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- A person who acts on the behalf of another based upon instructions of another.
- An agent may bind his principal under contract or tort law.
- A person who allows an agent to act on his behalf subject to his control and instruction.
- A principal may be bound by the acts of his agents under contract or tort law.
The most common agency relationship
The employment context, where the employer is the principal and the employee is the agent.
A husband and wife relationship
Does not establish an agency relationship unless the spouse knowingly accepts benefits (ratifies) the unauthorized acts of the other spouse.
Creation of Agency Relationship.
- An agency relationship can be created by (1) appointment, (2) implication, (3) misinterpretation or (4) ratification.
- To form an agency relationship, the principal has to manifest his assent/agreement to be in an agency relationship- either expressly or through implication.
- The agent must agree and consent to act on behalf of the principal, subject to the principals control.
Formation of Agency relationship - Principal
- The principal must be someone who has legal capacity to enter into an agreement and has the right to control the agents actions. Courts consider the following factors in determining an agency relationship:
- (1) The principal exercises significant control over the details of the workers day-to-day activities;
- (2) The principal supplies the tools at the place of employment;
- (3) The principal pays the worker on a structured pay period;
- (4) The workers skill level is specialized; and
- (5) The principal directs the work to completion.
Formation of Agency relationship - Agent
- The agent must assent to act on the principals behalf and subject to the principals control.
- It can be anyone (1) a gratuitous agent who does not require consideration, (2) no writing requirement to form, and (3) only requires minimum capacity to become an agent.
- The agents action may subject the principal to liability.
A person with broad grant of authority by the principal.
A person with a special or unique authority to bind the principal to a specific task.
- A person that the agent has appointed to perform tasks that the person has agreed to perform.
- Once appointed, the sub-agent owes duties and is liable to both the agent and the principal.
- The sub-agent may also bind the agent or the principal in tort or contract.
- A person who does work for another but is not subject to their control is called an independent contractor.
- An independent contractor is not considered an agent of the person, but the designation of independent contractor is not dispositive.
Factors for independent contractors.
- Courts look primarily to the other persons right to control when determining whether the putative independent contractor is an independent contractor:
- (1) Bears the risk and benefits from good management;
- (2) Maintains a high level of independence;
- (3) Is free to work for others;
- (4) Agrees to be paid a fixed fee;
- (5) Receives payment based on results;
- (6) Is liable for work performed; and
- (7) Accepts responsibility to remedy defects at her own expense.
Burden of proof of agency.
The party seeking to establish the existence of an agency relationship has the burden of proving that the relationship has been properly formed.
Equal dignities rule.
- When a statute requires a principals authorization to be in writing, the agent must provide written proof of the agency requirement as well.
- This may serve as a defense, although MD court have neither adopted nor rejected the rule.
Power of Attorney.
In MD, a power of attorney must be (1) in writing (2) signed by the principal and then (3) notarized and (4) attested to by two adult witnesses.
Power to Bind under Contract Law
- Under contract law, the liability of the principal is based upon the authority of the agent.
- To bind the principal, the agent must generally act with authority.
Actual authority is what the agent reasonably believes the principal has instructed him to do.
Express actual authority.
- An agent has express actual authority when the agent has a clear, express instruction about what the principal wants him to do.
- Must be both objective and subjective belief.
- Generally, must communicated directly with the agent.
- Third partys notice is irrelevant.
Implied actual authority.
- Actual implied authority allows the agent to take whatever actions are necessary to carry out the principals express instructions.
- Can be demonstrated by CAPE.
- Custom in industry.
- Acquiescence by the agent/failure to object.
- Position provides power for duties.
- Emergency situations gives the agent to take reasonable actions necessary.
- Apparent authority arises when the principal acts in a manner that causes a 3rd party to reasonably believe that the agent had the authority to act.
- Reasonable belief can arise through:
- (1) position,
- (2) past dealings
- (3) custom
- (4) industry standards and
- (5) principal statements.
- However, if novel/unique without benefit to the principal, then a court may find that the apparent authority does not bind the principal.
If a third party reasonably believes that the principal has given the imposter authority to act, then the imposters actions can bind the principal.
Termination of Authority - express
To terminate express authority, there must be some communication between principal and agent.
Termination of Authority - apparent
To terminate apparent authority, the principal must communicate to the third party that the relationship or authority is terminated.
What can terminate agency relationship.
