Module 10: Agency Law

Respondeat Superior

"Let the master answer" a doctrine that holds principals responsible for (has vicarious liability for) acts of their agents committed within the scope of employment.

Duty to Avoid Self-Dealing

A fiduciary may not lawfully profit from a conflict between his or personal interest in a transaction and the principal's interest in that same transaction

Fiduciary Duty

A legal obligation of one party to act in the best interest of another.

Duty to Cooperate

A principal has the duty to cooperate with the agent and to assist the agent in performing his or her duties.

Duty to Ensure Safe Working Conditions

A principal has the duty to provide agents and employees with safe working premises, equipment, and conditions, and to inspect working conditions and warn agents and employees of unsafe areas.

Dram Shop Acts

A state statute that imposes liability on the owners of bars and taverns, as well as those who serve alcoholic drinks to the public, for injuries resulting from accidents caused by intoxicated persons when the sellers or servers of alcoholic drinks contributed to the intoxication.

Duty to Provide Information

Agent must use reasonable efforts to provide the principal with facts the agent knows or has reason to know, when the agent knows or should know the principal wants the facts or the facts are material to the agency

Duty of Good Conduct

An agent has a duty to act reasonably and to avoid actions that may damage the principal's interests.

Agent Acting on Own Account

An agent will be liable on contracts made in a personal capacity—for instance, when the agent personally guarantees repayment of a debt.

A paper company agrees to share profits with every employee for every paper order sold. However, when it comes time for the company to pay out the profit share, it fails to do so. Which duty is the paper company failing to perform in this situation? Duty to reimburse Duty to indemnify Duty to cooperate Duty to compensate Correct! Correlative with the fiduciary duties of an agent to a principal, the principal's primary duty to the agent is to compensate the agent as agreed.

Duty to compensate Correct! Correlative with the fiduciary duties of an agent to a principal, the principal's primary duty to the agent is to compensate the agent as agreed.

The owner of a retail store hires a manager to supervise inventory. The manager makes the decision to purchase two orders of widgets. When they arrive, the owner refuses delivery, stating that the order was not authorized and the store did not need them. The widget company sues the owner and the manager individually for breach of contract. Which duty did the manager owe the owner in this situation? Duty to provide information Duty to obey Duty of good conduct Duty to act only as authorized

Duty to provide information By agency, a principal grants authority to an agent to act on behalf of and under the control of the principal. Here, the manager was tasked with supervising inventory. If ordering widgets, the manager would need to inform the owner of orders made.

Which duties does a principal owe an agent? Duty of confidentiality, duty to cooperate, and duty to ensure a safe work environment Duty of due care, duty to compensate, and duty to cooperate Duty to reimburse, duty to indemnify, and duty to cooperate Duty of loyalty, duty to indemnify, and duty to compensate

Duty to reimburse, duty to indemnify, and duty to cooperate The principal has a duty to the agent to reimburse, indemnify, and cooperate.

Ahmed works for Endothon Co. He signs a contract on behalf of Endothon Co. to purchase 100 flags from Quiet Flag Industries. Ahmed tells Quiet Flag Industries that he is signing on behalf of another party, but he does not disclose the name of that party. Is Endothon Co. or Ahmed liable on the contract? Endothon Co. is liable, but Ahmed is not liable. Endothon Co. is not liable, and Ahmed is not liable. Endothon Co. is liable, and Ahmed is liable. Endothon Co. is not liable, but Ahmed is liable.

Endothon Co. is liable, and Ahmed is liable.

Daniel recently got hired by Jess and they entered into a contract that specifies how much money Daniel will make for the job. The contract also specifies how and when the job should be performed. Which type of authority has been formed in this relationship? Implied Apparent Traditional Express

Express Express authority is the authority that the principal has expressly given to the agent whether orally or in writing.

