Agency

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Agency

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Relationship where agent is given power to act for another person (principal).

Not all contract formalities are needed. Agent only has to have minimal capacity. Consent of principal and agent required. No consideration is required. A writing is generally not required.

Can be created by an act of the parties:
(1) principal and agent agree (actual authority);
(2) principal holds out agent as such to third party (apparent authority); or
(3) principal may agree to be bound by previously unauthorized acts (ratification).

Can be created by estoppel or by statute.

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Duties of Agent to Principal

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Loyalty: Fiduciary duty to principal of undivided loyalty. Breach of duty to not disclose conflicts of interest.

Obedience: Must obey all reasonable directions of principal.

Reasonable Care: For compensated agent, must carry out with reasonable care in light of local community standards and taking into account special skills of agent. For gratuitous agent, held to degree of care customary in community for doing similar tasks for free. (Results are usually the same).

Notify: Must notify principal of all matters that come to agent's knowledge affecting subject of agency. Agent's knowledge is imputed to principal.

Remedies - Damages (in contract or tort), action for secret profits, accounting, withholding of compensation.

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Duties of Subagent to Agent and Principal

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Subagent owes the same duties to the principal as the agent does.

Agent is held liable to principal for breaches of subagent, even if the agent used due diligence and good faith in choosing subagent.

Subagent owes agent same duties that she owes principal. Where subagent is appointed without authority, she owes no duties to the principal.

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Duties of Principal to Agent

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Compensation: Unless agent agrees to act for free, must compensate reasonably for services. No duty to compensate subagent unless principal agrees to do so.

Reimbursement: Must indemnify agent (and any authorized subagent) for all losses/expenses reasonably incurred in discharging any authorized duties.

Those imposed by contract: Principal is bound to any duties set in the agency agreement.

Cooperate: Principal should cooperate with agent to help her carry out the agency functions. Must not interfere with agent's performance.

Remedies - breach of contract, agent's lien.

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Real Estate Brokers' Contracts

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Non-exclusive contract normally entitles agent to compensation when she produces a ready, willing, and able buyer (provided that the property is not already sold). Contract may provide otherwise (may require consummation of sale for commission to be earned).

Exclusive contract entitles agent to commission if she or anyone produces ready, willing, and able buyer.

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Actual Authority

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Express grants: Mistake won't invalidate authorization for express grant. Agent is free to act upon authority as she reasonably believes principal intended.

Implied grants: created from custom and usage, express grants that are broad, acquiescence, emergency/necessity, and those created by specific situations (i.e., authorization to purchase implies authority to pay and authority to accept delivery).

Termination: By lapse of time (specified or reasonable time), by happening of event, by change of circumstances, by breach of agent's fiduciary duty, by unilateral act of principal or agent, by operation of law (exception - durable power of attorney survives incapacity).

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Irrevocable Agencies

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Two types of agency relations that may not be terminated by principal unilaterally and generally are not terminated by operation of law:
(1) agency coupled with an interest, or
(2) power given as security.

Restatement treats these both as power given as security. Absolutely irrevocable other than in accord with agreement. Two other requirements: (1) grant of authority must have been given to protect a debt, duty, or title of agent or third person, and (2) grant must be supported by consideration.

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Apparent Authority

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Where principal holds out agent as possessing authority, agent has apparent authority to act. Also when agent asserts authority in front of principal, and principal doesn't correct, agent has apparent authority (as long as third party reasonably relied on the assertion).

Agent's authority ends when she knows/should have known of termination. Principal must also give notice to any third parties he knows to have been involved in dealings with past agent or else agent still has apparent authority.

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General vs. Special Agent

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In determining whether agent's position customarily includes the act that she has performed, courts often rely on the distinction between a general and special agent.

General agent: one who is authorized to engage in (1) series of transactions (2) involving a continuity of service.

Special agent: authorized to engage in one or more transactions not involving a continuity of service.

A general agent's apparent authority is considered broader than a special agent's.

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Inherent Authority

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Called inherent agency power in Restatement (Second) of Agency. Results in principal being bound by agent's acts in certain situations even though agent has no actual authority. This comes into play when the court is trying to protect innocent third parties.

In effect, principal turned agent loose on the world, and should have some responsibility for agent's misdeeds.

