Agency Flashcards

Front 1

Agency Problems

Back 1

1. Liability of Principal to Third Parties for Torts of an Agent

2. Liability of Principal to Third Parties for Contracts Entered by an Agent

3. Duties Which Agents Owe to Principals

Front 2

When will principal be held liable for torts committed by an agent?

Back 2

Principal will be liable for torts committed by agent if:

a. principal-Agent relationship exists; AND
b. The tort was committed by the agent w/in the scope of that relationship.

Front 3

When is a third party precluded from recovering from the employer of an agent for a tort the agent committed?

Back 3

When the agent is absolved from liability or released from liability.

An employer's liability for an agent's torts committed on a TP is derivative.

Front 4

From whom can a TP recover for the tort of an agent?

Back 4

Agent or Agent's employer.

i.The liability of the employer for the torts of her employee is joint and several inasmuch as the victim may recover in full from either the employer or the employee.

Front 5

When can an employer be held directly liable for the torts of an employee?

Back 5

Negligent hiring / retention of an employee or negligent supervision of employee

Front 6

A principal may be held directly liable for her own negligence in hiring or retaining an employee.

What must plaintiff must show to establish prima facie case?

Back 6

1. Employer knew or should have known of the employee’s dangerous proclivities; and
2. The employer’s negligence was the proximate cause of the P’s injury.

Front 7

A principal may be held directly liable for negligence in supervising an employee.

What must plaintiff must show to establish prima facie case?

Back 7

1. Employee acts beyond the scope of his employment and the employer knows of dangerous tendencies of the employee.

Front 8

To establish that a principal-agent relationship exists, plaintiff must show what?

Back 8

i. Assent
1. Agreement: An agreement to create a principal-agent relationship between a principal who has capacity and its agent.
a. Agreement can be formal, oral or through parties’ actions.
b. Traditional principal-agent relationship is mutual and consensual.
2. Focus: on the principal’s capacity (not agent’s).

ii. Benefit
1. If the agent’s conduct is for the principal’s benefit, it furthers the principal’s objectives.

iii. Control: most important factor & most tested.
1. Power to control. Principal must have the right to control the agent by having the power to supervise the manner and method of the agent’s performance. The agent’s work must be subject to supervision by the principal.

Front 9

A principal will be vicariously liable if the agent gets the help of a “subagent” and the subagent commits the tort if there is:

Back 9

1. Assent:
a. Express OR
b. Implied assent: implied authorization can arise from
i. Past practices,
ii. Emergency situations, or
iii. A reasonable necessity to achieve an authorized result
c. Note: the employer is not VL for the torts of a subagent engaged w/o authority.

2. Benefit: same as above.

3. Control: same as above.

Front 10

Subagent Exam Tip

Back 10

1. If you have a subagent question—you likely will not find assent or control. So even if the principal benefits by the sub-agent’s activities, unless there is assent or control, there is no principal-agent relationship (i.e., the principal will not be VL for sub-agent’s tort).

Front 11

A principal will be liable for a borrowed agent’s tort when there is:

Back 11

1. Assent: same as above.

2. Benefit: same as above.

3. Control: same as above.
a. Note: on bar questions, the lender will not likely have relinquished control of the borrowed agent. Therefore, there will be no liability based on respondeat superior.

Front 12

What is the key distinction between an independent contractor and an agent?

Back 12

1. The key distinction between an agent and an independent contractor is that the principal does not have the power to supervise the manner and method of the independent contractor’s performance.

Front 13

Are principals generally liable for the torts of an independent contractor?

Back 13

No!

Front 14

How do you determine whether an employee-employer relationship exists?

Back 14

The single overriding factor in determining whether a person is an employee is whether the principal (employer) has the right to control the manner and method by which the individual performs his tasks. The following factors should be considered in determining the right to control:
i. Characterization by Parties: the parties’ characterization of their relationship is significant but not dispositive.
ii. Distinct Business: A person who has his own business or occupation is more likely to be an independent contractor.
iii. Custom Regarding Supervision: If in the locality, the type of work involved is usu. performed under the supervision of the principal, the relationship is more likely to be employer-employee. However, if the type of work is usu. performed without supervision, the relationship is more likely to be principal-IC.
iv. Skill Required: greater skill, then probably IC.
v. Tools and Facilities: if brings his own, likely IC. If supplied by principal, likely employee.
vi. Period of Employment:
vii. Basis of Compensation:
viii. Understanding of the Parties:
1. Contract Gives Right to Control: where the contract gives the principal the right to control, it is conclusive.
2. Contract Gives No Right to Control or is Silent: where the K is silent or specifically states that there is no right to control, evidence regarding exercise of actual control may be introduced.
ix. Business Purpose: whether the person was hired to further the principal’s business (nonbusiness purpose, e.g., mowing the lawn, more likely an IC).