True or False A local business recently hired Fatima, an accountant. The business will provide Fatima with health insurance as well as paid vacation and sick time. The fact that Fatima is being offered insurance and vacation and sick pay indicates that Fatima is most likely an independent contractor rather than an employee.

False Correct! Businesses generally do not provide insurance, pension plans, vacation pay, or sick pay to independent contractors.

True or Fulse The company that hired Ren, a web designer, has not provided any detailed instructions for what the company's new website should look like when finished. The company trusts that Ren will analyze the company's needs and use his expertise to design a website that best meets those needs. The lack of detailed instructions indicates that Ren is most likely an employee rather than an independent contractor.

False Correct! Less detailed instructions reflect less control, indicating that the worker is more likely an independent contractor.

A local lawn service has been mowing the lawn for a homeowner for many years. Every year, the homeowner pays the lawn service at the end of the summer. At the end of the most recent summer season, the lawn service asks the homeowner for payment. The homeowner insists this service was unwanted and refuses to pay. The lawn service seeks the advice of an attorney, who believes payment should still be required. Under which type of authority does the attorney believe payment is required? Legitimate Apparent Implied Express

Implied Correct! An implied contract is a legal substitute for a contract. An implied contract is an agreement created by actions of the parties involved, but it is not written or spoken. Here, based on past actions between the parties, an implied contract for the lawn services was created.

Sophia is a real estate agent who contracts with Maria to sell Maria's house. Sophia secretly represents a buyer who makes a bid for the house. How is Sophia's agency terminated? Acts of the parties Implied termination Impossibility Operation of law

Implied termination Correct! The agent was disloyal in secretly representing a buyer, creating the conditions for an implied termination.

Jack is employed by Jaunty Coffee Co. to drive a delivery truck. He always stops for lunch at the diner around 11:30 a.m. When he is driving to the diner, he hits another car, injuring the driver. What must the plaintiff prove for Jaunty Coffee Co. to be held liable? Jack was not acting within the scope of employment. Jack had apparent authority. Jack was on a frolic and detour. Jack was within the zone of risk.

Jack was within the zone of risk. Correct! The employer will be liable if the employee is where he should be and his negligence put the plaintiff in immediate harm.

Vicarious Liability

Liability that a supervisory party (such as a principal) bears for the actionable conduct of subordinate or associate (such as an agent) based on the reltionss

Fiduciary

One often in a position of authority who obligates himself or herself to act on behalf of another and assumes a duty to act in good firth and with care, candor, and loyalty in fulfilling the obligation.

Principal

One who gives authority to another, called an agent, to act on his behalf.

independent contractor.

One who provides goods or services to another entity under terms specified in a contract or within a verbal agreement

Special agent

One whose authority is confined to a particular, or an individual instance

Which option would not result in the termination of an agency relationship? The agent has been doing business for a principal for over a year. The agent competes with the principal. The agent dies unexpectedly. The principal desires the agent to buy a second home, but the principal's company goes bankrupt.

The agent has been doing business for a principal for over a year. Correct! An agreement creating an agency relationship may be express or implied, and both the agent and principal may be either an individual or an entity, such as a corporation or partnership. This agreement can continue as long as the two parties agree

Duty Not to Attempt the Impossible or Impracticable

The agent is not obligated to go without food or sleep because the principal misapprehended how long it would take to complete the job. Nor should the agent continue to expend the principal's funds in a quixotic attempt to gain business, sign up customers, or produce inventory when it is reasonably clear that such efforts would be in vain.

Duty of Skill and Care

The agent is under a legal duty to perform his or her work with the care and skill that is "standard in the locality for the kind of work which he is employed to perform" and to exercise any special skills, if these are greater or more refined than those prevalent among those normally employed in the community. In short, the agent may not lawfully do a sloppy job (Restatement (Second) of Agency, Section 379).

Duty to Keep and Render Accounts

The agent must keep accurate financial records, take receipts, and otherwise act in conformity to standard business practices.