- Termination can occur through:
- (1) revocation,
- (2) agreement,
- (3) changed circumstances,
- (4) passage of time,
- (5) a termination after a reasonable period of time,
- (6) death of the principal when the agent has knowledge the death,
- (7) death of the agent,
- (8) principals loss of capacity, and
- (9) agents breach of duty.
Durable power of attorney.
- When a principal designates another as an attorney in fact or agent by a power of attorney in writing, it is a durable power of attorney.
- Should be in writing, evidence the agents appointment, and express the principals intention that the power will take effect upon such an event.
- Acts by the agent will bind the principal as though the principal was alive and competent.
Statutory termination - banks
A bank may cash a decedents checks for up to 10 days after the decedents death despite actual knowledge of his death.
A principal may elect to ratify an act of an agent despite no actual or apparent authority for the action.
Requirements for ratification
- An action must be ratified in its entirety
- The principal must have the capacity to ratify
- There must be a manifestation of assent, either express or implied
- The ratification must be timely
- The principal must have knowledge of all material facts.
A principal will be prevented from denying the existence of an agency relationship when a third party has been induced to detrimentally change her position based upon a reasonable belief that the agent is acting for the principals benefit. The principal will be held liable for the principal/purported principals failure to take reasonable steps and use ordinary care to give the appearance of authority.
Principals Liability Under Tort Law
- Respondeat Superior.
- A form of vicarious liability when an employer is held strictly liable for the tortious actions of his employees.
- An employer/principal will be held liable for these actions, despite innocence of wrongdoing.
- Focuses on control of employee and scope of employment.
Respodeat Superior - Control.
- Must be an employee and not an independent contractor.
- The employee/IC must be subject to the control of the employer, who controls the manner and means of performance.
Respondeat Superior - Scope of Employment.
- An agent acts within the scope of employment when the employee is acting under the express and implied instructions of the employer.
- An agent acts within the scope of employment when she acts with apparent authority.
- When outside the express or implied instructions, the employer may still be responsible for detours.
A personal errand or slight deviation which is relatively minor or for the benefit of the employer is considered a detour.
A significant deviation while running an errand or acting independently and not for the benefit of the employer is considered a frolic. An employer is not liable for torts which occur during frolics.
Principal's Liability for Torts
- A principal is strictly liable for direct liability when the employee acts with actual or apparent authority or the principal tries to delegate a non-delegable duty.
- A principal may be liable for negligence in selecting, supervising or controlling the agent.
Agents Liability - Disclosed Principal.
Under contract law, an agent who has disclosed the existence of a principals existence and identity is generally not a party to the contract and is therefore not liable on the contract.
Agents Liability - Partially Disclosed Principal.
Under contract law, an agent who has disclosed the existence of a principal but not the principals identity is party to the contract and may be held liable on the contract.
Agents Liability - Undisclosed Principal.
When a third party discovers the existence of an undisclosed agent can choose whether to hold the principal or the agent liable under the election of remedies doctrine.
Agents Liability - Torts.
An agent is always liable for their own torts.
Agent's Breach of Warranty.
- Implied warranty. An agent or actor purporting to be an agent for a principal gives an implied warranty of authority, and in the event that the agent or actor lacks the actual authority, the actor or agent may be held liable for breach. Only when principal is disclosed or partially disclosed.
- Express warranty. An agent may give an express warranty of agency to induce a third party to deal with him, and the lack of actual authority is a breach of
Principal Rights in an agency relationship.
- There are five.
- Right to control the agents actions.
- Right to expect that the agent will carry out the actions with reasonable care.
- Right to expect loyalty and obedience.
- Right to receive notice about relevant issues.
- Right to receive accounting to property and funds.
Principal Duties in an agency relationship.
- There are five.
- 1. Duty of fairness and good faith to the agent.
- 2. Duty to comply with contracts made in conformity.
- 3. Duty to comply with agreements to compensation.
- 4. Duty not to interfere with work of the agent.
- 5. Duty to reimburse agent against loss suffered during relationship. Does not apply to wrongful conduct.
Agent Rights in an agency relationship.
- There are four.
- 1. Right to be compensated.
- 2. Right to non-interference.
- 3. Right to receive reimbursement.
- 4. Right to work in a safe environment.
Agent Duties in an agency relationship
- 1. Duty of loyalty to the principal and work only for his benefit
- 2. Duty of care to perform with reasonable diligence and skill
- 3. Duty to provide information to the principal regarding all matters relating to the agency
- 4. Duty of obedience to the principal
- 5. Duty of accounting, including (1) not to usurp a business opportunity from the principal, (2) to take financial gain or (3) commingle the principals property with his own or a third party.