Front 15

Exam Tip on independent contractors

Back 15

1. No Control: if you have assent and benefit and no control—you are probably dealing with an independent contractor.
2. Look For:
a. the characterization by the parties;
b. whether the business is distinction;
c. the custom of the locality regarding supervision of work;
d. the degree of skill required on the job;
e. whose tools or facilities are used;
f. what the period of employment is (definite and/or short, more likely to be an IC; indefinite and/or long, more likely to be an employee);
g. what the basis of compensation is (if on time basis, more likely employee; if on job basis, more likely an IC);
h. what the understanding of the parties is; and
i. whether the person was hired to further the principal’s business (nonbusiness purpose, e.g., mowing the lawn, more likely an IC).

Front 16

Generally, a principal is NOT vicariously liable for the torts of an independent contractor b/c there is no control.

What are the exceptions to this rule?

Back 16

a. Ultra-Hazardous Activities:
i. if the IC is hired to do something inherently dangerous involving a real risk to a third party and commits a tort, the principal can be found vicariously liable, notwithstanding absence of control.

b. Estoppel:
i. Where the principal holds out an IC as an agent and a third party relies on it, then the principal is estopped from denying the agency relationship and can then be held vicariously liable for the IC’s torts.

c. Selection of Incompetent IC:
i. Knowing Selection: if a principal who hires an incompetent IC has knowledge of his incompetence, she will be liable for the contractor’s negligence.
ii. Negligent Selection: if a principal negligently selects an incompetent IC, she will be liable to the injured party for her own negligence in selection.

d. Non-delegable Duties: there are certain situations when a principal has a non-delegable duty to act.
i. Owner-Occupier of Land:
1. If an independent contractor creates a hazardous condition on the premises and the owner-occupier knew or should have known of the condition, the owner-occupier may be held liable for injuries.
ii. Construction Accidents:
1. Labor Law sections 240 and 241 place VL upon the owner, the owner’s agent, or the general contractor (or all three) for any injuries sustained by reason of the negligence of a building contractor or subcontractor.
2. The party held VL under these statutes may seek common law or contractual indemnity from the one actually responsible for the injuries.

Front 17

Is the owner of a motor vehicle is liable to third persons for damages caused by the negligence of any person driving or using the owner's vehicle with the owner’s consent?

Are there exceptions to this rule?

Back 17

Yes owners are generally liable to these TPs.

Exception--Owner Who Rents Or Leases Vehicles
a. An owner engaged in the business of renting or leasing vehicles is not liable to third persons for damages arising out of the use, operation, or possession of the vehicle by another during the period of rental or lease unless there is negligence or criminal wrongdoing.

Front 18

What factors will courts consider when determining whether an act occurred within the employee's "scope of employment"?

Back 18

Courts will consider the following factors when determining whether the act complained of was within the scope of employment:
i. The connection between the time, place, and occasion for the act;
ii. The history of the relationship between the employer and the employee as spelled out in actual practice;
iii. Whether the act is commonly done by such an employee;
iv. The extent of departure from normal methods of performance; and
v. Whether the specific act was one that the employer could have reasonably anticipated.

Front 19

With respect to vicarious liability of employers for employee's torts-- Must the conduct of the employee be authorized for the conduct to be "within the scope of employment"?

Back 19

No.

a. Authorization Not Required—Same General Nature as Job
i. Overview of VL:
1. Conduct does not actually have to be authorized
2. Even if the act was forbidden by the employer or performed in a manner forbidden by the employer does not necessarily remove it from the scope of employment.
ii. Factors Considered:
1. The greater the responsibility entrusted to the employee, the greater the likelihood that the act will be considered w/in the scope of employment; and
2. Serious criminal act are normally considered to be outside the scope of employment.

Front 20

Vicarious Liability--Detour & Frolic

Cases involving vehicle accidents are quite often analyzed on the basis of whether the employee was on a frolic or detour.

Define Detour & Frolic.

Back 20

1. Detour: Small or minor deviations from the employers directions, fall w/in the scope of employment.

2. Frolic: major deviations fall outside the scope of employment.

Front 21

VL - Scope of Employment

Is the employer's ownership of the vehicle the employee was using conclusive of the employer's liability?

Back 21

No.

For employer to be liable for the employee’s tort, the employee must be acting w/in the scope of his employment. The fact that the employee is driving the employer’s car is irrelevant for establishing liability based on a theory of respondeat superior.
a. However: employer may be liable (under the permissive use statute) as owner of the motor vehicle.

Front 22

VL - Scope of Employment

When will the employer not be liable for an employee who engages in personal affairs while ostensibly at work?

Back 22

where an employee engages in his own personal affairs while ostensibly at work for the employer, there must be a substantial departure from employment before a court will hold that the employee was on a frolic.

Front 23

VL - Scope of Employment

Once it is shown that an employee left the scope of employment, what must be shown before the employer will be held liable for the employee’s tort?

Back 23

1. Rule: Once it is shown that the employee left the scope of employment, there must be proof of return before the employer will be held liable for the employee’s tort.
a. Note: for purposes of finding the employer liable, a court will generally require stronger proof that the employee has reentered the scope of employment than that he has remained within the employment once begun.

Front 24

VL - Scope of Employment

Must the employee have a particular motivation at the time the tortious conduct occurs?

Back 24

Yes.

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

Front 25

VL - Scope of Employment

Will employers be liable to torts inflicted upon TPs the employee invites to ride in employer's car?