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Ratification

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When would-be principal ratifies an unauthorized transaction by the would-be agent, he becomes bound on the contract. Agent is relieved of liability for breaching implied warranty of authority if the principal ratifies. If ratified, the transaction is treated as if it had originally been entered into with authorization, unless principal lacked capacity at that time - then no retroactive effect.

No retroactive validity where doing so would prejudice a third party with intervening rights (i.e., acquired rights between contract formation and ratification).

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What Constitutes Ratification?

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(1) Principal must know material facts
(2) Principal must accept entire transaction
(3) Principal must have capacity
(4) No consideration needed

May ratify by express affirmance or implied affirmance/silence, acceptance of benefits, or brining suit involving the transaction.

Anything principal could have legally done can be ratified - nothing where performance is illegal, or where third party withdraws or circumstances have materially changed.

Majority rule is that only principal may ratify. No ratification by undisclosed principal, because the third party could not have relied on the principal.

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Liabilities of the Parties When Ratified

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Third party v. Principal - If agent had authority, principal is liable to third party.

Third party v. Agent - If disclosed principal, principal is liable, but agent not unless parties intended as such. If principal is partially disclosed or undisclosed, both agent and principal are liable.

In disclosed principal case, principal may hold third party liable for the contract. In partially disclosed or undisclosed principal cases, principal or agent may enforce contract unless agent has fraudulently concealed principal's identity (in which case contract will not be specifically enforceable against principal, and third party can rescind) or if performance by principal would impose an undue burden on third party.

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Determination of Right of Control (Independent Contractor vs. Employee)

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(1) How do parties characterize the relationship?
(2) Does the person hired have their own, distinct business?
(3) What are the customs of the locality?
(4) What degree of skill is required?
(5) Does worker or principal supply tools and facilities?
(6) What is the length of employment?
(7) What is the basis of compensation (i.e., paid per job, etc)?
(8) What are the terms of the contract (and what is the understanding of the parties)?
(9) Was the person hired to perform an act in furtherance of business purpose?

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Liability for Subservant (Respondeat Superior)

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Principal may be liable for acts of duly authorized subservant. May be authorized expressly or impliedly (emergency situations or reasonable to achieve result). Principal not liable for acts of subservants engaged without authority.

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Independent Contractor or Employee? (Respondeat Superior)

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Independent Contractor: One who has a calling of her own, is hired to do a particular job, is paid a given amount for the job, and who follows her own discretion in carrying out the job. Principal has no right to control how the independent contractor does the job.

Employee: Works full-time for his employer, is compensated on a time basis, and is subject to the supervision of principal in details of his work. Principal can control how employee performs his job.

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Liability for Acts of Independent Contractors

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Most times, principal not liable for acts of independent contractor. Exceptions:
(1) Where acts to be performed by independent contractor are of inherently dangerous nature (blasting, etc), principal will be held liable for resultant injury.
(2) If principal hires incompetent independent contractor and has knowledge of the incompetence, principal is liable for independent contractor's negligence. If principal negligently selects incompetent independent contractor, principal is liable to injured party for principal's negligence in selecting the contractor.
(3) When principal has nondelegable duty to act (e.g., to keep land safe for business invitees), principal will be liable for independent contractor's negligence.

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Scope of Employment (Respondeat Superior)

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Three tests generally used:
(1) Whether conduct was of same general nature as that which employee was employed to perform;
(2) Whether conduct was substantially removed from the authorized time and space limits of employment; and
(3) Whether conducted actuated at least in part by a purpose to serve the employer.

Serious criminal acts generally are outside the scope of employment. Small/minor deviations from employer's directions (detour) are within the scope. Major deviations (frolic) fall outside the scope.

Ownership of vehicle is not conclusive.

At time of act, employee must be motivated, at least in part, by desire to serve employer.

Unless expressly authorized, employee's invitation to third party to ride in employer's vehicle generally outside scope.

Employer generally not liable for torts caused by employee in use of instrumentality different from that authorization (i.e., bike messenger who uses a car and hits a pedestrian).

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Liability of Employer for Intentional Torts (Respondeat Superior)

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Generally, employer is not liable. Where force is authorized (e.g., bouncer), employer is liable.

If employee intentionally chooses a wrongful means of promoting employer's business, employer liable for resulting torts.

Employer liable for torts resulting from friction naturally engendered by type of business (e.g., bill collection).

Principal is liable for fraud of agent if agent had authorization to make statements concerning the subject matter involved. In tort ratification, employer must have knowledge of all material facts to ratify.