Chapter 19

termination of contract by operation of law

1. death 2. incapacity 3. change in circumstance

acts of the parties

1.) Lapse of time 2.) Mutual Agreement of the Parties 3.) Revocation of Authority- principal revoke agents authority 4.) Renunciation by the Agent- agent renounce authority given

contractual duties- compensation

common example is a listing agreement between a seller and a real estate broker providing for a commission to the broker if he finds a buyer ready, willing, and able to buy the property on the terms specified in the agreement. A principal also has a duty to maintain and provide to the agent a true and complete account of the money or property due to her.

A(n) __________ is a written instrument that expresses the principal's intention that the agent's authority will not be affected by the principal's subsequent incapacity or that the agent's authority will become effective upon the principal's subsequent authority.

durable power of attorney

Who are the three entities involved in agencies?

the principal, the agent, and a third person who deals with the agent the agent acts on behalf of the principal

formalities of a contract

usually the contract is expressed or inferred; but in some cases for a period more than a year it must be in writing

A principal has a duty to compensate his or her agent if:

the agent rendered authorized services.

agency relationship

the fiduciary relationship that arises when one person (a 'principal') manifests assent to another person (an 'agent') that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents so to act.

For Example

For example, A, an agent of P who desires to purchase land, agrees with C, who represents B, a seller of land, that A and C will endeavor to effect a transaction between their principals and will pool their commissions. A and C have committed a breach of fiduciary duty to P and B.

capacity

Any person able to act, including individuals, corporations, partnerships, and other associations, ordinarily has the capacity to act as an agent

gratuitous agency

An agency created without an agent's right to compensation

Duty not to compete

An agent cannot compete with his principal or otherwise act on behalf of a competitor.

If the agent is authorized to sell certain property of her principal for $1,000 and sells it for $1,500. Which of the following is the best description of her violation if she keeps the money?

An agent has a duty not to acquire any financial or material benefits in connection with transactions conducted on behalf of the principal.

Duty to Account for Financial Benefits

An agent has a duty not to acquire any financial or other material benefits in connection with transactions conducted on behalf of the principal. ex. an agent cannot profit from bribes, gifts

self-dealing

An agent has a duty not to deal with the principal as an adverse party in a transaction connected with the agency relationship

Misappropriation

An agent may not use property of the principal for the agent's own purposes or for the benefit of a third party.

duty of agent to principal

Fiduciary Duty- a person in a position of trust and confidence. 1. obedience 2. good conduct 3. diligence 4. loyalty 5. duty to inform 6. duty to provide an accounting

Which of the following is a major duty, which the agent owes to the principal?

Duty to act in good faith and with loyalty.

For Example

For example, Penny employs Albert to purchase for her a site suitable for a shopping center. Albert owns such a site and sells it to Penny at the fair market value but does not disclose to Penny that he had owned the land. Penny may rescind the transaction even though Albert did not make a misrepresentation. ex. purchasing land for Disney that your real estate agent owns

irrevocable powers (agency coupled with an interest)

For example, an agency coupled with an interest would arise in cases in which an agent has advanced funds on behalf of the principal and the agent's power to act is given as security for the loan.

For Example 1

Howard, a painter, contracts to paint a portrait of Doris. But Howard has one of his students execute the painting and tenders it to Doris. This is not a valid tender because the duty to paint Doris's portrait is not delegable.

For example 3

Patti asks her friend Andrew to return for credit goods recently purchased from a store. If Andrew consents, a gratuitous agency has been created.

For Example 2

Paula writes to Austin, a factor whose business is purchasing goods for others, telling him to select described goods and ship them at once to Paula. Before answering Paula's letter, Austin does as directed, charging the goods to Paula. He is authorized to do this because an agency relationship exists between Paula and Austin.

For Example

Peg appoints Alvin as her agent to sell goods in markets where the highest price can be obtained. Although by carefully obtaining information he could have obtained a higher price in a nearby market, Alvin sells goods in a glutted market, receiving only a low price. Consequently, he is liable to Peg for breach of the duty of diligence.

Which of the following will terminate a valid durable power of attorney after the principal is incapacitated?

The death of the principal.

irrevocable powers (power given as security)

To illustrate: Pillsbury owns Blackacre, which is situated next to Whiteacre, on which Pillsbury operates a restaurant. To finance renovations and expansions, Pillsbury borrows money from Ashton. A written agreement between Pillsbury and Ashton provides that Ashton shall irrevocably have Pillsbury's authority to transfer ownership of Blackacre to Ashton in the event Pillsbury defaults on the loan. Ashton has a power given as security

Wilma wishes to hire an agent. Though she believes that she can trust someone, based upon their reputation, she wants to know what the legal obligations are of an agent as a fiduciary. Which of the following is a legal obligation a fiduciary owes to the principal?

a. Good faith and utmost loyalty to the principal.

Is the agent subject to liability to her principal for breach of the duty of obedience if she sells the principal's product on credit in violation of explicit instructions?

