CHAPTER 29: AGENCY FORMATION AND TERMINATION

Agency by Ratification occurs when

1. a person misrepresents himself as another's agent when in fact he is not 2. the purported/alleged principal ratifies (accepts) the unauthorized act => in such cases, the principal is bound to perform

Principal's => Duty to Reimburse unless otherwise agreed, the principal owes a duty to reimburse the agent for all such expenses if they are:

1. authorized by the principal 2. within the scope of the agency and 3. necessary to discharge the agent's duties in carrying out the agency ex. a principal must reimburse an agent for authorized business trips taken on the principal's behalf

a principal has a right to demand an accounting from the agent at any time, and the agent owes a legal duty to make the accounting => this duty also requires the agent to

1. maintain a separate account for the principal 2. use the principal's property in an authorized manner

Agent's Duty to Perform

1. performing the lawful duties expressed in the contract 2. meeting the standards of reasonable care, skill, and diligence implicit in all contracts

Termination of Agency by Operation of Law

1. the death of either the principal or the agent 2. insanity of either the principal or the agent 3. bankruptcy of the principal 4. outbreak of a war between the principal's country and the agent's country

Termination of an Agency by Act of the Parties => an agency can be terminated by the following acts:

1. the mutual assent of the parties; both parties' voluntary agreement to terminate 2. if a stated time has lapsed 3. if a specified purpose is achieved => if a homeowner hires a real estate broker to sell the owner's house within 6 months and the house sells after 3 months, the agency terminates on the sale of the house 4. occurrence of a stated event => if a principal employs an agent to take care of her dog until she returns from a trip, the agency terminates when the principal returns from the trip

Agency is governed by a large body of common law known as

Agency Law

ex. of Principal's Duty to Indemnify

An agent enters an authorized contract with a third party on the principal's behalf, the principal fails to perform on the contract, and the third party recovers a judgment against the agent. The agent can recover indemnification of this amount from the principal.

Principal owes certain duties to an agent and independent contractor:

Duty to Compensate Contingency Fee Duty to Reimburse Duty to Indemnify Duty to Cooperate

an Agency and the resulting Authority of an Agent can arise in the following Four Ways:

Express Agency Implied Agency Apparent Agency Agency by Ratification

ex. of Apparent Agency

Georgia Pacific, Inc., interviews Albert Iorio for a sales representative position. Iorio, accompanied by Jane Franklin, the national sales manager, visits retail stores located in the open sales territory. While visiting one store, Franklin tells the store manager, "I wish I had more sales reps like Albert." Nevertheless, Iorio is not hired. If Iorio later enters into contracts with the store on behalf of Georgia Pacific and Franklin has not controverted the impression of Iorio that she left with the store manager, the company will be bound to the contract.

ex. of Agency by Ratification Bill Levine sees a house for sale and thinks his friend Sherry Maxwell would want to buy it. Bill enters into a contract to purchase the house from the seller and signs the contract "Bill Levine, agent for Sherry Maxwell." Because Bill is not Sherry Maxwell's agent, she is not bound to the contract.

If Sherry agrees to purchase the house, however, there is an agency by ratification. On ratification of the contract, Sherry Maxwell is obligated to purchase the house.

Bosse v. Brinker Restaurant Corporation, d.b.a. Chili's Grill and Bar

The evidence is insufficient to create a genuine issue whether Chili's appointed or authorized the patron to act as a posse to conduct the chase. No information indicates any preliminary communication between the patron and restaurant manager. No member of Chili's house staff joined in the pursuit. => the superior court held that the restaurant patron who engaged in the chase in which the plaintiffs were injured was not the agent of Chili's restaurant

Section 1(1) of the Restatement (Second) of Agency defines agency as:

a fiduciary relationship "which results from the manifestation of consent by one person to another that the other shall act in his behalf and subject to his control, and consent by the other so to act" => the Restatement (Second) of Agency is the reference source for the rules of agency law in this chapter

Two kinds of Powers of Attorney => 1. General Power of Attorney

a general power of attorney confers broad powers on the agent to act in any matters on the principal's behalf

ex. of an Implied Agency

a homeowner employs a real estate broker to sell his house. a water pipe breaks and begins to leak water into the house. if the homeowner cannot be contacted, the real estate broker has implied authority to hire a plumber to repair the pipe to stop the water leak => the homeowner is responsible for paying for the leak

