Agency Law

“If you want something done right, do it yourself.” “Many hands make light work.” Anonymous folk sayings

 Agency is a relationship in which the agent agrees to perform a task for, and under the control of, the principal  To create an agency, there must be: ◦ Principal: Person who has someone else acting on him ◦ Agent: Person who acts for someone else ◦ Who mutually consent that the agent will act on behalf of the principal ◦ Be subject to the principal’s control ◦ Creating a fiduciary relationship

 Consent – Principal must ask the agent to do something: ◦ Agent must agree  Control – Principals are liable for the acts of their agents ◦ They exercise control over the agents  Fiduciary relationship – Trustee acts for the benefit of the beneficiary ◦ Agents have a fiduciary duty to their principals

 Elements not required for an agency relationship include: ◦ A written agreement  Equal dignities rule: If an agent is empowered to enter into a contract that must be in writing, then:  The appointment of the agent must also be written ◦ Formal agreement ◦ Compensation

 Duty of loyalty - The agent: ◦ Must act for the benefit of the principal ◦ May not receive outside benefits without approval of the principal ◦ Can neither disclose nor use for her own benefit any confidential information ◦ Is not allowed to compete with his principal within the scope of the agency business

 Duty of loyalty - The agent: ◦ May not act for two principals whose interests conflict ◦ May not become a party to a transaction without the principal’s permission ◦ May not engage in inappropriate behavior that reflects badly on the principal

 An agent must obey the principal’s instructions, unless illegal or unethical  Agent must act with reasonable care ◦ An agent with special skills is held to a higher standard because he/she is expected to use those skills  Agent must provide information ◦ An agent has a duty to provide the principal with all information in her possession that:  She has reason to believe the principal wants to know

 The principal can recover damages caused by the agent’s breach  The agent must refund any profits made from the agency, if he breaches his duty of loyalty  The principal may rescind a transaction with a disloyal agent

 Duty to reimburse the agent for reasonable expenses – Three categories ◦ Principal must indemnify an agent for expenses reasonably incurred in carrying out his agency responsibilities ◦ Principal must indemnify an agent for tort claims brought by a third party if:  Principal authorized the agent’s behavior and the agent did not realize he was committing a tort

 Duty to reimburse the agent for reasonable expenses – Three categories ◦ Principal must indemnify the agent for any liability she incurs from third parties as a result of:  Entering into a contract on the principal’s behalf, including attorney’s fees and reasonable settlements

 Duty to cooperate ◦ Principal must furnish the agent with the opportunity to work ◦ Principal cannot reasonably interfere with the agent’s ability to accomplish his task ◦ Principal must perform his/her part of the contract

 Termination by agent or principal ◦ Three choices in terminating the relationship  Term agreement  Time  Achieving a purpose  Mutual agreement  Agency at will  Wrongful termination

 Principal or agent can no longer perform required duties ◦ Failure to obtain license ◦ Bankruptcy ◦ Death or incapacity of the principal or agent ◦ Disloyalty of agent  Change in circumstances ◦ Change of law ◦ Loss or destruction of subject matter

 Termination of the agency ends the agent’s power to act on behalf of the principal  Principal’s duty to reimburse expenses of the agent ends with the end of the agency  Confidential information remains confidential and unusable, even after the end of the agency

 The principal is bound by the acts of an agent if: ◦ The agent had authority ◦ The principal ratifies the acts of the agent

 A principal is bound by the acts of an agent if the agent has authority  There are three types of authority ◦ Express - Granted by words or conduct that:  Reasonably interpreted, cause the agent to believe the principal desires her to act ◦ Implied - Authority to conduct a transaction includes:  Authority to do acts that are reasonably necessary to accomplish it

◦ Apparent - Principal can be liable for the acts of an agent who is not acting with authority if:  Principal’s conduct causes a third party reasonably to believe that the agent is authorized

 Ratification ◦ If a person accepts the benefit of an unauthorized transaction or fails to repudiate it, then:  He is as bound by the act as if he had originally authorized it  Subagents ◦ Intermediary agent – Someone who hires subagents for the principal ◦ When an agent is authorized to hire a subagent:  Principal is as liable for the acts of subagent as he is for the acts of regular agent

 Fully disclosed principal ◦ An agent is not liable for any contracts  Unidentified principal ◦ Third party can recover from either the agent or the principal

 Undisclosed principal ◦ Third party can recover from either the agent or the principal ◦ Third party is not bound to the contract with an undisclosed principal if:  Contract provides that the third party is not bound to anyone other than the agent  Agent lies about the principal because she knows the third party would refuse to contract with him

 Unauthorized agent ◦ The principal is not liable and the agent is

 Employer is liable for a tort committed by its employee acting within the scope of employment or acting with the authority  Two kinds of agents ◦ Employees ◦ Independent contractors  Principal may be liable for the torts of an employee but generally is not liable for the torts of an independent contractor

 Courts consider whether: ◦ Principal supervises details of the work ◦ Principal supplies the tools and place of work ◦ Agents work full time for the principal ◦ Agents receive a salary or hourly wages ◦ Work is part of regular business of the principal ◦ Principal and agents believe they have employer- employee relationship ◦ Principal is in business

 The principal is liable for the torts of an independent contractor if the principal has been negligent in hiring or supervising her

 Principals are liable only for torts that an employee commits  An employee is acting within the scope of employment if the act: ◦ Is one that employees are responsible for ◦ Takes place during hours that employee is employed ◦ Is part of the principal’s business ◦ Is similar to the one the principal authorized ◦ Is one for which the principal supplied the tools ◦ Is not seriously criminal

 Authorization ◦ An act is within the scope of employment if:  Expressly forbidden  It is of the same general nature as that authorized  It is incidental to the conduct authorized  Abandonment ◦ The principal is liable:  For the actions of the employee that occur while the employee is at work  Not for actions that occur after the employee has abandoned the principal’s business

 Principal is not liable for the intentional torts of an employee unless: ◦ Employee is intended to serve some purpose of the employer ◦ Employer was negligent in hiring or supervising this employee

 Physical torts – Principal is liable for the negligent conduct of an employee that occurs within the scope of employment  Nonphysical torts – Principal is liable if the employee if the employee acted with express, implied, or apparent authority

 Agents are always liable for their own torts, even if the principal is also liable  Principal and the agent are jointly and severally liable ◦ Injured party can sue either one or both