Estoppel

The doctrine that a person will not now be allowed to deny a promise or assertion he/she previously made where there has been detrimental reliance on that promise or assertion

Duty to Indemnify

The duty to indemnify is similar to the duty to reimburse, but it applies to losses, usually unplanned, incurred by the agent in properly carrying out the agency arrangement. This can occur where the agent incurs a loss due to the principal's misconduct, such as the breach of a properly authorized contract.

Zone of Risk Test

The employer will be within the zone of risk for vicarious liability if the employee is where the employee is supposed to be, doing—more or less—what he or she is supposed to be doing, and the incident arose from the employee's pursuit of the employer's interest (again, more or less).

Deviations from Employment

The general rule is that a principal is liable for torts only if the servant committed them "in the scope of employment." But determining what this means is not easy.

Duty to Preserve Confidential Information

The law therefore prohibits an agent from using confidential information for the agent's own purposes, or in ways that would injure the interests of the principal, information confidentially given or acquired.

Third party

The party with whom the agent interacts with on behalf of the principal.

Zone of Risk

The realm in which the principal may be vicariously liable for an incident that arise from the employee's (or agent's) pursuit of the employer's interest.

"Shop Rights" Doctrine

The rights of a company to exploit inventions made by employees on company time and resources.

You hire a driver to deliver floral arrangements purchased by customers from your flower shop. In this scenario, your customers are considered______________________

The third party. The third party is someone who may be involved but is not a principal party to an arrangement, contract, deal, lawsuit, or transaction.

Which scenario would not result in a valid agency relationship? A homeowner enters into a verbal agreement with the contractor to make repairs, and the contractor then hires a painter. A son takes over his mother's estate after her death and in absence of will but with court approval. The owner of a salon hires a part-time nail technician. The truck driver uses his company vehicle to pick up his daughter from a school activity.

The truck driver uses his company vehicle to pick up his daughter from a school activity. While the truck driver is employed and authorized to use the company vehicle, it is only authorized to do work for the company. Excursions with the vehicle outside of the scope of employment are not covered or part of the agency relationship.

Liability for Agent's Intentional Torts

Today, liability for intentional torts is transferred to the principal if the agent is acting to further the principal's business.

True or False A publishing company recently hired Sara, an editor. Sara is required to attend a number of scheduled ongoing trainings that will teach her the procedures and methods essential to her role. The fact that the company is offering required, scheduled, and ongoing training is strong evidence that Sara is an employee rather than an independent contractor.

True Correct! Training a worker on how to do the job—or periodic or ongoing training about procedures and methods—is strong evidence that the worker is an employee.

Duty to Compensate

When a principal requests certain services from an agent, the principal has a duty to pay the agent, in a timely manner, for those services rendered.

apparent authority

When a reasonable third party would understand that an agent had authority to act, whether or not that is the case.

Express Termination

When specified circumstances signal the end of the agency relationship

Implied Termination

When unspecified events or changes in business conditions or the value of the subject matter of the agency lead to a reasonable inference that the agency should be terminated or suspended.

Tort Liability

While a principal is held liable and must pay damages to an injured third person, this does not excuse the agent who committed the tortious acts. A person is always liable for his or her own torts (unless the person is insane, involuntarily intoxicated, or acting under extreme duress). The agent is personally liable for his or her wrongful acts and must reimburse the principal for any damages the principal was forced to pay, if the principal did not authorize the wrongful conduct.

An unauthorized agent of an automotive glass and claims management company purchases $260,000 worth of glass from a wholesale glass distributor. If the glass and claims management company does not pay the wholesale glass distributor, is the agent who facilitated the purchase liable? Yes. Agents will be liable for purchases made if they did not have the authority to make the purchases. Yes. The agent becomes liable after one year of the purchase if the company fails to pay. Yes. Agents are always liable for the transactions they make with third parties. No. The company is always liable for transactions its agents make with third parties.

