Agency Law

“If you want something done right, do it yourself.”

“Many hands make light work.” Anonymous folk sayings

Agency is a relationship in which the agent agrees to perform a task for, and under the control of, the principal

To create an agency, there must be: ◦ Principal: Person who has someone else acting

on him ◦ Agent: Person who acts for someone else◦ Who mutually consent that the agent will act on

behalf of the principal◦ Be subject to the principal’s control◦ Creating a fiduciary relationship

Consent – Principal must ask the agent to do something:◦ Agent must agree

Control – Principals are liable for the acts of their agents ◦ They exercise control over the agents

Fiduciary relationship – Trustee acts for the benefit of the beneficiary◦ Agents have a fiduciary duty to their principals

Elements not required for an agency relationship include:◦ A written agreement

Equal dignities rule: If an agent is empowered to enter into a contract that must be in writing, then: The appointment of the agent must also be written

◦ Formal agreement◦ Compensation

Duty of loyalty - The agent:◦ Must act for the benefit of the principal◦ May not receive outside benefits without approval

of the principal◦ Can neither disclose nor use for her own benefit

any confidential information◦ Is not allowed to compete with his principal within

the scope of the agency business

Duty of loyalty - The agent:◦ May not act for two principals whose interests

conflict◦ May not become a party to a transaction without

the principal’s permission◦ May not engage in inappropriate behavior that

reflects badly on the principal

An agent must obey the principal’s instructions, unless illegal or unethical

Agent must act with reasonable care◦ An agent with special skills is held to a higher

standard because he/she is expected to use those skills

Agent must provide information◦ An agent has a duty to provide the principal with

all information in her possession that: She has reason to believe the principal wants to

know

The principal can recover damages caused by the agent’s breach

The agent must refund any profits made from the agency, if he breaches his duty of loyalty

The principal may rescind a transaction with a disloyal agent

Duty to reimburse the agent for reasonable expenses – Three categories◦ Principal must indemnify an agent for expenses

reasonably incurred in carrying out his agency responsibilities

◦ Principal must indemnify an agent for tort claims brought by a third party if: Principal authorized the agent’s behavior and the

agent did not realize he was committing a tort

Duty to reimburse the agent for reasonable expenses – Three categories◦ Principal must indemnify the agent for any liability

she incurs from third parties as a result of: Entering into a contract on the principal’s behalf,

including attorney’s fees and reasonable settlements

Duty to cooperate◦ Principal must furnish the agent with the

opportunity to work◦ Principal cannot reasonably interfere with the

agent’s ability to accomplish his task◦ Principal must perform his/her part of the contract

Termination by agent or principal◦ Three choices in terminating the relationship

Term agreement Time Achieving a purpose

Mutual agreement Agency at will Wrongful termination

Principal or agent can no longer perform required duties◦ Failure to obtain license◦ Bankruptcy ◦ Death or incapacity of the principal or agent◦ Disloyalty of agent

Change in circumstances◦ Change of law ◦ Loss or destruction of subject matter

Termination of the agency ends the agent’s power to act on behalf of the principal

Principal’s duty to reimburse expenses of the agent ends with the end of the agency

Confidential information remains confidential and unusable, even after the end of the agency

The principal is bound by the acts of an agent if: ◦ The agent had authority ◦ The principal ratifies the acts of the agent

A principal is bound by the acts of an agent if the agent has authority

There are three types of authority◦ Express - Granted by words or conduct that:

Reasonably interpreted, cause the agent to believe the principal desires her to act

◦ Implied - Authority to conduct a transaction includes: Authority to do acts that are reasonably necessary to

accomplish it

◦ Apparent - Principal can be liable for the acts of an agent who is not acting with authority if: Principal’s conduct causes a third party reasonably to

believe that the agent is authorized

Ratification◦ If a person accepts the benefit of an unauthorized

transaction or fails to repudiate it, then: He is as bound by the act as if he had originally

authorized it Subagents

◦ Intermediary agent – Someone who hires subagents for the principal

◦ When an agent is authorized to hire a subagent: Principal is as liable for the acts of subagent as he is

for the acts of regular agent

Fully disclosed principal◦ An agent is not liable for any contracts

Unidentified principal◦ Third party can recover from either the agent or

the principal

Undisclosed principal◦ Third party can recover from either the agent or

the principal◦ Third party is not bound to the contract with an

undisclosed principal if: Contract provides that the third party is not bound to

anyone other than the agent Agent lies about the principal because she knows the

third party would refuse to contract with him

Unauthorized agent◦ The principal is not liable and the agent is

Employer is liable for a tort committed by its employee acting within the scope of employment or acting with the authority

Two kinds of agents◦ Employees◦ Independent contractors

Principal may be liable for the torts of an employee but generally is not liable for the torts of an independent contractor

Courts consider whether:◦ Principal supervises details of the work◦ Principal supplies the tools and place of work◦ Agents work full time for the principal◦ Agents receive a salary or hourly wages◦ Work is part of regular business of the principal◦ Principal and agents believe they have employer-

employee relationship◦ Principal is in business

The principal is liable for the torts of an independent contractor if the principal has been negligent in hiring or supervising her

Principals are liable only for torts that an employee commits

An employee is acting within the scope of employment if the act:◦ Is one that employees are responsible for◦ Takes place during hours that employee is

employed◦ Is part of the principal’s business◦ Is similar to the one the principal authorized◦ Is one for which the principal supplied the tools◦ Is not seriously criminal

Authorization◦ An act is within the scope of employment if:

Expressly forbidden It is of the same general nature as that authorized It is incidental to the conduct authorized

Abandonment◦ The principal is liable:

For the actions of the employee that occur while the employee is at work

Not for actions that occur after the employee has abandoned the principal’s business

Principal is not liable for the intentional torts of an employee unless:◦ Employee is intended to serve some purpose of

the employer◦ Employer was negligent in hiring or supervising

this employee

Physical torts – Principal is liable for the negligent conduct of an employee that occurs within the scope of employment

Nonphysical torts – Principal is liable if the employee if the employee acted with express, implied, or apparent authority

Agents are always liable for their own torts, even if the principal is also liable

Principal and the agent are jointly and severally liable◦ Injured party can sue either one or both