AGENCY

I. INTRODUCTION TO THE LAW OF AGENCY

;\, NATURE OF AGENCY

Agency is a fiduciary legal relationship where one person represents another in dealing with third persons.

I. Parties to an Agency: [§ 1328] Agency is a relationship based upon an express or irnplied agreemen t tha t one person (the agent) is authorized to act under the control of and for another (the principal) in making agreements with third persons. (Restatement (Second) of Agency § I; Rule v. Jones, 40 N. W.2d 580 (Wis. 1950): Wallace v, Sinclair, 1l4CaL App.ld 220(1952)]

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2. Other Uses of Term "Agency": [§ 1329] "Agency" also has a common usage with other meanings. such as an exclusive agency to sell certain products. which is not a true agency but usually is based upon a franchise agreement with a manufacturer.

a. Example: A dealer is said to possess an automobile agency. but he is not the agent of the manufacturer but is merely given the right to sell certain products in a given geographical area. [Pioneer Hi- Bred International. Inc. v. Talley, 493 S.W.2d 602 (Tex. 1973): Washington v. Courtesy Motor Sales. lnc., 199 N.E.2d 263 (Ill. 1964)J

b. Tax liability definition: [§ 1330] Under a question of lax liability of an enterprise. agency may be defined differently than under contract ortort law. [Boise Cascade Corp. v . Washington. 473 P.2d 429 (Wash. J 970)]

3. Agency Distinguished from Similar Relationships: [§ 1331] Since an agency involves responsibility of the principal for acts of the agent, it needs to be distinguished from othcr similar relationships.

3. Ordinary employee distinguished: [§ 1332] An ordinary employee is one who is not hired to represent an employer in dealing with third persons. [Darmour Products Corp.v. H. M. BaruchCorp.,135CaLApp.351 (1933)]

b, Independent ct[~a~;~~tt§ 1333] An independent contractor is a person who contracts to do something according to his own methods and not subject to the control of the employer except as to results. [Mirto v. News Journal Co .. 123 A.ld 863 (Del. ! 956); Klein Y. Mr. Transmission, lnc., 318 So. 2d 676 (Ala. 1975)]

(i) Independent contractor as agent: [§ 1334] An independent contractor may become an agent if her employer starts making management decisions or controls the operations of the work. {Massey v. Tube Art Display, lnc., 55l P.2d 1387 (Wash. 1976); Mosley v. Northwestern Steel & Wire ce, 393 N.E.2d J 230 (Ill. 1979) ]

(2) Status not determined by agreement: [§ 1335] In determining the existence of agency or independent contractor status the actual fact of control rather than the express agreement of the parties is the controlling factor. [Kuchta v, Allied Builders Corp., 21 Cal. App. 3d 541 (197l); M.F.A. Mutual Industries Co. L United States. 314 F. Supp. 590 (W.D. Mo. 1970)J

c. Real estate brokers: [§ 1336] In many cases, a real estate broker is merely a middlernan who seeks to locate a buver or seller for his client. The broker is not a true agent because he has no authority to make J contract with third persons that will be binding upon his client. [Heinrich v , Martin. 134 N.W.ld 786 (N.D. 1965)]

d. Bailee: [§ 1337] A bailment exists when personal property is delivered to another und~r.an agreement to return ~,he p:operty Or deliver it to a third person. The person receivmg the property (the bailee) !S not an agent as he has no authority to contract on behalf of the owner-bailor.,'

B. CREATION OF AN AGENCY [§ 1338]

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An agency can be created by agreement. by conduct of the parties. by estopp~l. by ratification, or by operation of law. (Dudley v. Dumont, 526 S.W.2d 839 (~

1. Capacity of the Parties

a. Capacity of the principak [§ 1339] A principal may be anyone with the legal capaciry to make contracts. [Casey v. Kastel. 237 N. Y. 305 (! 924) J

b. Capacity of the agent: [§ 13JOJ Anyone who understands the legal importance of contracts. even a minor. may serve as an agent.