Back 25

Unless expressly authorized by the employer, the employee’s invitation to a third party to ride in the employer’s vehicle is generally held to be outside the scope of the employment.

1. Unauthorized: where the employee, without authority, invites a third party to ride in the employer’s vehicle and that party is injured by reason of the employee’s negligence, the employer is not liable for the third party’s injuries.
2. Trespasser: the employer is also not liable for a passenger’s injuries where the passenger is riding without an invitation from the employee.

Front 26

VL - Scope of Employment

If an employee injures another using an unauthorized instrumentality will employer be liable?

Back 26

the employer is generally not liable for torts cause by the employee in the use of an instrumentality substantially different from that authorized. The gauge of “substantially different” will be whether the instrument used created a greater risk of harm.

Front 27

VL - Scope of Employment

Are torts that occur when employee is smoking outside the scope of employment?

Back 27

1. Traditional View: older cases held that smoking was a personal convenience, and therefore, outside the scope of employment.

2. New York View: although some jurisdictions now view the employee’s smoking as necessary to his comfort and convenience on the job, and thus w/in the scope of employment, NY Courts have not definitely adopted this view. They have, however, indicated that the employer will be liable in at least two situations.
a. Failure to Instruct: the employer will held liable for negligent smoking of the employee when she is or should be aware of the risk caused by smoking and fails to instruct the employee not to smoke.
b. Smoking While Performing Job: if the employee’s smoking occurs while he is performing his job (as opposed to during a break) and injury results therefrom, the employer will be liable.

Front 28

VL - Scope of Employment

Will employer be liable if employee commits a tort while on a trip that serves two purposes?

Back 28

Rule: often, the facts will reveal that the employee is serving two objectives on a trip; one his employer’s, one of his own. The question of whether he is w/in the scope of employment is one of fact. A number of courts will generally find that he is w/in the scope of employment where any substantial purpose of the employer is being served.

Front 29

VL - Scope of Employment

Is a tort an employee commits a tort while commuting to work within the scope of employment?

Back 29

Rule: An employee driving to and from work usually is not working within the scope of his employment because, although the activity is work motivated, the element of control by the employer is lacking.

Front 30

VL - Intentional Torts

Are employers generally liable for intentional torts committed by their employees?

Are there exceptions to the general rule?

Back 30

Rule: The employer is not usually liable for the intentional torts of her employee on the simple ground that an intentional tort is clearly outside the scope of employment.

Exception: where the intentional tort occurs as a natural incident to the carrying out of the employer’s business, or if any benefit may be found running to the employer, courts tend to hold the employer liable.

Front 31

VL - Intentional Torts

When are intentional torts within the scope of employment?

Back 31

If the conduct was:


1. Authorized by the principal

2. A natural incident/part to carrying out the employer’s directions

3. Motivation by a desire to serve/benefit the principal.

Front 32

VL - Intentional Torts

Explain the situations in which an employer will be held liable for a TP's physical injuries.

Back 32

i. Force is Authorized:
1. Torts that occur in the course of a job such as that of a bouncer will cause an employer to be liable for those torts because the employer has authorized the use of force in the performance of the job at hand.
ii. Promotion of Employer’s Business:
1. If the employee intentionally chooses a wrongful means to promote the employer’s business, the employer will be held liable for any torts that result.
iii. Friction Generated by Employment:
1. An employer will be liable for torts that result from friction naturally engendered by the employer’s business, such as the friction inherent in bill collection.

Front 33

VL - Intentional Torts

When will an employer be held liable for the fraud of its employee?

Back 33

A principal will be liable for the misrepresentations of her agent if the agent had authority (actual, apparent, or inherent) to make statements concerning the subject matter involved.
i. Agent’s Liability: an agent may be held personally liable for negligent misrepresentation to one who in reliance on such misrepresentation, enters into a contractual relationship with the agent’s principal.

Front 34

VL - Intentional Torts

Can an employer ratify his employee's tortious acts?

Back 34

An employer may ratify the unauthorized tortious acts of his employee.
i. The same rules previously discussed under ratification of contracts apply. In tort ratification situations, play particular attention to the requirement that the employer have knowledge of all material facts.

Front 35

VL - Contract Liability

Are all contractual formalities required to establish an agency relationship through contract?

Back 35

No.

Front 36

VL - Contract Liability

What must a principal have to enter into a principal-agent relationship (i.e. what are the condition precedents)?

Back 36

A principal must have:
1. legal capacity to enter into a contract (be able to bind himself to the contract) AND

2. the authority to grant his agent power.

Front 37

Does the degree of capacity required for a principal differ from that required for an agent?

Back 37

Yes!

A principal must have contractual capacity. Thus, some people and entities cannot be agents.

However, an agent need not have contractual capacity-- any person can be an agent, even if he has no contractual capacity. H/e minimal contractual capacity is required (incompetent cannot be agent)

Front 38

The right of election is personal to the surviving spouse because the purpose of the elective share statute is to protect the spouse, not her heirs., , Therefore, who can make an election for the spouse on the spouse's behalf if the spouse is incapacitated., VL - Contract Liability, Who is barred from acting as a principal (because they lack capacity) or is only capable of entering into voidable principal-agent relationships?

