the hatchery. Subsequently, Todd Hatchery recovered a judgment of $5,000 in an action brought against Alexander for the loss resulting from the interruption of the incubation process. Alexander has paid the judgment and brings a cause of action against Piedmont Electric Co. What may he recover? Explain.

Duties of Principal to Agent: Indemnification/Reimbursement. Judgment for Alexander. In general, a principal has an obligation to indemnify an agent whenever the agent makes a payment or incurs an expense or other loss while acting as authorized on behalf of the principal. The contract between the principal and agent may specify the extent of this duty. In the absence of any contractual provisions a principal has a duty to reimburse the agent when the agent makes a payment within the scope of the agent's actual authority. Restatement, Section 8.14 In collecting the accounts and discontinuing service Alexander was acting within his actual authority. A principal is under a duty to indemnify and reimburse his agent for expenses incurred by or resulting from authorized acts of the agent if not illegal or not known by the agent to be wrongful. Accordingly, Alexander has a right of reimbursement from Piedmont Electric Co. for $5,000.

Question 11) Sierra Pacific Industries purchased various areas of timber and six other pieces of real property, including a ten-acre parcel on which five duplexes and two single-family units were located. Sierra Pacific requested the assistance of Joseph Carter, a licensed real estate broker, in selling the nontimberland properties. It commissioned him to sell the property for an asking price of $850,000, of which Sierra Pacific would receive $800,000 and Carter would receive $50,000 as a commission. Unable to find a prospective buyer, Carter finally sold the property to his daughter and son-in-law for $850,000 and retained the $50,000 commission without informing Sierra Pacific of his relationship to the buyers. After learning of these facts, Sierra Pacific brought an action against Carter. To what relief, if any, is Sierra Pacific entitled?

Fiduciary Duty of Agent. Sierra Pacific is entitled to relief based on Carter's breach of his fiduciary duty. An agent has a duty not to deal with the principal as or on behalf of an adverse party in a transaction connected with the agency relationship. Restatement, Section 8.03. An agent also has a duty to use reasonable effort to provide the principal with facts that the agent knows, has reason to know, or should know if: (1) the agent knows, or has reason to know, that the principal would wish to have the facts; or (2) the facts are material to the agent's duties to the principal. Restatement, Section 8.11 An agent must refrain from dual representation in a transaction unless he obtains the consent of both principals after full disclosure. Under most circumstances, then, if the agent is related to the buyer in a way that suggests a reasonable possibility that the agent himself could be acquiring an interest in the property, the relationship is a material fact that must be disclosed. Therefore, Sierra Pacific may recover the $50,000 commission paid to Carter plus any actual and proximately caused loss on the price it received for the property. Sierra Pacific Industries v. Carter, 104 Cal.App.3d 579, 163 Cal.Rptr. 764 (1980).

Question 1) Parker, the owner of certain unimproved real estate in Chicago, employed Adams, a real estate agent, to sell the property for a price of $250,000 or more and agreed to pay Adams a commission of 6 percent for making a sale. Adams negotiated with Turner, who was interested in the property and willing to pay as much as $280,000 for it. Adams made an agreement with Turner that if Adams could obtain Parker's signature to a contract to sell the property to Turner for $250,000, Turner would pay Adams a bonus of $10,000. Adams prepared and Parker and Turner signed a contract for the sale of the property to Turner for $250,000. Turner refuses to pay Adams the $10,000 as promised. Parker refuses to pay Adams the 6 percent commission. In an action by Adams against Parker and Turner, what is the judgment?