Notice of Termination

a notice that must be given by a principal that notifies third parties that person is no longer his agent; failure to give such notice may make the principal liable for the prior agent's acts under the doctrine of Apparent Agency

ex. of Special Power of Attorney

a person who has her house listed for sale but who is going on a trip gives her sister a special power of attorney to make decisions regarding the selling of her house while she is gone, including accepting offers to sell the house and signing documents and deeds necessary to sell the house

ex. of General Power of Attorney

a person who is going on a long trip gives a general power of attorney to his brother to make all decisions on his behalf while he is gone; this includes the power to purchase or sell stocks or real estate, pursue or defend lawsuits, and to make all other relevant decisions

a party who employs another person to act on his behalf is called

a principal

Express Agency occurs when

a principal and an agent expressly agree to enter into an agency agreement with each other;

Apparent Agency (or agency by estoppel) arises when

a principal creates the appearance of an agency that in actuality does not exist; => where an apparent agency is established, the principal is estopped (stopped) from denying the agency relationship and is bound to contracts entered into by the apparent agent while acting within the scope of the apparent agency => principal's actions, not the agent's, create an apparent agency

Termination of an Agency by an Unusual Change in Circumstances

a situation where an agency terminates because an unusual change in circumstances has occurred that would lead the agent to believe that the principal's original instructions should no longer be valid

ex. of an employer-employee relationship

a welder on GM Corporation's automobile assembly line is employed to perform a physical task but is not given authority to enter contracts

an agency can be created only to

accomplish a lawful purpose; agency contracts that are created for illegal purposes or are against public policy are void and unenforceable

an agency contract can be terminated by

an act of the parties an unusual change of circumstances by impossibility of performance by operation of law

a party who agrees to act on behalf of another is called

an agent

Agent's Duty to Account (sometimes called the duty of accountability)

an agent owes a duty to maintain an accurate accounting of all transactions undertaken on the principal's behalf

a Principal-Agent Relationship is formed when

an employer hires an employee and gives that employee authority to act and enter contracts on the employer's behalf => the extent of this authority is governed by any Express Agreement between the parties and implied from the circumstances of the agency

an Employer-Employee Relationship exists when

an employer hires an employee to perform some form of physical service, but does not give that person agency authority to enter into contracts

Power of Attorney

an express agency agreement that is often used to give an agent the power to sign legal documents on behalf of the principal => must be written and also be notarized => one of the most formal types of express agency agreements

ex. of Termination of an Agency by an Unusual Change in Circumstances

an owner of a farm employs a real estate agent to sell the farm for 1 million. the agent thereafter learns that oil has been discovered on the property, a discovery that makes the land worth 5 million => the agency terminates because of this change in circumstances

some agents are independent contractors who

are employed by a principal to conduct limited activities for the principal => ex. attorney who is hired to represent a client and a real estate broker who is employed by an owner to sell the owner's house

Express Agency Contracts can

be either oral, or written unless the SoF stipulates that they must be written => in most states, a real estate broker's contract to sell real estate must be in writing

any property, money, or other benefit received by the agent in the course of an agency

belongs to the principal => if an agent breaches the agency contract, the principal can sue the agent to recover damages caused by the breach

Two kinds of Powers of Attorney => 2. Special Power of Attorney

confers limited powers on an agent to act on behalf of a principal => restricted to perform those powers enumerated by the agreement => (Limited Power of Attorney)

ex. of Independent Contractors

doctors, dentists, consultants, stockbrokers, architects, certified public accountants, real estate brokers, and plumbers

Principal's => Duty to Indemnify

duty to indemnify the agent for any losses the agent suffers because of the principal's conduct => usually arises when an agent is held liable for the principal's misconduct

Agent's Duty to Notify

duty to notify the principal of important information concerning the agency => the agent is liable to the principal for any injuries resulting from a breach of this duty

a principal can authorize an independent contractor to

enter into contracts; => principals are bound by the authorized contracts of their independent contractors ex. if a client authorizes an attorney to settle a case within a certain dollar amount and the attorney does so, the settlement agreement is binding

Smith v. Delta Tau Delta, Inc.

for a liability of an agent to be imputed to a principal , an agency relationship must exist. the national frat has no right to direct or control a local frat member's personal actions and behavioral choice. We conclude as a matter of law that an agency relationship does not exist between the national fraternity and the local fraternity or its members. The local fraternity and its members were not acting on behalf of the national fraternity and were not subject to its control. The national fraternity is not subject to vicarious liability for the actions of the local fraternity, its officers, or its members. => the Supreme Court of Indiana concluded that an agency relationship did not exist between the national frat and the local frat and its members

any person who has the capacity to contract can appoint an agent to act on his behalf;

generally persons who lack contractual capacity, such as insane persons and minors, cannot appoint agents

information learned by an agent in the course of an agency is

imputed to the principal; the legal rule of imputed knowledge means that the principal is assumed to know what the agent knows => this is so even if the agent does not tell the principal certain relevant information

