3/23/2021 Business Law Notes: Agency Law - MBA Boost

Business Law Notes: Agency Law

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ABOUT THIS CONTENT

course notes from my core business law MBA class covering agency law

Subject: Business Law

Parties agreed that the agent will act on behalf & instead of the principal in negotiating & transacting bus
with 3rd persons. 3 types

Special: hired for an ltd purpose (CPA, attorney)

General: employer/employee relations (wider affairs corporate lawyer)

Universal: hired to do everything

Fiduciary: fundamental to agency, means that trust & confidence are involved

Employer-Employee Relations: An employee is someone whose physical conduct is not entirely controlled,
or subject to control, by the employer. Employees who deal with third parties are typically deemed to be
agents.

Employer-Independent contractor Relations: an independent contractor is not controlled by another or

subject to another’s control with regard to physical conduct. He may or may not be an agent. Main
determinant here is how much control is exercised over the contractor.

Formation of agency relationship:

Consensual

Need not be in writing

No consideration required

Principal must have legal capacity to enter into contracts; not necessary for agent (his power is derived
from principal)

Agency must be for legal purpose 

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Agency by agreement: can be written or implied by conduct.

Power of attorney must be written, can be special (limited) or general

Agency by ratification: non-agent cuts deal for principal, principal approves agency by estoppel: if
principal causes a 3rd person to believe that another is his agent, & the third person deals with
supposed agent, the principal is “estopped to deny” the agency relationship.

Agency by operation of law: spouses, emergencies

Agent’s Duties:

Performance: must use reasonable diligence & skill in performing work required

Notification: must notify principal of all matters concerning subject matter of agency

Loyalty: actions must be strictly for the benefit of the principal, not in the interest of the agent or a
third party

Obedience: must follow lawful & clearly stated instructions of the principal

Accounting: must maintain separate accounts for the principal’s funds & for the agent’s funds, no
intermingling is permitted

Principal’s Duties:

Compensation: must pay the agent for services rendered, & do so in a timely manner

Reimbursement & indemnification: must reimburse agent that disburses money at principal’s request.
Must compensate (indemnify) agent for any costs incurred as a result of principal’s failure to perform
the contract

Cooperation: must cooperate with & assist an agent in performing his duties

Provide safe working conditions

Agent’s Rights & Remedies: has a corresponding right for every duty of the principal.

Normal contract & tort remedies

Principal’s Rights & Remedies: has contract remedies for breach of fiduciary duties & tort remedies. Main
actions available:

Constructive trust: imposed by courts when agent withholds monies that belong to principal, allows
principal to get what he deserves

Avoidance: principal may avoid any contract entered into with agent if agent breaches agency duties

Indemnification: principal can be sued by a third party for an agent’s negligent conduct, & in certain
situations the principal can turn around & sue agent for an equal amount of damages

Scope of Agent’s Authority:

Express: given orally or in writing, embodied in that which the principal has engaged the agent to do

Implied: conferred by custom, can be inferred from agent’s position, or is implied as reasonably
necessary means to perform duties

Apparent: arises when the principal, by either word or action, causes a third party to reasonably
believe that an agent has authority to act, even though agent has no “actual” (express or implied) 
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authority.

Emergency Powers: agent may take action necessary to protect interests of principal in an emergency
without principal’s prior approval

Ratification: express or implied, principal’s affirmation of a previously unauthorized contract or act

Liability for contracts:

Disclosed / Partially disclosed principals: liable to a third party for contract made by the agent

Undisclosed principals: agent, not the principal, is liable as a party on the contract. However, if
principal has a duty to perform & fails to do so, agent is entitled to indemnification by principal if
third party seeks restitution from agent

Liability for Agent’s Torts: Principal may be liable for agent’s torts if they result from the following:

Principal’s own tortious conduct

Principal’s authorization of tortious act

Agent’s unauthorized but tortious misrepresentation (if representations were made within scope of
the agency)

Doctrine of Respondeat Superior: principal-employer is liable for any harm caused to a third party by an
agent-employee in the scope of employment. This doctrine imposes vicarious liability on the employer.

Scope of employment: is employee doing what is normally expected of him, is employee “on the job”
from a time & location standpoint, does the employee’s act benefit the employer

Liability for employee’s negligence: act causing the injury must have occurred within the scope of
employment, employee going to & from work or to & from meals is usually considered outside the
scope of employment

Notice of dangerous conditions: employer has assumed knowledge of any dangerous conditions
discovered by an employee & pertinent to employment situation

Liability for employee’s intentional torts: if torts committed within scope of employment

Liability for Independent Contractor’s Torts: General rule is that the employer is not liable.

Test: how much control the employer exerts over the contractor. Exceptionally hazardous activities
(blasting) that are contracted are an exception in that there is no shield for the employer

Liability for Agent’s Crimes: General rule is that a principal or employer is not liable for agent’s or
employee’s crime even if agent acted within scope of authority or employment.

Termination of an Agency:

Lapse of time: agency ends when time period expressed in the agreement comes to a close, or
reasonable time & can be terminated at will by either party.

Purpose achieved: if agency was for a particular purpose, it ends upon completion occurrence of a
specific event: e.g., when I get back from vacation, you no longer handle my affairs

Mutual agreement: enough said

Termination by one party: either party has the power to terminate, but may not have the right to
terminate & could be liable for breach of contract.
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Agent’s act of termination is renunciation, principal’s is revocation

Termination by operation of law: certain events terminate agency automatically (death, insanity)

Notice required for termination:

Principal’s duty to notify third parties who know of the agency.

Must notify directly if third party has dealt with agent.

Agent’s actual authority continues until he receives termination notice.

Agent’s apparent authority continues until third party has been notified.

If agent’s authority is written, it must be revoked in writing.

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