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A legal relationship in which one person or entity (the principal) appoints another person or entity (the agent) to act on his behalf.
What are the requirements to form an agency.
- A principal with capacity (not incompetent and not a minor)
- Consent of the parties
When must an agency relationship be put in writing?
- When an agent is used for land sale contracts
- When the agency agreement cannot be performed in one year.
True / False: The agent must have capacity.
- The agent can be a minor or incompetent
True / False: All agency relationships must be in writing.
- Only when the agent is to enter into a land contract OR
- When the agency agreement cannot be performed in one year.
What is an “attorney in fact?”
An agent under a power of attorney.
True / False: On a power of attorney, the agent must be a lawyer and sign the POA.
- The agent may be anyone
- Only the principal need sign the POA
[HIGHLY TESTED] What 4 duties are owed by the agent (fiduciary) to the principal?
- L - O - R - A
- Duty of loyalty: to act solely in the principal’s interest; no self-dealing; no competing against the principal
- Duty of obedience: obey all "reasonable" directions of his principal (avoid illegal, unethical)
- Duty of reasonable care: the duty not to be negligent, to do the best job possible
- Duty to account: to keep the principal’s property separate from the agent’s and to account for each item (don't commingle)
An agent receives an incentive payment to do business with a particular supplier and to purchase more goods than necessary. This incentive breaches which Duty that an agent owes a principal?
Duty of loyalty
A purchasing agent has been told not to disclose certain information to a supplier. Which Duty that an agent owes a principal would be breached if the purchasing agent actually disclosed the information?
Duty of obedience
What damages may a principal recover from an agent who breaks his Duty to the principal?
- Tort: for negligence or intentional breach of duty
- Contract Damages: Used only of the agent was compensated, in which case the principal can recover the compensation paid
- Recovery of Secret Profits: If the agent gained by breaching the Duties (such as receiving an incentive payment, kickback) the principal can recover these amounts
- Withhold Compensation: If the agent intentionally breached any Duty, the principal may withhold compensation.
- Constructive Trust: penalties are ordered by a court to be placed into a trust
What are the Duties of a Principal to an Agent?
- Actual: the duties expressed in the agreement, PLUS THE FOLLOWING IMPLIED
- Compensation: Reasonable compensation is expected unless an agreement is reached that the agent will act gratuitously
- Reimbursement/Indemnification: The principal must reimburse (indemnify) the agent for all reasonable expenses incurred in carrying out the agency
A principal breaches their duty to an agent. What recourse does the agent have?
- The agent can bring an action for damages, BUT
- If the relationship is not contractual, the agent may not seek a contract remedy.
True / False: An agent was wrongfully fired by the principal. The agent has a duty to mitigate by seeking comparable work to replace the lost income.
True / False: Either party to an agency relationship have both the right and the power to terminate an agency relationship at any time.
- They have the power (I can refuse to do the contract), but not necessarily the right (the principal could still sue me because we had a contract).
Describe an agency coupled with an interest.
- Whenever an agent receives the agency due to putting money or property into the relationship, the agent has gained an interest. Typically the agency agreement is made as a security against the loan/money given.
- In this type of relationship, only the agent has the right to terminate the agency.
- Ex: The agent provides a loan to a principal in exchange the principal gives the agent the right to sell property if the principal defaults. The principal cannot rescind the agency agreement.
What actions are typically included in implied authority of an agent, such as a manager of a store, and what actions are NOT typically included.
- Actions that act in the best interest of the store owner, such as hiring and firing employees, purchasing and selling inventory.
- Actions NOT included would be selling of store assets other than inventory, or to enter into loan agreements
[HIGHLY TESTED] What are the 6 events that cause termination of actual authority where notice of termination is NOT required?
- Death of either the principal or agent
- Incapacity of the principal
- Discharge in bankruptcy of the principal
- Failure to acquire a necessary license
- Destruction of the subject matter (the item to be acquired)
- Subsequent illegality (a country no longer permits business with another country due to sanctions)
What is the difference between actual authority and apparent authority?