Back 38

a. Minors: As a general rule, a minor cannot bind himself absolutely in contract; therefore, his appointment of an agent as well as the agent’s actions are voidable and can be disaffirmed by him.
i. Exception: minors can s/ts appoint an agent to contract for “necessaries.”
ii. Minors in Entertainment Industry: contracts made by those dealing with infants in the entertainment industry are subject to two conditions:
1. The contract may be guaranteed against disaffiramnce if prior judicial approval is obtained.
2. If judicial approval was not or could not have been obtained, the contract may be enforceable, but resolution of enforceability must await an attempt to dissafirm.
b. Incompetents: appointment of agent as well as the agent’s actions can be disaffirmed by the incompetent or his committee or personal representative.
c. Unincorporated Organizations: (e.g., churches and clubs) cannot be principals. H/e, members of such organizations may be held jointly liable as principals if they have authorized or assented to the act giving rise to the litigation.

Front 39

VL - Contract Liability

Who is disqualified from being an agent?

Back 39

Disqualification of Agents: a person is disqualified from being an agent in the following situations
1. Representing Both Parties: an agent cannot represent both parties unless both parties are fully advised of the facts and agree to the dual representation.
2. Self-Dealing: the agent may not secretly act for her own account
3. Not Licensed: if the law requires the agent ot have a license, she cannot act without one, e.g., brokers, insurance agents. In practice, this means that the unlicensed agent cannot recover commissions for her work.

Front 40

VL - Contract Liability

What formalities are and are not required to create a principal-agent relationship?

Back 40

a. Consent: must be manifested by both the principal and the agent to create an agency relationship.
b. No Consideration Required: not necessary to create agency relationship.
c. Writing:
i. General Rule—No Writing Required:
1. Normally does not have to be evidenced by a writing. This is true even where the SoF requires the agmt that the agent is entering on behalf of the principal to be in writing.
ii. Conveyance of Real Estate:
1. A party relying on a written contract of sale of an interest in realty greater than one year must show that the agent’s authority to sign was in writing or that the principal has ratified the signing.

Front 41

VL - Contract Liability

What are the modes of creating an agency relationship?

Back 41

An agency relationship can be created by the acts of the parties or by operation of law.

Front 42

VL - Contract Liability

How can two parties create an agency relationship?

Back 42

a. Acts of the Parties that can create an agency relationship:
i. Actual Authority:
1. The principal may, by communication to the agent, orally or in writing, actually appoint her to act on the principal’s behalf.

ii. Apparently Authority:
1. The principal, by communication to the third party, may authorize the agent to act on his behalf.

iii. Inherent Authority:
1. The principal, by actually authorizing the agent to act, may be liable for acts done by the agent in violation of the principal’s orders.

iv. Ratification:
1. An agency relationship may be created by the principal’s affirmation of the actions of one who purported to be acting on his behalf. In short, a ratification is an affirmance of a previously unauthorized act.

Front 43

VL - Contract Liability

How can an agency relationship be created by operation of law?

Back 43

i. Estoppel: An agency relationship may be created through estoppel (i.e., a principal may be estopped from denying the existence of the agency).
1. Note: There is little difference between estoppel and apparent authority; they both depend on a third person’s reliance on a communication from the principal. The former, however, is merely a remedy to prevent unjust enrichment, while the latter gives rise to a contract with its concomitant rights and obligations.
ii. Statute: an agency may be created by statute; such statutes are usually designed to accomplish a limited purpose.

Front 44

VL - Contract Liability

What is Actual Express Authority?

Back 44

This type of authority is created when a principal uses express words to grant an agent authority.

Front 45

VL - Contract Liability

What are the formalities requirements for actual express authority to be vested or created?

Back 45

Actual express authority can be oral (in NY) and private communication b/t principal and agent (no requirement that it be publicly broadcast), but it is often narrowly construed.

a. Exception:
i. In New York: if a contract involves an interest in land lasting more than 1 year, the express authorization MUST be in writing. It cannot be in oral (involves SoF).

Front 46

VL - Contract Liability

How can Actual Express Authority be revoked?

Back 46

Express authority can be revoked by:
a. Unilateral act of either the principal or the agent, or
b. Death of the principal

Front 47

VL - Contract Liability

What is the effect of a principal's incapacity? What is the general rule and are there exceptions?

Back 47

A principal’s incapacity generally terminates an agent’s authority.
a. Exception: However, express authority cannot be revoked if the principal gives the agent a durable power of attorney.
i. A power of attorney is a written authority to enter into a transaction on the principal’s behalf. A durable power of attorney typically survives the principal’s incapacity but not the principal’s death.

Front 48

VL - Contract Liability

What specific factors should be consulted to determine whether an agent had actual express authority

Back 48

1. Factors: In determining whether the actor had actual authority, you should ask yourself:
a. whether the requisite formalities, if any, have been complied with;

b. what type of actual authority (express or implied) is present; and

c. whether the authority has been terminated.

Front 49

VL - Contract Liability

What is actual or real authority?