Fiduciary Duty. Decision against Adams on both actions. Adams owes an overriding duty of utmost loyalty and good faith to Parker, his principal. An agent has a fiduciary duty to act loyally for the principal's benefit in all matters connected with the agency relationship. Restatement, Section 8.01. The problem presents a flagrant violation of Adams's duty in this regard when he agreed with Turner to attempt to obtain Parker's signature to a contract to sell the property to Turner for $250,000 when Turner was willing to pay $280,000 for it. Even though authorized to sell the property for $250,000 he was under a duty to obtain a higher price if possible or at least inform the principal of Turner's willingness to pay a higher price. Adams's agreement with Turner, for all practical purposes, made him the agent of Turner as well as of Parker. A disloyal agent cannot recover compensation from either party. If permitted to recover the $10,000 from Turner, he would be under the duty of a fiduciary to account for the full $10,000 to Parker. A principal is entitled to recover secret profits from a disloyal agent.

Question 2) Perry employed Alice to sell a parcel of real estate at a fixed price without knowledge that David had previously employed Alice to purchase the same property for him. Perry gave Alice no discretion as to price or terms, and Alice entered into a contract of sale with David on the exact terms authorized by Perry. After accepting a partial payment, Perry discovered that Alice was employed by David and brought an action to rescind. David resisted on the ground that Perry had suffered no damage because Alice had been given no discretion and the sale was made on the exact basis authorized by Perry. Discuss whether Perry will prevail.

Fiduciary Duty. Decision in favor of Perry. Although Alice had no discretion as to price or terms with respect to the sale of Perry's real estate she was representing two principals; she was a dual agent. In such cases, the interests of one of the principals are likely to suffer, particularly where, as in the problem, the agent represents both the buyer and the seller. Therefore, Alice has breached her fiduciary to both Perry and David. Upon discovery of the double or dual agency either of the principals may repudiate the contract made in their behalf by the common agent. If the contract has been performed, either party may have the transaction set aside. The agent is not entitled to compensation from either party. It appears that neither Perry nor David knew of the double agency. If one of the principals did not know that Alice was also the agent of the other party to the contract he has the absolute right to rescind the transaction upon learning the truth. It is not necessary for the principal to show any injury or intent to deceive.

Palmer made a valid contract with Ames under which Ames was to sell Palmer's goods on commission from January 1 to June 30. Ames made satisfactory sales up to May 15 and was about to close an unusually large order when Palmer suddenly and without notice revoked Ames's authority to sell. Can Ames continue to sell Palmer's goods during the unexpired term of her contract?

Termination of Agency: Revocation of Authority. No. A principal may revoke an agent's authority at any time by notifying the agent. Restatement, Section 3.10. If, however, such revocation constitutes a breach of contract, the agent may recover damages from the principal. Although Palmer did not have the right to terminate the agency before June 30, he had the power. Since the authority of an agent is based upon the consent of the principal, the agency is terminated upon the withdrawal of such consent. Therefore, upon Palmer's revocation of Ames's authority to sell, Ames no longer had the actual authority to sell Palmer's goods. Ames, however may sue Palmer and recover damages for breach of the agency contract.

independent contractor

a person who contracts with another to do a particular job and who is not subject to the other's control over the manner and means of conducting the work - hired to do a specific job but free to do it in whatever manner they choose - principal ordinarily not liable for contractor's torts

Power of attorney

a written agency agreement or authorization (if agency is gratuitous) - instrument that is in writing that creates the agency from principal to attorney in fact (agent)

duty of obedience - agent

act only as authorized obey all lawful directions - material breach if not (= no compensation)

duty of good conduct - agent

act reasonably avoid conduct likely to damage principals interest or reputation (including on social media) - Sports Illustrated v. Neff (school principal fired for green bay packers fan picture)

duty of diligence - agent

act with reasonable care exercise any special skill

conflict of interest

agent must act solely in the interest of the principal agent may not represent principal in a transaction where agent has an interest agent must get approval of dual agency

duty to inform - agent

agent must rely any and all info to the principal, if reasonable (that they would have reason to know or want to know) - facts are material to the agents duties to the principal notice to the agent is notice to principal by operation of law must use reasonable efforts to keep principal informed

springing agency

an agency that becomes effective upon a certain event in the future, often the principals incompetence - requires proof of the qualifiying event and creates more work - a general durable POA would be sufficient to avoid expense - not always practical