- Actual authority is the authority expressly given to an agency by a principal, including any limiting factors
- Apparent authority is the power but not the right. Occurs when a principal (not the agent) gives the impression to third parties that the agent has particular authority, and the 3rd party performs actions with the agent under this belief.
True / False: The agent can hold out that he's the agent for a principal. This creates apparent authority.
- Only the principal can give the appearance of authority. This typically occurs when an employee is given a particular title or position.
True / False: A secret limiting instruction to an agent affects apparent authority.
- Because apparent authority is what the 3rd party believes is in place, a secret instruction to an agent is not known to the 3rd party and doesn’t affect apparent authority.
True / False: A person hired as an employee is considered an agent of the entity?
- Employees are hired for specific purposes to act on behalf of the employer and thus are considered agents. Their job function can be construed as apparent authority by a 3rd party.
An employer terminates the employee, thus the employees actual authority is terminated on the date he is fired, but what happens to his apparent authority?
The apparent authority continues until the principal NOTIFIES 3rd parties who might have known the employee. The principal should also perform a constructive NOTICE (general notice such as in a newspaper or trade mag) to inform potential 3rd parties.
What are the conditions that must exist for a principal to ratify an agreement
- The agent must have apparent authority (otherwise the 3rd party wouldn't enter into an agreement)
- The agent must disclose ALL items involved in the agreement to the principal
- The principal must ratify the entire transaction; he cannot ratify just a portion
An agent purportedly acts on behalf of the principal, but does not actually have the authority to do so. The principal considers the situation and agrees to the entire transaction. This process is known as…
What are the 3 types of authority that can be provided to an agent and in which the principal is bound.
- Actual: agent has both power and right (actual & apparent) provided through ORAL or written instructions
- Apparent: agent has power, but not the right (apparent, not actual)
- Authority by Ratification: agent has power, but not the right (apparent, not actual). The agent MUST have apparent authority.
A store hires a business manager. Which of the following are actual vs implied authority: (a) borrow money, (b) hire employees, (c) pay bills, (d) sell assets not inventory
- (a) neither actual or implied
- (b) either actual or implied
- (c) either actual or implied
- (d) neither actual or implied
What is the difference between express vs implied actual authority
- Express: The principal expressly grants to the agent
- Implied: Includes actions considered reasonably necessary to carry out the agency.
An agent discloses that he is acting on behalf of a principal when dealing with a 3rd party. What is the recourse of the 3rd party if the agent has (a) actual authority, (b) apparent authority, (c) no authority.
- (a) recourse against the principal
- (b) recourse against the principal
- (c) recourse against the agent
An agent does NOT disclose the principal for whom he is acting on behalf of when dealing with a 3rd party. What is the recourse of the 3rd party if the agent has (a) actual authority, (b) apparent authority, (c) no authority.
- (a) the principal is bound regardless of whether the agent disclosed
- (b) because the principal was not disclosed, there is no apparent authority. Recourse is against the agent.
- (c) recourse against the agent
True / False: A 3rd party entered into a contract with an agent, not knowing it was an agent. The 3rd party breaches the contract. Who has the right to seek recourse against the 3rd party: the agent or the principal?
Only the principal may seek recourse.
- A wrongful act or an infringement of a right (other than under contract) leading to civil legal liability.
- This can be negligent (accident) or intentional (fraud)
What does Respondeat Superior mean?
- Let the master answer
- When an employer is liable for the torts of an employee (this does NOT include an independent contractor)
What are the basic tenets that must be determined for Respondeat Superior to be considered?
- Did the employer have the right to control the manner of performance of the employee
- If control is not clear, then items that separate an employee from an independent contractor are considered (who provides the tools, how is the person compensated, is the person full- vs part-time, how long has the person worked for the employer, IS THE PERSON SUPERVISED).
True / False: An employer is liable under Respondeat Superior for any act committed by an employee.
- Only those acts performed within the scope of employment, and within the timeframe and geographic area are considered AND
- Not for acts that are intentionally negligent by the employee because intentional negligence is not within the scope of employment