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23 Cards in this Set
- Front
- Back
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Three Agency Problems
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I. Liability of the Principal to Third Parties for Torts of an Agent
II. Liability of the Principal to Third Parties for Contracts Entered by an Agent III. Duties Which Agents Owe to Principals |
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Liability of Principal for Torts of Agent—Respondeat Superior or Vicarious Liability
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a. Issue: Whether the principal will be vicariously liable for torts committed by agent.
b. Two-part Test: Principal will be liable for torts committed by agent if: (1) There is a principal-agent relationship, and (2) the tort was committed by the agent within the scope of that relationship. |
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Was there a Principal-Agent Relationship?
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1. Principal-agent relationship requires: ABCs
a. Assent: an informal agreement between the principal (who has capacity) and the agent. b. Benefit: The agent’s conduct must be for the principal’s benefit c. Control (most important): The principal must have the right to control by having a power to supervise the manner of its performance. |
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Sub-agents: Will the principal be vicariously liable if the agent gets the help of a “sub-agent” and the sub-agent commits a tort?
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The principal will be liable for a sub-agent’s tort if there is:
1. Assent, benefit, and the right to control between the principal and the sub-agent tortfeaser. 2. Note: there is usually no assent or control but the sub-agent is often working for principal’s benefit |
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Borrowed agents: Will a principal who borrows another principal’s agent be vicariously liable for the borrowed agent’s tort?
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The borrowing principal will be liable for a borrowed agent’s tort if there is:
1. Assent, benefit, and right to control between the borrowing principal and the borrowed agent tortfeaser. 2. Usually no control (assent because he borrowed him and benefit because he’s working for him) |
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Contrast Agents with Independent Contractors
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The key distinction between an agent and an independent contractor is that:
i. There is no right to control because there is no power to supervise the manner of its performance. b. Vicarious liability rule for independent contractor torts: i. There is no vicarious liability for an independent contractor’s torts. c. Exceptions i. The inherently-dangerous activity exception 1. Where the acts to be performed by the independent contractor are of an inherently dangerous nature, the principal will be liable for the resultant activity (blasting) ii. Estoppel 1. If you hold out your independent contract with the appearance of agency you will be estopped from denying agency later |
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Hypo: Tory Victus went to E-Stop-L Gas Station to have her brakes repaired. E-Stop-L Gas Station had an independent contractor arrangement with Brake Repairer. Brake Repairer tortuously repaired Tory’s brakes, resulting in an accident. Is E-Stop-L Gas Station liable?
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As a rule, there is no vicarious liability for Ind. Contractor’s torts except for ultra-hazardous activities and estoppel.
In this case, break repair is an ultra-hazardous activity and therefore there will be vicarious liability. Alternatively, if the gas station held our its brake repairer as an agent, for example, if they had Brake Repair on the sign, they will be estopped from denying non-liability on that ground as well. |
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Was the Tort Committed by the Agent Within the Scope of Principal-Agent Relationship?
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Factors
1. Was conduct “of the kind” agent was hired to perform? a. Was the conduct within the job description? If it is, then it is likely to be within the scope. 2. Did the tort occur “on the job”? Frolic vs. Detour: a. Frolic: new and independent journey (outside scope of agency) b. Detour: a mere departure from an assigned task (within the scope of agency) 3. Did the agent intend to benefit the principal? a. If the agent, even in part, intended to benefit the principal, it is enough to be within the scope of agency. |
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Hypo: Employer instructs Employee to drive across town to deliver file to a branch office. On the way back, Employee stops to pick up shirts at the dry cleaner for work the next day. In the parking lot of the dry cleaner, Employee hits a pedestrian. Is Employer liable?
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First, the principal will be liable for its agents’ torts within the scope of agency.
In this case, the agent was on a detour, a mere departure from assigned task because the tort occurred on the way back to work and therefore was still within the scope and there will be vicarious liability. |
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Intentional Torts
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Rule: Intentional torts are generally outside the scope of agency
Exceptions: Intentional torts are within the scope if the conduct was: a. Authorized by the principal b. Natural from the nature of employment c. Motivated by a desire to serve the principal 3. Note: If the problem is a bouncer at a club, all 3 will usually be satisfied |
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Second Main Issue in Agency: Liability of Principal for Contracts Entered by Agents
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Issue: Whether the principal is liable for contract entered into by its agent.
