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