AGENCY I. CREATION OF THE AGENCY RELATIONSHIP A. Agency is a consensual relationship requiring a manifestation of consent by a principal that an agent shall act on his behalf, and consent by the agent to so act under the principal’s control. B. Capacity 1. Principal must have contractual capacity 2. Agent need not have contractual capacity C. Formalities 1. Consideration is not required. 2. Writing is not generally required… 3. …unless the Statute of Frauds is implicated under the Equal Dignity Rule: a. Appointing agent for more than one year is an executory contract that cannot be performed within one year, and as such, needs a writing under the SOF. b. Appointing Agent to sell realty on Principal’s behalf requires a writing, because the underlying act (sale of realty) requires a writing. D. Agency must be for a legal purpose. E. Agency may created by four different authorities: 1. Actual a. May be express or implied i. Express exists when the prinicipal expressly tells the agent to act on his behalf ii. Implied exists when some conduct of the principal leads the agent to believe that he has the authority to act on P’s behalf. b. Must exist at the time the contract is entered into by the Agent c. Methods of Termination i. Specified time, reasonable time, or when a specified event occurs ii. Change of circumstances (e.g., the reason for the agency no longer exists) iii. Change of law which makes the act illegal iv. Agent terminates his relationship as agent (because the agency relationship is consensual) v. Principal terminates his relationship with agent—EXCEPTION: when the agent’s power is coupled with an interest Example: Mike borrows money from Katie to buy the new Alias DVD set. Mike tells Katie that she can take sell Alias DVDs on eBay if he fails to repay her. Mike cannot revoke that power granted to Katie (to sell the DVDs) because it is a power of agency coupled with the interest of a loan. vi. Either the Principal or the Agent dies, becomes incapacitated, or enters bankruptcy—EXCEPT when the power is coupled with an interest. 2. Apparent a. Exists when Principal gives Third-Party a reason to believe that Agent has authority, even though Agent really doesn’t have that authority. NOTE: Third Party must reasonably believe that Agent has authority. b. Based in equity to protect the Third Party who relies on Principal who holds Agent out to have authority
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c. Created as a result of Principal’s manifestation/communication, not by Agent’s. However, if Agent makes a manifestation or communication to Third Party in Principal’s presence and Principal does not correct him, then his silence may create apparent authority. d. May result after actual authority terminates (usually in a situation where Third Party has done business with Agent on Principal’s behalf in the past; Principal revokes Agent’s authority but fails to tell Third Party of the revocation, and Third Party does business with Agent again, purportedly on Principal’s behalf) 3. By Ratification a. Principal may ratify a contract entered into by an Agent that did not have actual or apparent authority by: i. Affirming the contract, or ii. Accepting the benefit of the contract, or iii. Suing the Third Party on the contract. b. Elements of Agency by Ratification: i. Agent acting on Principal’s behalf ii. Principal has knowledge of all material facts iii. Principal accepts the entire transaction iv. Principal has contractual capacity BOTH at the time the original transaction occurred AND at the time of ratification v. Principal must manifest some intent to ratify, either expressly or impliedly through acts, words, silence, or retention of benefits. c. Ratification is retroactive. That is, when the Principal finally ratifies the contract, his assent is said to date back to the date it was created. i. THUS, one must watch out for the intervening rights of an innocent party who would be harmed by the ratification. ii. Example: Without Marissa’s knowledge or permission, Nathan sells Marissa’s Toyota Camry to Nicole. Marissa subsequently sells her car to Steve and Sally, unaware of the sale to Nicole. Marissa can NOT decide to ratify Nathan’s sale to Nicole, even if that’s the better and more beneficial deal, because she is not permitted to sever the intervening rights of Steve and Sally. [NOTE: This is true only as long as Steve and Sally were actually “innocent parties.” If they knew of the prior sale by Nathan to Nicole, they’re not innocent parties.] 4. By Estoppel a. Estoppel theory doesn’t actually add much to the agency theory over and above what you can get through apparent. But the Indiana courts have acknowledged Estoppel as a separate theory of agency, so we have to as well. b. Elements of Agency by Estoppel: i. Principal made a false representation or concealed a material fact. . . ii. . . . with the intention of having Third Party rely on it, AND iii. Third Party must have changed his position. . . iv. . . . in reasonable reliance on Principal’s representation. c. Agency by estoppel creates “ostensible authority.” F. Authority Reasonably Necessary to Accomplish Purpose 1. Authority to sell property also creates incidental authority to:
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a. warrant title b. warrant quality & quantity c. receive payment d. deliver goods 2. Authority to purchase also creates incidental authority to: a. pay purchase price b. purchase on Principal’s credit c. receive delivery of the property 3. Every Agent has implied power to protect Principal’s property and interests in an emergency situation IF Principal cannot be contacted. G. Delegation to Subagent 1. Allowed if P consents 2. Implied if: a. Agent is unable to lawfully perform the duties personally b. In an emergency, Principal cannot be contacted c. Custom d. Ministerial or mechanical act II. RELATIONSHIP OF PARTIES A. Principal & Agent 1. Agent owes Principal strict fiduciary duties, even when the agency is gratuitous: Mnemonic: Principals Like Really Careful and Obedient Individuals a. Preserve Trade Secrets: this survives termination of the agency b. Loyalty: notice to Principal of all agency matters; forbids competition or dual agency without disclosure of all material facts c. Reasonable Care: taking into consideration any special skills Agent may have d. Obedience: must follow reasonable instructions e. Indemnify: Agent must indemnify Principal for his own tortuous acts 2. Principal must: Mnemonic: Principals are CRIPs (like Snoop Dogg) a. compensate Agent unless the agency is gratuitious b. reimburse Agent c. indemnify Agent d. prevent harm to Agent 3. Remedies a. Damages under contract or tort b. Constructive trust c. Rescission d. Etc. (broad range available) B. Principal & Third Party (IF authority existed under any of the authority theories) 1. Principal is always liable to Third Party. 2. Third Party is always liable to a disclosed or partially disclosed Principal. 3. Undisclosed Principal: a. Third Party is liable to an undisclosed Principal UNLESS: i. Holding him liable would unduly burden Third Party, or
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ii. Either Principal or Agent knew Third Party would not contract with Principal, or iii. Third Party was bargaining for Agent’s personal skills or reputation. b. Principal AND Agent are alternatively liable to Third Party c. Third Party may raise any defense against Principal that he could have raised against Agent. C. Agent & Third Party 1. Third Party is not liable to Agent UNLESS Agent has an interest in the subject matter (e.g., Agent makes a commission) 2. Agent is not liable to Third Party UNLESS: a. Principal is undisclosed or partially disclosed, or b. Agent breached her “warranty of authority” III. LIABILITY IN TORT A. Respondeat Superior liability exists IF: 1. Tort committed 2. by a Servant (as opposed to an independent contractor) a. Distinguishing Between Servants and Independent Contractors: Mnemonic: The “Late Night Factors”: CBS Took Letterman and Paul Shaffer Beyond Carson i. Control of details—matters whether Principal has the right to control; it is irrelevant whether he actually uses that right ii. Business—is the Agent’s business separate, unique, and distinct? iii. Specialist—is Agent a specialist? iv. Tools & Workplace—provided by Agent or Master? v. Length of Time vi. Payment Method—by time, or by job? vii. Skill required for the job viii. Belief and Intent of parties ix. Contract provisions 3. while Servant was acting within the scope of employment a. If Servant was doing what he was hired to do, he is “within the scope.” b. Deviation from normal tasks: i. Detour—minor deviation, usually still “within the scope.” ii. Frolic—substantial deviation, usually NOT within the scope. c. Determining Whether Servant was Acting Within Scope: Mnemonic: The Mike’s Fantasy Factors Charlie’s Angels Took Impossible Missions Months Before A-Team. i. Control ii. Authorized activity iii. Time & place of tort occurrence iv. Intentional torts are outside the scope of employment UNLESS: (A) force is used to further master’s business (e.g., bouncer at club) (B) master ratifies the use of force (tells agent, “good work!”) (C) master authorized servant to commit an intentional tort (e.g., told servant to conduct misrepresentations)
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v. Motive of agent vi. Means or instrumentality of tort vii. Benefit to master viii. Acceptance of benefits by Master Liability in Respondeat Superior 1. Master & Servant are jointly & separately liable to Third Party 2. If Third Party releases the Servant from liability, that automatically releases the Master too. Borrowed Servants 1. Determining Which Master is Responsible for the Borrowed Servant: a. Which Master’s business was being furthered by Servant at time of action? b. Is the scope of the “special employer” business the same as the usual employer’s? c. Which Master had the ultimate right to control the servant? (Remember that if the usual master could call up the special employer and say, “Gimme my dude back” then the courts usually find the usual master had the ultimate right of control.) Master’s OWN Negligence 1. Master is liable for his own negligence if: a. Fails to train employees b. Fails to supervise employees c. Fails to check employee’s criminal record or job history prior to hiring Liability for Acts of an Independent Contractor: 1. Work performed is inherently dangerous 2. Principal is charged by law or contract with a specific duty of care 3. Act to be performed creates a nuisance 4. Reasonably foreseeable that act will cause injury 5. Act to be performed is illegal.
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