One Test: Principal is liable for contracts entered into by its agent if the principal AUTHORIZED the agent to enter the contract. There are four types of authority : actual express, actual implied, apparent, and ratification. |
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Actual Express Authority
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Principal used words to express authority to agent
Rules: Actual express authority can be oral and private, but it is narrowly construed. Exception: a. If, however, the contract itself must be in writing then the express authority must be in writing as well. (Contracts covered by Statute of Frauds) |
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Hypo: Agent tells Principal that she is an expert in negotiating real estate transactions. Principal whisper into Agent’s ear at a party that Principal wants agent to sell green acres farm. Agent sells Green Acres Farm for Principal. Is Principal bound by the sale?
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Rule: The principal will be liable only on its authorized contracts.
In this case, because the contract to sell land must have been in writing the express authority must have been in writing as well. |
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Express Authority Will be Revoked By:
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1. Unilateral Act of either the principal or the agent; or
2. Death or incapacity of the principal Exception: --Actual authority will not be revoked if the principal gives the agent a durable power of attorney. Power of attorney: Written expression of authority to enter a transaction Durable: CONSPICUOUS survival language. |
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Hypo: Paula collects rare books. She hires Alice to find a rare book to complete her collection. Alice searches everywhere for the rare book. As Alice is about to pay for the book, Paula dies. Is Paula’s estate bound by the contract?
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Rule: The principal is liable only on its authorized contracts.
In this case, actual express authority terminated on the death of Paula, the principal, and therefore the estate will not be liable on this unauthorized contract. |
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Actual Implied Authority
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Authority which the principal gives the agent through conduct or circumstance
a. Necessity: There is an implied authority to do all tasks: i. Which are necessary to accomplish an expressly authorized task. b. Custom: There is implied authority to do all tasks: i. Which are customarily performed by persons with agent’s title or position. c. Prior dealings between the principal and agent. There is implied authority to do all tasks: i. Which the agent believes to have been authorized to do from prior acquiescence by the principal |
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Apparent Authority (often tested):
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Two-Part test: (1) Principal “cloaked” agent with the appearance of authority, and (2) third party reasonably relies on appearance of authority
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Hypo: Charles owns an antique store. A shipment of antique clocks arrives from London. Charles tells his employee Dufus not to sell a special grandfather clock. Charles goes to lunch. Dufus sells the clock. Is Charles bound on the sales contract?
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Rule: The principal is liable only on its authorized contracts.
In this case, there was no actual express, or implied authority to sell the clock. Nonetheless, there was apparent authority because (1) Charles cloaked Dufus with the appearance of authority and (2) the third party may rely on that authority. Therefore, Charles is liable based on apparent authority. |
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Ratification:
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Authority can be granted after the contract has been entered if:
1. Principal has knowledge of all material facts regarding the contract, and 2. Principal accepts the benefits. 3. Exception: Ratification cannot alter the terms of the contract. |
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Hypo: Priscilla gives Agnes a power of attorney to purchase steel drums (narrowly construed). Agnes enters a contract to purchase 11,000 wooden barrels. Priscilla tells Agnes, “Great job! I love wooden barrels, but I only need 10,000.” Is Priscilla bound?
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Rule: The principal is liable only on its authorized contracts.
In this case, there was no actual express or implied authority or even apparent authority to purchase wooden barrels. Nonetheless, Priscilla arguably ratified the contract through knowledge and acceptance of its benefits. But, ratification here was not valid because Priscilla tried to change the terms of the contract. Therefore, there is no liability on this unauthorized contract. |
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The Rules of Liability on the Contract
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General Rule: The principal is liable on its authorized contracts, and therefore as a rule: an authorized agent is not liable on authorized contracts.
So if agent did not have authority then agent is liable on the contract Exception: The undisclosed principal --If the principal is partially disclosed (only the identity of principal concealed) or undisclosed (fact of principal concealed), authorized agent may nonetheless be liable at the election of the third party. |
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Duties Agent Owes to Principal
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In return for reasonable compensation and reimbursement of expenses, agents owe principals:
i. Duty of reasonable care ii. Duty to obey instructions that are reasonable. iii. Duty of loyalty. The agent may never do any of the following: 1. Self-dealing: Agent cannot receive benefit to the detriment of the principal. 2. Usurping the principal’s opportunity, or 3. Secret profits: making a profit at the principal’s expense without disclosure. |
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b. Hypo: Priscilla authorizes Agnes to buy diamonds. Agnes spots choice diamonds and secretly buys them for herself for $1 million. Agnes then resells the diamonds for $2 million.
What duties, if any, has Agnes breached? What remedies, if any, does Priscilla have against Agnes? |
Agnes has breached a duty of loyalty by self-dealing in that she benefited herself to the principal’ detriment, by usurping the principal’s diamonds and by making a secret profit on the diamonds as well.
What remedies, if any, does Priscilla have against Agnes? --The principal may recover losses caused by the breach and disgorge profits made by the breaching agent as well. |