Back 49

Actual or real authority is that authority the agent reasonably thinks she possesses. It does not depend upon knowledge of, or reliance by, the third party.

Front 50

VL - Contract Liability

How many basic types of real authority are there?

Back 50

There are two basic types of real authority:

1. Express authority
2. Implied express authority

Front 51

VL - Contract Liability

How will courts generally construe express authority of an agent?

Back 51

i. Construction of Authority: in general, the grant of authority given to an agent will be interpreted in a fashion similar to interpretation of offers under contract law (i.e., reasonable person standard)

Front 52

VL - Contract Liability

How will courts generally construe "extravagant language" granting actual express authority?

Back 52

1. Extravagant Language: grants of authority often contain “extravagant” language that appears to give extremely broad powers to the agent (e.g., “to conduct any business on principal’s behalf”)

a. Courts will generally limit application of such broad grants to what appears to be the business actually intended by the parties.

Front 53

VL - Contract Liability

How will courts construe general versus specific language?

Back 53

Specific vs. General Language: specific language in the grant of authority will prevail over general language.

Front 54

VL - Contract Liability

Are there rules governing how an agent must go about construing the scope of his or her power?

Back 54

Yes.

Reasonable Belief of Agent: the agent is free to act upon her grant of authority as she reasonably believes the principal intended. In construing the intent of the principal, the agent may look to the principal’s words and acts when he conveyed authority.

Front 55

VL - Contract Liability

May express authority be mistakenly granted?

Back 55

Yes! Express Authority may be granted mistakenly

Express authority may exist even though the principal did not intend to convey such authority but did so by mistake.
1. Mistakes may involve:
a. The person to whom the authority is given; or
b. The subject matter.

Front 56

VL - Contract Liability

What is actual implied authority?

Back 56

This is authority which the principal gives the agent through conduct or circumstances.

Front 57

VL - Contract Liability

Define how authority can be implied from express authority?

Back 57

Implied actual authority is authority that the agent (not the third party) reasonably believes she has as a result of the actions of the principal.

Front 58

VL - Contract Liability

How may implied authority arise?

Back 58

Implied authority is that which the agent reasonably believes she has as a result of the principal's actions. It includes

1. incidental to express authority;
2. arising out of custom known to agent
3. resulting from prior acquiescence by the principal
4. to take emergency measures
5. to agree to a settlement during litigation
6. to delegate authority in cases of ministerial acts, where circumstances require, where performance is impossible without delegation, or where delegation is customary.
7. to pay for and accept delivery of goods where there is authority to purchase
8. to give general warranties as to fitness and quality and grant customary covenants in land sales, collect payment, and deliver where there is authority to sell, and
9. to manage investments in accordance with the "prudent investor" standard.

Front 59

VL - Contract Liability

Explain how implied authority can arise from express authority.

Back 59

a. Express authority granted to an agent to accomplish a particular result necessarily implies authority to use all means reasonably necessary for its accomplishment.

Front 60

VL - Contract Liability

Explain how implied authority can arise from custom and usage.

Back 60

a. Unless specifically directed otherwise, an agent has implied authority to act in accordance with general custom or usage. However, the agent must have knowledge of that custom or usage.

Front 61

VL - Contract Liability

Explain how implied authority can arise from acquiescence.

Back 61

a. Authority by acquiescence is implied authority resulting from the principal’s acceptance of, or failure to object to, a series of unauthorized acts (i.e., a series of ratifications), that reasonably leads the agent to believe that she has authority to do the same act in the future.

Front 62

VL - Contract Liability

Explain how implied authority can arise during an emergency or through necessity.

Back 62

a. When the agent has no specific instructions on what to do in case of an emergency, she has implied authority to take reasonable measures that are necessary until she can contact her principal.

Front 63

VL - Contract Liability

Explain how implied authority can arise during litigation

Back 63

a. An agent’s authority may be implied because of litigation. For example, a stipulation of settlement made by counsel in open court will bind his client even where it exceeds his actual authority. A party may be relieved from the consequences of a stipulation entered into during litigation only where there is cause to invalidate the attorney-client contract.

Front 64

VL - Contract Liability

When will an principal be deemed to have impliedly consented to a delegation of authority?

Back 64

Generally, an agent’s authority will not be construed to permit her to delegate any of her authority. The courts reason that an agency relationship is a consensual relationship, and the principal has not consented to someone else performing the agent’s functions. H/e, the principal will be held to have impliedly consented to a delegation of authority by the agent in the following cases:

i. Ministerial Acts:
1. An agent may employ a subagent to execute ministerial acts (purely mechanical acts).

ii. Delegation Required by Circumstances:
1. Often circumstances may indicate that the employment of a subagent would be necessary. If so, authority to delegate will be implied.

iii. Custom:
1. An agent may delegate to a subagent when it is the custom of a particular business.

iv. Impossibility:
1. A principal will be held to have impliedly consented to subdelegation where those acts being performed could not, by definition, be performed by the agent herself.

Front 65

VL - Contract Liability

What type of implied authority is generated when a principal gives his agent the power to make purchases on his behalf?

