LSB 3213 Chapter 33: Agency Liability and Termination

The requirements for ratification can be summarized as follows:

1. The agent must have acted on behalf of an identified principal who subsequently ratifies the action. 2. The principal must know all of the material facts involved in the transaction. If a principal ratifies a contract without knowing all of the facts, the principal can rescind (cancel) the contract. 3. The principal must affirm the agent's act in its entirety. 4. The principal must have the legal capacity to authorize the transaction at the time the agent engages in the act and at the time the principal ratifies. The third party must also have te legal capacity to engage in the transaction. 5. The principal's affirmation (ratification) must occur before the third party withdraws from the transaction. 6. The principal must observe the same formalities when ratifying the act as would have been required to authorize it initially.

Disclosed or partially disclosed principal:

A disclosed or partially disclosed principal is liable to a third party for a contract made by the agent. If the principal is disclosed, the agent has no contractual liability for the nonperformance of the principal or the third party. If the principal is partially disclosed, in most states the agent is also treated as a party to the contract, and the third party can hold the agent liable for contractual nonperformance.

Liability for agent's misrepresentation:

A principal is exposed to tort liability whenever a third person sustains a loss due to the agent's misrepresentation. The principal's liability depends on whether the agent was actually or apparently authorized to make representations and whether the representations were made within the scope of the agency. The principal is always directly responsible for an agent's misrepresentation mad within the scope of the agent's authority.

Liability for torts and crimes:

A principal who acts through an agent may be liable for harm resulting from the principal's own negligence or recklessness (improper instructions, providing/authorizing use of improper materials or tools, or establishing improper rules that result in the agent's committing a tort).

Principal's authorization of agent's tortious conduct:

A principal who authorizes an agent to commit a tort may be liable to persons or property injured thereby. The agent acting at the principal's direction can also be liable as a tortfeasor along with the principal, even if the agent was unaware the act was wrong.

Disclosed principal:

A principal whose identity is known to a third party at the time the agent makes a contract with the third party.

Undisclosed principal:

A principal whose identity is unknown by a third person, and the third person has no knowledge that the agent is acting for a principal at the time the agent and the third person form a contract. The principal is bound to perform just as if the principal had been fully disclosed at the time the contract was made. However, the agent is liable, not the principal. The agent is entitled to be indemnified (compensated) by the principal when the agent is forced to pay the third party. The undisclosed principal can require the 3rd party to fulfill the contract, unless 1) the undisclosed principal was expressly excluded as a party in the written contract, 2) the contract is a negotiable instrument signed by the agent with no indication of signing in a representative capacity, or 3) the performance of the agent is personal to the contract, allowing the 3rd party to refuse the principal's performance.

Partially disclosed principal:

A principal whose identity is unknown by a third person, but the third person knows that the agent is or may be acting for a principal at the time the agent and the third person form a contract.

Notary public:

A public official authorized to attest to the authenticity of signatures.

e-agent:

A semi-autonomous computer program, electronic, or other automated means used to perform specific tasks without review by an individual. The same agency principles also apply to e-agents. If an e-agent doesn't provide an opportunity to prevent errors at the time of the transaction, the other party to the transaction can avoid the transaction.

Power of attorney:

A written document, which is usually notarized, authorizing another to act as one's agent can be special (permitting the agent to do specified acts only) or general (permitting the agent to transact all business for the principal).

Termination of an agency:

Agency law is similar to contract law in that both an agency and a contract may be terminated by an act of the parties of by operation of law. For an agent's apparent authority to be terminated, 3rd persons may also need to be notified that the agency has been terminated.

Termination by act of parties:

An agency relationship may be terminated by act or the parties in any of the following ways: 1) Lapse of time 2) Purpose achieved 3) Occurrence of a specific event 4) Mutual agreement 5) Termination by one party

Liability for agent's crimes:

An agent is liable for his or her own crimes. A principal or employer is not liable for an agent's or employee's crimes simply because they committed it while otherwise acting within the scope of authority or employment. An exception is when the principal/employer participated in the crime by conspiracy or action. A principal may be liable if the agent, in the course and scope of employment, violates regulations such as those governing sanitation, prices, weights, and the sale of liquor.

Employee travel time:

An employee going to and from work or to and from meals is usually considered to be outside the scope of employment. In contrast, all travel time of traveling salespersons or others whose jobs require them to travel normally is considered to be within the scope of employment for the duration of the business trip, including the return trip home, unless there is a significant departure from the employer's business.

Express authority:

Authority expressly given by one party to another. In agency law, an agent has express authority to act for a principal if both parties agree, orally or in writing, that an agency relationship exists in which the agent had the power (authority) to act in the place of, and on behalf of, the principal.

Implied authority:

Authority that is created not by an explicit oral or written agreement but by implication. In agency law, implied authority (of the agent) can be conferred by custom, inferred from the position the agent occupies, or implied by virtue of being reasonably necessary to carry out express authority.

Apparent authority:

Authority that is only apparent, not real. In agency law, a person may be deemed to have had the power to act as an agent for another party if the other party's manifestations to a third party led the third party to believe that an agency existed when, in fact, it did not.

Termination by operation of law:

Certain events terminate agency authority automatically because their occurrence makes it impossible for the agent to perform or improbable that the principal would continue to want performance: 1) Death or insanity 2) Impossibility 3) Changed circumstances 4) Bankruptcy 5) War No notice is required, termination is automatic on the happening of the event.

Agency coupled with an interest:

Created for agent's benefit instead of principal's. A principal cannot revoke an agency created for the agent's benefit.

