Agency:

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CHAPTER 29
Agency The Outside Relationship
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Quote of the Day

• There are three ways to get something done do
  it yourself, pay someone else to do it, or tell a
  teenager not to do it.
• -- Anonymous

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Principals Liability for Contracts

• The principal is bound by the acts of an agent
  if
• the agent has authority, or
• the principal, for reasons of fairness, is
  estopped from denying that the agent had
  authority, or
• the principal ratifies the acts of the agent.

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Authority

• A principal is bound by the acts of an agent if
  the agent has authority.
• There are three types of authority express,
  implied, and apparent.
• Only express and implied are actual authority,
  because the agent is truly authorized.
• In apparent authority, the agent seems to be
  authorized, but is actually not. The principal
  is still bound by the agents actions.

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Actual Authority

• Express Authority
• Granted by words or conduct that, reasonably
  interpreted, cause the agent to believe the
  principal desires her to act.
• In ambiguity about the principals intent, the
  courts look at the principals objective
  manifestation not his subjective intent.
• Implied Authority
• Unless otherwise agreed, authority to conduct a
  transaction includes authority to do acts that
  are reasonably necessary to accomplish it.

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Apparent Authority

• A principal can be liable for the acts of an
  agent who is not, in fact, acting with authority
  if the principals conduct causes a third party
  reasonably to believe that the agent is
  authorized.
• An agent with actual authority may perform an act
  beyond the scope of that authority. If the
  action appears to the third party to be within
  the scope of the authority, the principal will be
  bound.

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Estoppel and Ratification Defined

• Estoppel
• No one may claim that a person was not his agent,
  if he knew that others thought the person was
  acting on his behalf, and he failed to correct
  their belief.
• 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.

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Estoppel and Ratification Distinguished

• Estoppel and ratification are easy to confuse.
• Ratification applies when the principal accepts
  the benefits of the contract.
• Estoppel applies when the principal does not want
  the benefit of the contract, but delays in
  telling the innocent third party of the mistake.

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Agents Liability Contracts

• Fully Disclosed Principal
• An agent is not liable for any contracts.
• Partially Disclosed 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.
• Unauthorized Agent
• The principal is not liable and the agent is.

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Exceptions to the Rule on Undisclosed Principals

• A third party is not bound to the contract with
  an undisclosed principal if
• The contract specifically provides that the third
  party is not bound to anyone other than the
  agent, or
• The agent lies about the principal because she
  knows the third party would refuse to contract
  with him.

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Servant and Master

• Servant does not mean slave or even butler or
  maid. It means that the principal has control
  over the agents work.
• Employees are always servants.
• The master is the principal, or the one in
  control.

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Servant vs. Independent Contractor

• Yes responses to these questions may indicate a
  servant, or employee, relationship
• Does the principal control details of the work?
• Does the principal supply tools and place of
  work?
• Does the agent work full-time for the principal?
• Is the agent paid by time, rather than by job?
• Is the work part of the regular business of the
  principal?
• Do the parties believe they have an
  employee-employer relationship?

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Principals Liability for Torts

• A principal may be liable for the torts of a
  servant but generally is not liable for the torts
  of an independent contractor.
• A master (principal) is liable for physical harm
  caused by the negligent conduct of servants
  (agent) within the scope of employment.
• The principal is liable for the physical torts of
  an independent contractor only if the principal
  has been negligent in hiring or supervising.
• Principals are only liable for torts that a
  servant commits within the scope of employment.

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Scope of Employment

• Authorization
• An act is within the scope of employment, even if
  expressly forbidden, if it is of the same general
  nature as that authorized or if it is incidental
  to the conduct authorized.
• Abandonment
• The master is liable for the actions of the
  servant that occur while the servant is at work,
  but not for actions that occur after the servant
  has abandoned the masters business.

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Negligent and Intentional Torts

• The master is liable if the servant commits a
  negligent tort that causes physical harm to a
  person or property.
• A master is not liable for the intentional torts
  of the servant unless the servant was motivated,
  at least in part, by the desire to serve the
  master, or the conduct was reasonably foreseeable.

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Physical Non-Physical Harm

• A master is liable for negligent conduct of a
  servant that causes physical harm, if it is
  within the scope of employment.
• With negligent conduct of a servant that causes
  non-physical harm (harm to reputation or
  finances), the principal is liable only if the
  servant acted with actual or apparent authority.
• Misrepresentation and defamation are treated
  differently from other non-physical harms. (See
  next slides.)

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Misrepresentation

• A principal is liable if
• The agent makes misrepresentation,
• The agent has express, implied, or apparent
  authority,
• The third party relies on the misrepresentation
  and
• The third party suffers harm.

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Defamation

• A principal is liable if
• The agent makes a defamatory statement
• The agent has express, implied, or apparent
  authority and
• The third party is harmed by the statement.

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Agents Liability For Torts

• Agents are always liable for their own torts,
  even if the principal is also liable.
• Agents and principals are jointly and severally
  liable, which means that the injured party may
  sue either one or both, as she chooses.
• The injured party may not recover twice, but may
  recover partially from both parties.
• The principal can sue the agent, if the injured
  party recovers from the principal.

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It is virtually impossible to run a business
without using agents. But using an agent
dramatically increases the risk of liability.