Back 65

Authority to purchase on behalf of the principal generates certain implied authority.
i. Authority to Pay:
1. An agent is deemed to have authority to pay for the goods she is authorized to purchase. She may do this either out of the principal’s funds or on credit if such funds are available.

ii. Authority to Accept Delivery:
1. An agent with authority to purchase goods is also deemed to have authority to accept delivery of the goods.

Front 66

VL - Contract Liability

What type of implied authority is generated when a principal gives his agent the power to make sales on his behalf?

Back 66

An agent with authority to sell her principal’s property is deemed to have certain implied authority.
i. Authority to Warrant:
1. An agent having authority to sell personal property may give general warranties respecting the quality and quantity; for real property the agent may grant the customary covenants.

ii. Authority to Collect
1. Only if Agent Has Possession of Goods:
a. An agent with authority to sell the principal’s property has authority to collect payment if the property sold is in her possession.
2. Can Collect Only Cash:
a. Payment for property sold must be in cash; an agent may not accept a check or extend credit (unless, of course, implied consent, e.g., custom, past practice btw the parties, etc., can be found).
iii. Authority to Deliver:
1. An agent having authority to sell the principal’s property generally is deemed to have authority to deliver possession of such property upon receipt of proper payment.

Front 67

VL - Contract Liability

What type of implied authority is generated when a principal gives his agent the power to manage his investments on his behalf?

Back 67

i. An agent having authority to manage investments will have her authority construed in accordance with a “prudent investor” standard.

ii. Also, when the agent is investing for the principal, the agent should take title to investments in the principal’s name; if title is taken in the agent’s name, her position as agent must be clearly designated.

Front 68

VL - Contract Liability

After you have determined that actual authority was created, you must then consider whether that authority has been terminated.

How may termination occur?

Back 68

Termination occurs by:

1. lapse of a specified or reasonable time
2. the happening of a specified event
3. a change in circumstances, including destruction of the subject matter of the authority, insolvency of the agent or principal, and a change in the law or business conditions.
4. agent's breach of fiduciary duty
5. either party's unilateral termination (although such termination may constitute a breach of contract; or
6. by operation of law (e.g., death or loss of capacity of either party except where a durable power of attorney--written authority that says it will not terminate on the principal's disability-- is present.

Front 69

VL - Contract Liability

Explain how an P-A relationship can be terminated by a lapse of time.

Back 69

a. Specified Time: if the agency relationship is to last for a set period of time, the agent’s authority will terminate upon expiration of this period.

b. Time Not Specified: If there is no set period of time specified in the agreement between the principal and agent, the courts will imply termination w/in a reasonable time period.

Front 70

VL - Contract Liability

Explain how a P-A relationship can terminate by the happening of an event.

Back 70

An agency agreement may specifies that it is to last until a specified event happens. When that event takes place, authority will be terminated.

Front 71

VL - Contract Liability

Explain how a P-A relationship can terminate by changes in circumstances.

Back 71

A change of circumstances that should cause an agent to realize the principal would not want the agent to exercise her authority terminates her authority.
a. A change of circumstances sufficient to bring about termination would include the following:
i. Destruction of the subject matter of the authority;
ii. A drastic change in business conditions;
iii. A change in relevant laws; and
iv. Insolvency of the agent or principal, if relevant.

Front 72

VL - Contract Liability

Explain how a P-A relationship can terminate by a breach of an agent's fiduciary duties

Back 72

A breach of fiduciary duty by the agent terminates her authority.

Front 73

VL - Contract Liability

Explain how a P-A relationship can terminate by unilateral acts of the principal or agent.

Back 73

Either the principal or the agent can unilaterally terminate the agency relationship.
a. Communication of a declaration that the agency is at an end is sufficient.

b. Note: the power to unilaterally terminate the relationship exists even though the party who exercises that power may be in breach of the agency contract when he does so. The breaching party could, of course, be liable for damages.

Front 74

VL - Contract Liability

Explain how a P-A relationship can terminate by operation of law.

Back 74

An agency relationship may be terminated by operation of law without regard to the wishes of the parties. This can occur by:

1. death
2. incapacity of the principal
3. dissolution of the corporation or partnership.

Front 75

VL - Contract Liability

Explain how a P-A relationship can terminate by death. Are there exceptions?

Back 75

In General: the death of either the principal or the agent terminates the agency relationship at the time of death, with or without knowledge of the surviving party.

1. Power of attorney: a written instrument authorizing an agent to perform specific acts—not involving a principal in the military service—terminates upon the death of either party.

Exceptions:
1. Bank Transactions: The Uniform Commercial Code (UCC) provides that a bank may pay or collect the commercial paper of a customer until it receives notice of death and has a reasonable opportunity to act on it. Even with knowledge of the customer’s death, a bank may for 10 days after the date of death pay or collect commercial paper drawn on or prior to the date of death.

2. Military Employees: the death of a principal who is a member of the armed forces does not terminate a written power of attorney if the attorney-in-fact does not have actual knowledge or notice of the principal’s death and acts pursuant to the power in good faith.

Front 76

VL - Contract Liability

Explain how a P-A relationship can terminate by the incapacity of the principal.