Yes, and she is liable to the principal for any amounts that the purchaser doesn't pay.

power of attorney

a legal document authorizing someone to act on your behalf; formal appointment of an agent

Fred is Wilma's agent. Wilma is in the cake baking business. Without Wilma's knowledge, Fred began going to different civic events and publicly, yet falsely, criticizing the quality of cakes produced by Wilma's competitors. Several attendees at the events remarked that they would never shop in Wilma's business again due to Fred's behavior. Which duty has Fred violated?

a. Duty of Good Conduct

Baxter agrees with Morry to enter into the management of a new apartment building. Morry appoints Baxter as his manager for one year. During the course of the construction, Baxter decides to use funds specified for the construction of a garage that Baxter alone has been interested in completing. Morry is very angry on learning of Baxters' actions and terminates the agency. Baxter insists that the agency cannot be terminated in this manner. Is Baxter correct?

a. Morry has the power to terminate the agency.

Barney is Betty's gratuitous agent. One day, Barney tells Betty: "I'm through with you. I'm no longer your agent." After the statement, is Barney Betty's agent?

a. No, Barney, as Betty's agent, renounced his agency and ended the relationship.

George holds a valid durable power of attorney for his father, who is incapacitated. Which of the following events will terminate the durable power of attorney.

a. The death of his father.

confidential information

agents can neither disclose nor use for their own benefit any confidential information they acquire during their agency ex. if your agency is committing a crime though, you can report anonymous/protected= whistle blow

Business, therefore, is conducted largely not by owners themselves but by their ____________________.

agents or representatives

independent contractors

although the principal has the right of control over the agent, the principal does not control the manner and means of the agent's performance ex. Uber drivers, auctioneers, brokers

duty of obedience

an agent must act in the principal's affairs only as actually authorized by the principal and must obey all lawful instructions and directions of the principal

duty of diligence

an agent must act with reasonable care, competence, and diligence in performing the work for which he is employed

duty to account

an agent must maintain and provide the principal with an accurate account of money or other property that the agent has received or expended on behalf of the principal; an agent must not mingle the principal's property with any other person's property

duty to inform

an agent must use reasonable efforts to give the principal information material to the affairs entrusted to her

Fiduciary Duty

an agent owes a duty of utmost loyalty and good faith to the principal, includes: -conflicts of interest -self dealing -duty not to compete -misappropriation -confidential information -duty to account for financial benefits

3 basic elements of an agency

assent, control by the principal, and the agent's acting on behalf of the principal

A power of attorney is a formal manifestation that states an agent's authority. The agent is known as the:

attorney in fact

Belle was seriously ill and feared that she might lapse into a coma or somehow become unable to speak or act for herself in her medical emergency. She is aware that agents ordinarily lose their authority to act for principals who become mentally disabled. She nevertheless desires to have her husband Alan make medical decisions and speak on her behalf. She is particularly concerned about existing on life support in a persistent and incurable vegetative state. Is there any action that she might take to enable Alan to act for her?

b. Belle can sign a durable power of attorney with specific power to make decisions on her behalf.

Wilma employs Fred to purchase her a site suitable for her new cake business. Fred owns the perfect location and sells it to Wilma for a fair price, but does not tell Wilma that he had own the land. Which statement is correct?

b. Fred has violated his duty not to self-deal with Wilma.

The owner of a business with a buyer terminates an agency without giving notice of the termination to vendors who have dealt with the agent. Is it reasonable for the vendors to expect that the agent still has the authority to make contracts that will bind the business?

b. The vendors are reasonable in doing business with the agent until they are notified of the termination of the agency.

A case in the chapter, Gaddy v. Douglass, brought what issue before the court?

c. Whether a principal can revoke a valid durable power of attorney after she loses contractual capacity.

An agent's authority can terminate by:

c. both acts of the parties and by operation of law.

The issue before the court in the Miller v. McDonald's Corporation case, was:

c. whether McDonald's was vicariously liable for injuries caused at a franchised restaurant (operated by 3K).

Agency is a consensual relationship that the principal and agent may form by:

contract or agreement

Fred is Wilma's agent. Fred has violated his fiduciary duty to Wilma, and Wilma sues him. What type of action may Wilma bring against Fred, depending on the facts of the breach?

d. All of these answers are correct.

When the court ruled on Detroit Lions, Inc. v. Argovitz what issue did the court address?

d. The court examined whether Argovitz, as an agent for Sims, violated his fiduciary duty to Sims in contract negotiations.

Mary is Eddie's principal. When does Mary owe Eddie a duty of compensation?

d. When Eddie renders authorized services.

contractual duties- indemnification/ reimbursement

indemnify- compensate an agent for a loss incurred while acting on behalf of a principal reimburse- principal pay back to the agent authorized payment the agent made for the principal

Agency by Estoppel

is an agency relationship that is created because the principal's action caused a third party to believe that an agency relationship exists.

employment relationship

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

qui facit per alium, facit per se

one who does something through another does it by himself describes principal and agent

Each _________ is an agent of the partnership and, as such, has the authority to represent and bind the partnership in all usual transactions of the partnership.

partner

The ________ has a right to control the actions of the agent.

principal

All of the following are contractual duties owed by a principal to an agent, except:

self-dealing.

scope of agency

whatever business activity a person may accomplish personally he generally may do through an agent

duty of good conduct

within the scope of the agency relationship, an agent must act reasonably and refrain from conduct that is likely to damage the principal's interests