Liability for independent contractor's torts:

Generally, and employer is not liable for physical harm caused to a third person by the negligent act of an independent contractor in the performance of the contract. This is because the employer does not have the right to control the details of an independent contractor's performance. Courts make an exception to this rule when the contract involves unusually hazardous activities, such as blasting operations, the transportation of highly volatile chemicals, or the use of poisonous gases.

The distinction between a detour and a frolic:

If a servant was on a master's business and merely took a detour, the master will be responsible. If, however, the servant was on a frolic of his own, the master will not be liable.

Liability for authorized acts:

If an agent acts within the scope of her or his authority, normally the principal is obligated to perform the contract regardless of whether the principal was disclosed, partially disclosed, or undisclosed. Whether the agent may also be held liable under the contract, however, depends on the disclosed, partially disclosed, or undisclosed status or the principal.

Unauthorized acts:

If an agent has no authority but nevertheless contracts with a third party, the principal cannot be held liable under the contract. It does not matter whether the principal was disclosed, partially disclosed, or undisclosed. The agent, however, is liable. If principal is disclosed or partially disclosed, 3rd party can hold agent liable for breaching the implied warranty of authority. If the 3rd party knows at the time of the contract that the agent has no authority, or the agent expresses uncertainty as to the extent of their authority, then the agent is not liable.

Wrongful termination:

If contract is for 1 year, cannot terminate before then. Even in an agency at will, the principal must give reasonable notice - to allow the agent to recoup his or her expenses and, in some situations, to make a normal profit.

Respondeat superior:

In Latin, "let the master respond." A doctrine under which a principal or an employer is held liable for the wrongful acts committed by agents or employees while acting within the course and scope of their agency or employment.

Equal dignity rule:

In most states, a rule stating that express authority given to an agent must be in writing if the contract to be made on behalf of the principal is required to be in writing.

Vicarious liability:

Legal responsibility placed on one person for the acts of another.

Rationale underlying the doctrine of respondeat superior:

Liability is imposed on employers because they are deemed to be in a better financial position to bear the loss.

Liability for agent's intentional torts:

Most intentional torts that employees commit have no relation to their employment; thus, their employers will not be held liable. Nevertheless, under the doctrine of respondeat superior, the employer can be held liable for intentional torts or the employee that are committed within the course and scope of employment, just as the employer is liable for negligence.

Borrowed servants :

Suppose an employer leases equipment to another employer, and sends along his employee to operate the machinery. Who is liable for injuries caused by the employee's negligent actions on the job site? Liability turns on which employer had the primary right to control the employee at the time the injuries occurred. Generally, the 1st employer is presumed to retain control over his employee. However if the rental is for a long time, the control may be deemed to pass to the 2nd employer.

Ratification:

The act of accepting and giving legal force to an obligation that previously was not enforceable. Occurs when the principal affirms, or accepts responsibility for, an agent's unauthorized act. Principal is bound when ratification occurs, as if they had authorized act from the outset. Before this, the 3rd party's agreement is an unaccepted offer, so the 3rd party can revoke it at any time, without liability, before the principal ratifies the contract. The agent, however, may be liable to the third party for misrepresenting her or his authority.

Notice of dangerous conditions:

The employer is charged with knowledge of any dangerous conditions discovered by an employee and pertinent to the employment situation. The employer is charged with knowledge of the dangerous condition, whether or not the employee actually informed the employer.

The scope of employment:

The key to determining whether a principal may be liable for the torts of an agent under the doctrine of respondeat superior is whether the torts are committed within the scope of the agency or employment. Courts consider the following factors: 1. Whether the employee's act was authorized by the employer. 2. The time, place, and purpose of the act. 3. Whether the act was one commonly performed by employees on behalf of their employers. 4. The extent to which the employer's interest was advanced by the act. 5. The extent to which the private interests of the employee were involved. 6. Whether the employer furnished the means or instrumentality (for example, a truck or a machine) by which an injury was inflicted. 7. Whether the employer had reason to know that the employee would perform the act in question. 8. Whether the act involved the commission of a serious crime.

Innocent misrepresentation:

Tort liability based on fraud requires proof that a material misstatement was made knowingly and with the intent to deceive. An agent's innocent mistakes can provide grounds for recission by a 3rd party. When a principal knows that an agent is not accurately advised of facts but does not correct either the agent's or 3rd party's impressions, the principal is directly responsible to the 3rd party for resulting damages. The principal is ALWAYS responsible for an agent's misrepresentation made within the scope of authority.

Liability for agent's negligence:

Under the doctrine of respondeat superior, the principal-employer is liable for any harm caused to a third party by an agent-employee within the scope of employment. This doctrine imposes vicarious liability, or indirect liability, on the employer. 3rd parties injured through the negligence of an employee-agent can sue either that employee or the employer, if the employee's negligent conduct occcurred while the employee was acting within the scope of employment.

Apparent implied authority:

When a principal has placed an agent in a position of apparent authority-making it possible for the agent to defraud a 3rd party-the principal may also be liable for the agent's fraudulent acts.

Notice of termination:

When an agency has been terminated by the act of the parties, it is the principal's duty to inform any third parties who know of the existence of the agency that it has been terminated. Although an agent's actual authority ends when the agency is terminated, an agent's apparent authority continues until the third party receives notice (from any source) that the authority has been terminated. If the principal knows that a 3rd party has dealt with the agent, the principal is expected to notify that person DIRECTLY. For 3rd parties who have not yet dealt with the agent, Constructive Notice is sufficient.