Back 76

i. Adjudicated: if the principal is formally adjudicated an incompetent, the prior authority possessed by his agent is immediately terminated and any transaction by the agent with third parties is void.
1. UCC: provides that a bank may continue to honor transactions for a customer’s account until it learns of the adjudication of incapacity and has a reasonable time to act.
2. Exception—Durable Power of Attorney: the principal’s incapacity does not terminate the authority of an agent acting pursuant to a durable power of attorney unless the power expressly provides that authority terminates upon incapacity.

ii. No Adjudication:
1. Knowledge: if an agent enters into a transaction with a third party and the third party has knowledge of the principal’s incapacity at the time of the transaction, the transaction is void.
2. No Knowledge: if an agent enters into a transaction with a third party and the third party has no knowledge of the principal’s incapacity other than death at the time of the transaction, the agreement is valid.
3. Statute—Power of Attorney: N.Y. Gen. Obligation Law authorizes a principal to provide a written power of attorney that the power shall not be affected by the subsequent disability or incompetence of the principal. If this authorization is given, all acts done by the attorney-in-fact during the subsequent disability or incompetence of the principal would have the same effect as if the principal were competent and not disabled. If a committee thereafter is appointed for the principal, the attorney is accountable to the committee rather than to the principal. The committee may revoke, suspend, or terminate the power to the same extent as the principal were he not disabled or incompetent.

Front 77

VL - Contract Liability

Explain how a P-A relationship can terminate by the dissolution of a corporation or a partnership.

Back 77

i. Generally, the dissolution of a corporation or partnership terminates any agency relationship.

Front 78

VL - Irrevocable Agencies

What types of agency relations may not be unilaterally terminated by the principal?

Back 78

There are two types of agency relations that may not be unilaterally terminated by the principal:
1. Where the agent has an interest in the subject matter of the agency, and
2. Where the agent has a power given for security.

Front 79

VL - Irrevocable Agencies

What is an agency coupled with interest?

Back 79

1. Agency coupled with interest: an agent has an “interest” when she has been given immediately exercisable rights in the property.

Front 80

VL - Irrevocable Agency

Explain when an agent has a power given for security.

Back 80

2. Power given as security: a power given as security is normally exercisable by the agent only upon a subsequent default by the principal.
a. These types of transactions normally involve a loan to the principal posting collateral and giving the agent authority to sell in the event of default.

Front 81

VL - Irrevocable Agencies

When an agency agreement is coupled with an agreement (irrevocable agencies), the agency status is not strictly speaking an agency. Explain.

Back 81

Agency status: strictly speaking, the above are not agencies at all because the first is technically an assignment for purposes of securing a loan, and in the second the agent is not acting under the control of the principal or for the principal, but as the principal where default occurs. In addition, unlike other agency relationships, these do not terminate by operation of law.

Front 82

VL - Irrevocable Agencies

What is the restatement's view on agency agreements coupled with interests (irrevocable agencies).

Back 82

Restatement View: the restatement (Third) of agency (“restatement”) does not distinguish between these two types of interests—it treats them both as powers given as security. Under the restatement view, the power is absolutely irrevocable other than in accord with the agreement. There are two other requirements that must be met.
1. Purpose of Grant: the grant of authority must have been given to protect a debt, other duty, or title of the agent or third person.
2. Consideration: the grant must be supported by consideration.

Front 83

VL - Apparent Authority / Contract Liability

What is the basic theory of apparent authority?

Back 83

Apparent authority arises from reasonable beliefs of third parties. If a principal directly or indirectly holds out another as possessing certain authority, thereby inducing reasonable reliance by others on that authority, the person so held out has apparent authority, even though as between himself and the principal such authority has not been granted.

Front 84

VL - Contract Liability

Exam Tip on Apparent Authority.

Back 84

Be sure to remember that in an apparent authority situation, you need to discuss what transpired between the principal and the third party. This differs from an actual authority situation, where you would be discussing what transpired between the principal and the agent. In discussing apparent authority, ask yourself what the principal did to indicate to the third party that the agent had authority.

Front 85

VL - Contract Authority

What are the two types of apparent authority?

Back 85

1. where an agent has no actual authority of any type
2. where an agent exceeds the scope of his actual authority.

Front 86

VL - Contract Liability

Explain situations in which a principal can be held liable for an agent's actions even though the agent has no apparent authority.

Back 86

A principal can still sometimes be held liable for agent’s actions, even though that agent has no apparent authority.

a. Imposters: where the principal negligently permits an imposter to be in a position where the imposter appears to have authority to act for the principal, the principal will be held liable for the imposter’s act undertaken with such authority.

b. Linger Apparent Authority:
i. General Rule—Notice May be Necessary:
1. Agent: terminates when she knows or should have known of the termination.
2. Third Party: if principal knows of dealings b/t one of his agents and a third party, he must give notice to the TP that the agent’s actual authority has been terminated. If he fails to do so and if he TP did not know nor reasonably should have known of the termination of the agent’s actual authority, the agent will continue to have apparent authority.
ii. Writing Manifesting Agent’s Authority: if the principal has given the agent a writing manifesting her authority that is meant to be shown to TPs, the agent’s apparent authority will not be terminated with respect to TPs who see and rely on the writing after the termination of agent’s authority.
iii. Death or Incapacity: Death or incompetency of the principal terminates all authority of the agent w/o notice to either the agent or third parties.