Agent's Duty to Account includes

keeping records of all property and money received and expended during the course of the agency

an agent who does not perform his express duties or fails to use the standard degree of care, skill, or diligence is

liable to the principals for damages

Termination of an Agency by Impossibility of Performance

loss or destruction of the subject matter of the agency => horse dies the loss of a required qualification => revoked real estate license a change in the law => law passed that makes trapping alligators illegal

Agency relationships are formed by the

mutual consent of a principal and an agent

Principal's => Duty to Compensate

principal owes a duty to compensate an agent for services provided; usually, the agency contract, (whether written or oral), specifies the compensation to be paid => must pay this amount either on the completion of the agency or at some other mutually agreeable time

a principal can make a power of attorney a Durable Power of Attorney, which

remains effective even though the principal is incapacitated

examples of agency relationships

salesperson who sells goods for a store executive who works for a corporation partner who acts on behalf of a partnership

normally, an agent is required to render the

same standard of care, skill, and diligence that a fictitious reasonable agent in the same occupation would render in the same locality and under the same circumstances => a brain surgeon would be held to the standard of a reasonable brain surgeon

generally, a principal is not obliged to give notice of termination to

strangers who have no knowledge of the agency; constructive notice is valid against strangers who assert claims of apparent agency

Attorney-in-fact is

the agent named in power of attorney; this agent does not have to be a lawyer

if there is no agreement about the amount of compensation,

the law implies a promise that a principal will pay the agent the customary fee paid in the industry => if the compensation cannot be established by custom, the principal owes a duty to pay the reasonable value of the agent's services

an Agency and the resulting Authority of an Agent can arise in the following Four Ways: => Express Agency

the most common form; the agent has the authority to contract or otherwise act on the principal's behalf, as expressly stated in the agency agreement

ex. of the extent of authority in a principal-agent relationship

the president of a corporation usually has the authority to enter into major contracts on the corporation's behalf, and a supervisor on the corporation's assembly line may have authority only to purchase the suppliers necessary to keep the line running

if an agency is not an exclusive agency,

the principal can employ more than one agent to try to accomplish a stated purpose

if a principal and an agent enter into an Exclusive Agency Contract,

the principal cannot employ any agent other than the exclusive agent; => if the principal does so, the exclusive agent can recover damages from the principal

although the employee in an employer-employee relationship may not have contracting authority,

the principal is still liable for tortious conduct of its employees committed while acting within the Scope of Their Employment

ex. of Wrongful Termination

the principal unilaterally terminating the agency; the agent can no longer act on behalf of the principal; because the principal did not have the right to terminate the contract, the agent can sue him and recover damages (ex. lost commissions) for wrongful termination

Principal-Independent Contractor Relationshio

the relationship between a principal and and independent contractor who is not an employee of the principal but has been employed by the principal to perform a certain task on behalf of the principal => "outsiders" who operate their own business or profession

Wrongful Termination

the termination of an agency contract, in violation of the terms of the agency contract; in this situation, the nonbreaching party may recover damages from the breaching party

if an agency terminates by operation of law,

there is no duty to notify third parties about the termination

in many situations, principal and an agent do not expressly create an agency; instead, agency is implied from the conduct of the parties

this is referred to as an Implied Agency, where the extent of the agent's authority is determined from the facts and circumstances of the situation

Direct Notice of Termination

to all persons with whom the agent dealt; the notice may be oral or written unless required to be in writing

Constructive Notice of Termination

to any third party who has knowledge of the agency but with whom the agent has not dealt => given by publishing the information in a newspaper of general circulation

the court can appoint legal guardians or other representatives

to handle the affairs of insane persons, minors, and others who lack capacity to contract => with court approval, these reps can enter into enforceable contracts on behalf of the persons they represent

Principal's => Contingency Fee

under this type of arrangement, the principal owes a duty to pay the agent an agree-don contingency fee only if the agency is completed => real estate brokers, finders, lawyers, and sales persons often work on a contingency-fee basis

Principal's => Duty to Cooperate

unless otherwise agreed, the principal owes a duty to cooperate and assist the agent in the performance of the agent's duties and the accomplishment of the agency ex. one .who employs a real estate agent to sell a house owes a duty to allow the agent to show the house to prospective buyers during reasonable hours

some agency relationships are prohibited by law =>

unlicensed agents cannot be hired to perform the duties of certain licensed professionals (ex. doctors/lawyers) a principal cannot hire an agent to kill another person