Yes. Agents will be liable for purchases made if they did not have the authority to make the purchases.

After attending a sales conference where the message was to do whatever it takes to increase profits, a sales representative for a custom clothing company overcharges a customer for his purchases and adds purchases to the customer's orders that the customer has not approved. Is the custom clothing company responsible to the customer for the sales representative's actions? The company and the sales representative are both responsible. No. The sales representative acted intentionally, therefore the company is not responsible. Yes. The company directed the sales representative to behave in a way that resulted in criminal acts. Yes. Liability for intentional torts is transferred to the principal if the agent is acting to further the principal's business.

Yes. Liability for intentional torts is transferred to the principal if the agent is acting to further the principal's business.

Workers Compensation

a form of insurance providing wage replacement and medical benefits to employees injured in the course of employment in exchange for mandatory relinquishment of the employee's right to sue his or her employer for the tort of negligence.

power of attorney

a legal document giving one person (the agent) the power to act for another person(the principal.)

Operation of Law

a legal term that indicates that a right or liability has been created for a party, irrespective of the intent of that party, because it is dictated by existing legal principles

General agent

a person authorized to transact every kind of business for his/her principal.

undisclosed principal

a person who uses an agent for negotiations with a third party who has no knowledge of identity of the agent's principal.

Ratification

a principal's approval of an act of its agent where the agent lacked authority to legally bind the principal.

agency relationship

a relationship that involves a person, called the agent, that is authorized to act on behalf of another (called the principal to create legal relations with a third party)

Frolic and Detour

a situation in which an agent does something during the course of his or her employment to further his or her own interests rather than the principal's

Hannah hires an attorney to file a patent on her behalf. In this scenario, the attorney's role is that of____________________________

agent The agent acts on behalf of the principal to deal with the third party. It is the principal that is bound and liable for actions of the agent.

Servant

an agent employed by a master [employer] to perform service in his affairs whose physical conduct in the performance of the service is controlled or is subject to the right to control by the master.

Duty to Obey

an agent must obey her principal's instructions unless the principal directs him/her to behave illegally or unethically

agency coupled with an interest

an agent who has possession or control of the property of his principal and possesses a legal right against interference by third parties.

Subagent

an agent who is authorized by another agent to act in that person's place.

agency law

an area of commercial law dealing with relationships that involve a person, called the agent, that is authorized to act on behalf of another (the principal) to create legal relations with a third party

Lingering Authority

authority left with terminated agent because others are not told of termination

What are the three types of authority

express, implied, apparent

What are the the five types of agents?

general agent special agent subagent agency coupled with an interest servant

Direct Liability

legal obligation of an individual or business of negligent acts or omissions resulting in bodily injury and/or property damage or destruction to another party

Agent

one who agrees and is authorized to act on behalf of another, a principal, to legally bind an individual in particular business transactions third parties pursuant to an agency relationship

An architecture firm hires a landscape architect. In this scenario, the architecture firm's role is that of _______________________

principal The principal is the one who grants authority to the agent, to act on behalf of and under the control of the principal to deal with a third party.

What are the three relationships that agency law deal with?

principal and agent principal and third party agent and third party

What are the three parties that are involved in agency law?

principal, the agent, and a third party.

What are the three contract principals?

requirement for consideration requirement for a writing contractual capacity

Duty to Act Only as Authorized

the agent acts reasonably under the circumstances, he or she will not be liable for damages later if the principal ultimately repudiates what the agent has done

Implied Authority

the authority of an agent to do acts which are reasonably incidental to and necessary for the effective performance of his duties.

express authority

the authority which the principal has expressly given to the agent whether orally or in writing

Duty to Reimburse

the obligation a principal has, unless otherwise agreed upon, to pay the agent for reasonable expenses incurred in carrying out agency obligations

Duty of Loyalty

the principle that require an agent, as a fiduciary of a principal, to put the principal's interests ahead of their own.