change in circumstance

an agent acts with actual authority when, at time of taking action that has legal consequence for the principal, the agent reasonably believes, in accordance to the principal's manifestations to the agent, that the principal wishes to act special circumstances: - fulfillment of promise - bankruptcy - destruction of subject matter - disloyalty - change in law * apparent authority also terminated

fiduciary duty (macccs)

an agent owes a duty of utmost loyalty and good faith to the principal, it includes... macccs 1. conflicts of interest 2. self-dealing 3. duty not to compete 4. misappropriation 5. confidential information 6. duty to account for financial benefits

duty of reimbursement - principal

authorized payments on the principals behalf authorized expenses agent incurs

duty of account - agent

cannot commingle property must provide true and complete account

fiduciary duty of loyalty - agent

cannot compete with principal cannot act on behalf of competitor owes the highest duty of loyalty (material breach if not = no compensation)

defn of agency

consensual relationship authorizing one party to act on behalf of another party (the principal) subject to the principal's control

covenant not to compete

court will enforce an injunction if reasonable as to time, place, and nessessary to protect principals interest - and supported by consideration

termination of actual authority - operation of law

death - 2nd restatement: principal dies without agent knowing = agent no longer has authority - 3rd restatement: agent has authority until notified of principals death incapacity of the principal - 2nd restatement: agent loses authority when the principal loses competence even if agent is not notified - 3rd restatement: agent loses authority when notified of the incapacity of principal change of circumstances - agents authority terminates when it can be reasonably concluded that principals assent is no longer

types of covenants not to compete

employment - length of prohibition - geographic area prohibited - 3 year outer limit sale of business - broader geographic area

Miller vs McDonalds

example of a control case - rare case where the principal is responsible for the torts of an independent contractor because there was enough control

general POA

grants broad powers to conduct all of principals business "kitchen sink" POA anything the principal can do for herself, agent can do on the principals behalf

termination of actual authority

lapse of time mutual agreement revocation of authority by principal - notify agent (if gratuitous no liability) renunciation by agent - notify principal (if gratuitous no liability)

special POA

legally special means = specific grants only limited (specific) powers ex: POA to sell your car, cannot sell anything else

duty not to compete

may not compete during agency or act for competitor may compete after the agency, unless covenant not to compete

confidential information

must keep confidence may not use or disclose trade secrets after agency (ex: bbq sauce recipe) business plans unique business methods customer lists secret recipes

agency by estoppel

no actual agency is created - __________ - court in equity prevents someone from denying that something exists steps: - principal causes 3rd party to believe that the agent has authority to act on principal's behalf - 3rd party reasonably and in good faith relies on that representation - 3rd party changes position as a result of that reliance ***principal liable to 3rd party for any loss suffered (ex: you say "im a partner" and principal is standing there but doesn't deny

account for benefits

no secret profits cannot commingle no bribes, kickbacks, or gifts principal may recover damages caused by the agents breach

self-dealing

not possible to be objective must disclose all facts voidable even if fair deal agent cannot deal at arms length with principal

employment relationship

one in which the employer has the right to control the manner and means of the employee's performance of work

duty of compensation (principal)

owed unless gratuitous reasonable value is owed

duty of indeminification - principal

repay losses of agent while acting as principal if not known by the agent to be wrongful including losses defending lawsuit

when an agent is mentally incompetent

same holds true as long as there hasn't been an adjudication of incompetence if adjudication: - there cannot be agency - any contracts made with agent are void - if principal is competent but agent had a mental disability, contracts made for competent principal are completely enforceable (capacity of principal matters) - agent can use incompetence as a defense against contract with principal

durable POA

under common law, if POA is not ____, it expires upon principals incompetence - survives principals subsequent incompetence but requires special language mandated by the state to actually be ______

whether an agency relationship has been created is determined by the objective test.....

what would an outside reasonable person think? one of the following conditions met: - principal asks agent to act and agent agrees - principals asks agent to act and agent acts