2. Creation of Agency by Agreement: [§ 1341 J Most agencies are created by contractual agreement wherein the principal expressly authorizes the agent to act. [Ostrander v. Billie Holm's Village Travel Inc .• 87 Misc. 2d 1049 (1976)]

a. Oral authorization: [§ 1342] In most situations, oral authorization and agreement C;In create an agency.

b. "Equal dignities" rule: [§ 1343] When an agent is engaged to make contracts required to be in writing under the Statute of Frauds. the equal dignities rule requires that the employment and authorization of the agent must be in writing. [Moore v. Hoar, 27 Cal. App, 20 269 (1938); Mitchel! v. Locurto. 70 Cal. App. 2d 507 (! 947):

Bloomy. Weiser,348So.2d651 (Fla. I 977)J

c. Consideration: [§ t344] No consideration is necessary for either party in order to create an agency relationship. [G roh v, Shel t011, 428 S. W.2d 9! r ( Mo. 1968) J

3. Agency Created by the Conduct of the Parties, or Implied Agency: [§ 1345J An implied agency is an actual agency created by inferences or deductions made from the words or conduct of the principal and the agent. [Holsclaw v . Catalina Savings & loan Association, 476 P.2d 883 (Ariz. 1971): Butler v. Colorado International Pancakes.o 10 P.2d 443 (Colo, 1973): Associated Creditors' Agency v. Davis. ! 3 Cal. 3d 374 ( 1975)J

a. Ratification of unauthorized acts: [§ L'Aiq A principal m:ly rnrifv die unaurhor-

ized acts his agent, and filing a law suit based thereon is a ratification. [Navridcs

v. Zurich Insurance Co., 5 Cal. 3d 698 (197!)J

4. Creation of Agency by Estoppel: [§ 1346] Agency by estoppel (apparent authority} is created when a principal. by words. actions, or tack thereof. causes a third person to be-

lieve reasonably that an ip exists or ha; In agent has the authority to

act where no actual exists. [Lindstrom v. Minnesota Liquid Fertilizer Co .. I r 9

N. W.2d 855 (Minn. 1963); Atlanta Biltmore Hotel Corp. v . Martell. 162 SE2d 8;! 5 (Ga. 1968): Hinv. Newman, 316 A.2dS (N.J 1973)J

5. Agency Created by Ratification: [§ 1347] When the principal accepts benefits from the acts of a purported agent, even when unauthorized, an agency may be created by ruiification. [Tuskegee Institute v. May Refrigeration Co .. 344 So. 2d 156 (Ala. 1977): Higgins v. D. & F. Electric Co" 140 S.E.2d 99 (Ga. ! 964); Melancon v. A & M Pest Control Service Co., 315 So. 2d 39! (la, 1976); lewis v. Martin, 492 P.2d 877 (Colo. 197 I)]

b. Purportedagency contract: [§ 1349J Ratification of an unauthorized contract requires that the contract purports to be one made by the agent on behalf of the principal. [Gandy v, Cole, 193 N. W.2d 58 (Mich. 1971)J

c. Implied ratification: [§ 1350] Ratification may be implied when the principal, with full knowledge of the material facts surrounding the agent's unauthorized act, accepts and retains the benefits. [Pacific Trading Co. v, Sun Insurance Office, lJ P.2d 616(Or.1932):Daviov.Serges,129N.W.2d882(Mich.1964)]

d. Withdrawal before ratification: [§ 1351] Since there is no binding agency before affirmance by the principal. the agent or third party can withdraw from the transaction any lime prior to ratification. [Salfield v, Sutter County Land Improvement &

Reclamation Co.. 94 Cal. 547 (1892)] (

e. Repudiation by principal: [§ 1352] Since the agent acted without authority, tl'le' principal may repudiate the act. [Investment Properties. Inc. v. Allen, 196 S.E.2d (N.C 1973)]

6. Agency by Operation of Law: [§ 1353] An agency implied by operation of law is one created by statute, necessity, or public policy.

a. Example: Nonresident motorist statutes which appoint the secretary of state as agent for the nonresident for service of process in an action arising from the operation of a motor vehicle within the state arise by operation of law,

b. Example: Where a principal is so incapacitated by injuries that he cannot act for himself, an agency is implied by law.

c. Example: Agency by operation of law occurs where a merchant furnishes necessities to a wife and charges them to her husband's account.

c. TERMINATION OF AGENCY

An agency may be terminated by acts of the parties or by operation of law.

I. Termination by Act of the Parties

a. Mutual agreement: [§ 1354] Agencies are created by mutual agreement and may be terminated in the same manner. [Sarokhan v. Fair Lawn Memorial Hospital, lnc., J 99 A.2d 52 (N.J. 1964)]

b. Expiration of the contract: [§ 1355] An agency created for aspecific time or a specified purpose is terminated upon expiration of that time or the completion of the purpose. [Echiade v . Confederation of Canada Life Insurance, 459 F.2d 1377 (5th Cir. 1972); Clinkenbeard v: Southwest 011 Corp., 526 F.2d 649 (5th Cir. J 976)]

(!) