Business Law Final - AGENCY

Agency Restatement

-"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." -A person can manifest assent or intention through written or spoken words or other conduct. (objective test). -The principal has the right to control the conduct of the agent with respect to the matters entrusted to the agent. -Relationship may exist without consideration. -Benefits derived from an agent's breach of fiduciary duty may be recovered from a 3rd party who acquire such benefits with notice of the agent's breach of her fiduciary duty.

Contract Liability of Agent - Nonexistent/Incompetent Principal

-A person who purports to act as agent for a principal whom the agent knows to be nonexistent or completely incompetent is personally liable on a contract entered into with a 3rd party on behalf of such a principal

Unauthorized Acts of Agent - Direct Liability

-A principal is liable for failing to exercise reasonable care in employing agents whose unauthorized acts cause harm. LIABLE IF HE NEGLIGENTLY: (1) selects agents (negligent hiring) (2) retains agents (3) trains agents (4) supervises agents (5) otherwise controls agents

Agent Acts with Apparent Authority - Vicarious Liability

-A principal is liable for torts committed by an agent in dealing with 3rd parties while acting within the agent's apparent authority -This liability applies to agents (whether or not they're employees) and agents who ARE employees but whose tortious conduct isn't within the scope of employment under respondeat superior. TORTS: -fraudulent/negligent misrepresentations -defamation -wrongful institution of legal proceedings conversion of property

Authorized Act of Agent - Direct Liability

-A principal is liable for torts that she authorizes another to commit or that she ratifies

Torts of Independent Contractor

-A principal is usually not liable for the unauthorized torts of an independent contractor -respondeat superior doesn't apply -Principal may be DIRECTLY liable if she fails to exercise reasonable care in selecting an independent contractor. -Principal may be VICARIOUSLY liable for torts committed by a carefully selected contractor (i.e. some duties cant be escaped by a person when they entrust them to someone else) -dangerous conditions on premises -IC carries on with abnormally dangerous activity

Revocation of Authority

-A principal may revoke an agent's authority at any time by notifying the agent. But if such revocation constitutes a breach of contract by the principal, the agent may recover damages from the principal. Nonetheless, when the agent has seriously breached the agency contract, has willfully disobeyed, or has violated the fiduciary duty, the principal is not liable for terminating the agency relationship.

Compensation

-A principal must compensate the agent as specified in the contract, or for the reasonable value of the services provided, if no amount is specified -An agent loses the right to compensation by: 1) breaching the duty of obedience, 2) breaching the duty of loyalty, or 3) willfully and deliberately breaching the agency contract.

Express Authority

-Actual authority derived from written or spoken words of principal communicated to agent

Implied Authority

-Actual authority inferred from words or conduct manifested to agent by principal

Tort Liability of Agent

-Agent is liable to the 3rd party for his own torts

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. -Such benefits would include bribes, kickbacks, and 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. -The agent's loyalty must be undivided, and he must devote his actions exclusively to the representation and promotion of his principal's interests.

Confidential Information

-An agent may not use or disclose confidential information obtained in the course of the agency for her own benefit or the benefit of a third party. -Confidential information is information that, if disclosed, would harm the principal's business or that has value because it is not generally known.

Misappropriation

-An agent may not use property of the principal for the agent's own purposes or for the benefit of a third party. -Unless the principal consents, an agent who has possession of the principal's property has a duty to use it only on the principal's behalf even if the agent's use of the property does not cause harm to the principal. -An agent is liable to the principal for any profit the agent made while using the principal's property or for the value of the agent's use of the principal's property.

Duty of Obedience

-An agent must act in the principal's affairs only as authorized by the principal and must obey all lawful instructions and directions of the principal. -Subject to for breach of the duty of obedience: -If she entered into an unauthorized contract for which her principal is now liable, -If she has improperly delegated her authority, or -If she has committed a tort for which the principal is now liable.

Conflict of Interest

-An agent must act solely in the interest of his principal, not in his own interest or in the interest of another. -An agent may take a position that conflicts with the interest of his principal only if the principal, with full knowledge of all of the facts, consents.

Duty of Diligence

-An agent must act with reasonable care, competence, and diligence in performing the work for which he is employed. -An agent who does not exercise the required care, competence, and diligence is liable to his principal for any resulting harm.

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. -An agent who breaches this duty is subject to liability to the principal for loss caused by the agent's breach and may also be subject to termination of the agency relationship. -Examples of information that an agent is under a duty to communicate: 1) a customer of the principal has become insolvent, 2) a debtor of the principal has become insolvent, 3) a partner of a firm with which the principal has previously dealt and with which the principal or agent is about to deal has withdrawn from the firm, or 4) property that the principal has authorized the agent to sell at a specified price can be sold at a higher price.

Fiduciary Duty

-An agent owes a duty of utmost loyalty and good faith to the principal. -An agent has a fiduciary duty to act loyally for the principal's benefit in all matters connected with the agency relationship. -An agent who violates his fiduciary duty is liable to his principal for breach of contract, in tort for losses caused and possibly punitive damages, and in restitution for profits he made or property received in breach of the fiduciary duty.

Employment Relationship

-An employee is an agent whose principal controls or has the right to control the manner and means of the agent's performance of work. -All employees are agents, even those employees not authorized to contract on behalf of the employer or otherwise to conduct business with third parties.

Capacity of an Agent

-Any person able to act may act as an agent since the act of the agent is considered the act of the principal. -Although the contract of agency may be voidable, an authorized contract between the principal and the third person who dealt with the agent is valid.

Agency Contract Formalities

-Appointment of an agent for more than 1 year must be in writing -Some states require the authority of an agent to sell land be in writing

Apparent Authority

-Based on acts or conduct of the principal that lead a 3rd party to believe that the agent has actual authority -This manifestation of agent's power may consist of words or actions or other circumstances that induce 3rd party to reasonably rely on existence of agency relationship EXAMPLES: -Principal appoints agent to position in a business....3rd party may believe agent has authority to act on behalf of business

Alexander v. FedEx Ground Package System, Inc.

-Because FedEx had the broad right to control the manner in which its drivers perform their work and the other factors do not strongly favor either employee status or independent contractor status, the drivers are employees as a matter of law under California's right-to-control employment test.

Duties of Principal to Agent

-Compensation -Reimbursement -Indemnification -Good Faith

Agency

-Consensual relationship authorizing one party (agent) to act on behalf of the other party (principal) subject to the principal's control. -Has the power to affect the legal rights and duties of the principal. -In dealings with a third person, the agent acts for and in the name and place of the principal, who, along with the third person, is a party to the transaction. -The negligence of an agent who is an employee in conducting the business of her principal exposes the principal to tort liability for injury and loss suffered by third persons.

Duty Not to Compete

-During the agency relationship, an agent must not compete with his principal or act on behalf or otherwise assist any of the principal's competitors.

Duties of Agent to Principal

-Duties as described in contract -An agent, as a fiduciary (a person in a position of trust and confidence), owes her principal the duties of: -obedience, -good conduct, -diligence, -duty to inform, and -duty to account -Agent is liable for any loss she causes to the principal through her breach of these duties.

Reimbursement

-Duty owed by principal to pay agent for authorized payments made on principal's behalf

Indemnification

-Duty owed by principal to pay for losses agent incurred while acting as directed by principal

Unauthorized Criminal Acts

-Employers may be subject to a criminal penalty for the unauthorized act of an advisory or managerial employee acting in the scope of his employment -The principal may be liable either for a criminal act of a managerial person or under liability without fault statutes (statutes are usually regulatory and don't require mental fault)

Undisclosed Principal

-Existence and identity are not known -3rd party has no notice that the agent is acting for principal

Disclosed Principal

-Existence and identity is known - When an agent and 3rd party interact, the 3rd party has notice that the agent is acting for a principal and has notice of principal's identity.

Unidentified Principal

-Existence is known, but identity is not known -When an agent and 3rd party interact, he 3rd party has notice that the agent is or may be acting for a principal, but has no notice of the principal's identity.

Miller v. McDonald's Corporation

-If a franchisor exercises sufficient control over its franchisee's operations, actual agency and/or apparent agency can exist and cause the franchisor to be held vicariously liable as a principal for the acts of the franchisee even if their written agreement provides that no agency relationship exists.

Capacity of the Principal

-If the principal is a minor or an incompetent not under a guardianship, his appointment of another to act as an agent is voidable, as are any resulting contracts with third parties. -If the principal is not a person (i.e. a corporation), then those entities have laws that govern this issue

Agency by Estoppel

-Imposed by law when a principal causes a third party to believe that an agent has authority to act on principal's behalf ARISES WHEN: -principal intentionally or carelessly causes 3rd party to believe that agent has authority to act on the principal's behalf. -principal has notice of the third party's belief and does not take reasonable steps to notify the third party. -third party reasonably and in good faith relies on the appearances created by the principal. -third party justifiably and detrimentally changes her position in reliance on the agent's apparent authority. -The principal is liable to the third party for the loss the third party suffered by changing her position.

Vicarious Liability of Principal

-Indirect legal responsibility for the act of another -Liability of principal for unauthorized torts by an agent depends on if agent is an employee -Employee--> principal controls manner and means -Principal is NOT liable for physical harm caused by tortious conduct of an agent who is an independent contractor if principal didn't intend/authorize the result or manner of performance.

Termination of Agency

-Lapse of Time (specified or reasonable period) -Mutual Agreement -Revocation of Authority -Renunciation by Agent -Death -Incapacity -Change in Circumstances

Respondeat Superior

-Let the superior (employer) respond -An employer is liable for unauthorized torts committed by an employee in the scope of his employment (even if act is flagrantly disobedient) -Applies to undisclosed principals too -Principal has right of indemnification against employee

Independent Contractors

-Person who contracts with another to do a particular job and is not subject to the other's control over the manner and means of conducting the work. Examples: auctioneers, brokers, and attorneys -Liable for themselves (company isn't responsible for any wrongdoing) -Agents who are not employees are "independent contractors," but not all independent contractors are agents in all respects

Why Distinguish Between Employees and Independent Contractors?

-Principals are generally responsible for torts of employees, but not independent contractors. -Principals have certain obligations to employees but not independent contractors under certain state and federal laws (tax withholding, workers compensation, unemployment compensation,...)

Authorized Criminal Acts

-The Principal is liable if he directed, participated in, or approved the criminal acts of his agents -A principal is not ordinarily liable for unauthorized criminal acts of his agents -Mental fault is absent when principal did not authorize agent's act

Contract Liability of Agent - Undisclosed Principal

-The agent is personally liable upon a contract she enters into with a 3rd party on behalf of an undisclosed principal because the 3rd party has relied upon the agent individually and views them as performing the contract

Ratification

-The confirmation or affirmance by one person of a prior unauthorized act performed by another who (1) is his agent or (2) purports to be his agent -Binds principal and 3rd party as if the agent had been acting initially with actual authority

Contract Liability of Agent - Disclosed Principal

-The liability of an agent acting for a disclosed principal depends on whether the agent acts within their authority in making the contact or otherwise assumes liability on the contract. AUTHORIZED CONTRACTS -agent is not normally a party to the contract she makes with a third person if she has actual or apparent authority or if the principal ratifies an unauthorized contract UNAUTHORIZED CONTRACTS -If agent exceeds her actual and apparent authority, the disclosed principal isn't bound but the agent may be liable to the 3rd party for breach of warranty or misrepresentation AGENT ASSUMES LIABILITY -Agent for disclosed principal may agree to become liable on a contract between the principal and 3rd party by: (1) making the contract in her own name (2) co-making the contract with the principal (3) guaranteeing that the principal will perform the contract between the 3rd party and principal *Agent's liability is separate unless agreed otherwise*

Delegation of Authority

-Usually not permitted unless actually or apparently authorized by the principal -If agent is authorized to appoint other subagents, the acts of these subagents are as binding on the principal as those of an agent -Subagent owes fiduciary duty to both agent and principal

Termination of Agency and Authority

-When agency is terminated, ACTUAL AUTHORITY ceases. 2ND RESTATEMENT -When performance of transaction becomes impossible, termination by death/incapacity, --> apparent authority expires and notice is NOT required. -Apparent authority continues until 3rd party has actual knowledge or notice. 3RD RESTATEMENT (1) The termination of actual authority doesn't by itself end any apparent authority held by an agent (2) Apparent authority ends when it's no longer reasonable for the 3rd party to believe that the agent continues to act with actual authority: -notice that principal has revoked actual authority -notice that agent renounced it -change in circumstances that make it unreasonable for 3rd party to believe that principal consents to agent's act.

Contract Liability of Agent - Unidentified Principal

-When an agent makes a contract with actual or apparent authority on behalf of an unidentified principal, the agent is a part to the contract. -Agent is liable regardless of whether transaction is authorized or not ACTUAL OR AUTHORIZED -Both agent and unidentified principal are liable NO AUTHORITY -Agent is liable either as party to contract or for breach of implied warranty of authority *Agent's liability is separate unless agreed otherwise*

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 -A breach of this duty makes the agent liable to the principal and subject to rightful discharge or termination.

Direct Liability of Principal

-a principal is liable for his own tortious conduct involving the use of agents TWO WAYS: 1.) liable for damages if he directed agent to commit tort 2.) liable for damages if he fails to exercise reasonable care in employing agents

Power of Agent

-ability of an agent of change the legal status of principal -Actual or Apparent Authority -Whenever an agent, acting within his authority, makes a contact for his principal, he creates new rights or liabilities for his principal and thus changes his principal's legal status.

Actual Authority

-principal gives actual consent to the agent -can be express or implied -Binding -Gives agent both the power and right to create or affect principal's legal relations with 3rd parties

Contract Liability of Disclosed Principal

ACTUAL AUTHORITY -Principal and 3rd party bound APPARENT AUTHORITY -Principal and 3rd party bound -Agent gives indemnity to principal NO AUTHORITY -Agent bound and liable to 3rd party (for breach of implied warranty or misrepresentation)

Contract Liability of Unidentified Principal

ACTUAL AUTHORITY -Principal and 3rd party bound -Agent and 3rd party bound -Principal reimburses agent APPARENT AUTHORITY -Principal and 3rd party bound -Agent and 3rd party bound -Agent give indemnity to principal NO AUTHORITY -Agent and 3rd party bound

Contract Liability of Undisclosed Principal

ACTUAL AUTHORITY -Principal and 3rd party bound -Agent and 3rd party bound -Principal reimburses agent NO ACTUAL AUTHORITY -Agent and 3rd party bound

Tort Liability of Principal

AGENT TORT AUTHORIZED -agent liable to 3rd party -principal liable to third party -indemnity to agent (if legality not known) UNAUTHORIZED, BUT W/IN SCOPE -agent liable to 3rd party -principal liable to third party -agent give indemnity to principal TORT OUTSIDE AUTHORITY AND SCOPE (OR IND. CONTRACTOR) -Agent liable to 3rd party

Rights of Agent Against 3rd Person

DISCLOSED PRINCIPAL -the agent usually has no rights under the contract against the the 3rd party (agent is not a party to contract) UNDISCLOSED/UNIDENTIFIED PRINCIPAL -the agent may enforce the contract against the 3rd party