Front 87

VL - Contract Liability

Explain situations in which a principal can be held liable for an agent's actions even though the agent has exceeded the scope of his apparent authority.

Back 87

Even where agent exceeds her authority to act on principal’s behalf, principal can still be held liable.
a. Prior Acts: where the principal has allowed agent to previously act outside her authority and the principal knows that a TP is aware of this fact, the principal will be bound by agent’s unauthorized act.
b. Position
i. In General: principal responsible for agent’s customary responsibilities even if agent doesn’t have actual authority to perform these responsibilities.
ii. General versus Special Agent:
1. General Agent: one who is authorized to engage in (1) a series of transactions (2) involving a continuity of services.
2. Special Agent: authorized to engage in one or more transactions not involving a continuity of service.
c. Secret Limiting Instructions: where a principal secretly limits the actual authority of his agent to act, and the agent, when dealing with a TP, acts beyond the scope of the limitation, the principal will be bound by the agreement made between the TP and the agent.

Front 88

VL - Contract Liability

Explain the concept of inherent authority.

Back 88

Inherent authority results in the principal's being bound even though the agent had no actual authority to perform the particular act. This occurs because courts wish to protect innocent TPs rather than a principal who gave some actual authority to the agent.

Front 89

VL - Contract Liability

What are some examples of inherent authority?

Back 89

1. Respondeat Superior-- under the doctrine of respondeat superior, the principal is held liable for the torts her employee committed w/in the scope of her employment.

2. Conduct similar to that authorized-- where an agent exceeds his actual authority, but the conduct is similar to acts authorized, the principal will be held liable.

3. Improper Disposition of Goods-- the principal will be held liable for the disposition of her goods by an agent possessing them if the agent was given some indicia of ownership, or if the goods disposed of where sold by an agent who is a dealer in the particular goods.

Front 90

VL - Contract Liability

Explain the theory of inherent authority under which a principal will be held liable for the improper disposition of goods.

Back 90

General rule—mere possession is insufficient – does not entitle agent to sell goods or transfer them.
i. Note—for the possessor goods to have authority to transfer good title w/o authority, she must either have some indicia of ownership or be a dealer in the goods.

Front 91

VL - Ratification

Explain the effect of a principal ratifying a P-A relationship

Back 91

An agency relationship is created by ratification when an "agent" purports to act on behalf of a "principal without any authority at all, but the "principal" subsequently validates teh act and becomes bound.

Ratification gives the transaction retroactive effect unless the "principal" lacked contractual capacity at the time the "agent" entered into the unauthorized transaction (in whcih case the "principal" is deemed to have "adopted" the contract), or unless retroactivity would interfere with intervening TP rights. Upon ratification, the "agent" is relieved of liability for a breach of his implied warranty of authority.

Front 92

VL - Ratification

What are the prerequisites of ratification.

Back 92

For ratification to occur, the "principal" must know (or have reason to know) all material facts, accept the entire transaction, and have capacity (be competent and of legal age). Ratification is a unilateral act of the "principal" and requires no consideration.

Front 93

VL - Ratification

What are the methods of ratification?

Back 93

Ratification may be express or implied through the conduct of the princpial. Such conduct would include acceptance of the transaction's benefits, silence if there is a duty to disaffirm, and suing on the transaction.

Front 94

VL - Ratification

What may ratified and by whom?

Back 94

Generally, a principal may ratify anything she could leaglly do, unless performance was illegal at the time of the ratification, the TP has withdrawn, or there has been a material change in circumstances. Only a disclosed or partially disclosed "principal" may ratify. An "agent" may not treat the contract as his own.

Front 95

VL - Ratification

Can an agent be granted authority after a contract has been entered into? If so what is the rule?

Back 95

Yes!

i. Rule: 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 its benefits.
ii. Exception: ratification cannot alter the terms of the contract.

Front 96

VL - Contract Liability

What are the rules of the liability on contracts for principals

Back 96

Rule: the principal is generally liable on its authorized contracts, and therefore, as a rule, the agent is not liable on an authorized contract.
1. Exception: if there is no authority, the agent is liable on the contract.
2. Exception: if principal is partially disclosed (only the identity of the principal concealed) or undisclosed (fact that there is a principal is concealed), authorized agent may nonetheless be liable at the election of the third party.

Front 97

VL - Agent Duties

What duties does an agent owe a principal?

Back 97

In return for reasonable compensation and reimbursement of expenses, agents owe principals a
a. Duty of reasonable care: an agent must exercise reasonable care in exercising her job and keeping the principal informed.
b. Duty to obey reasonable instructions: an agent must following instructions, except when those instructions are to lie or break the law.
c. Duty of loyalty: an agent must be loyal to his principal. Thus, an agent may never do any of the following:
i. Self-dealing: agent cannot receive a benefit to the detriment of the principal
ii. Usurping the principal’s opportunities: cannot steal agent’s opportunities.
iii. Secret Profits: making a profit at the principal’s expense w/o disclosure.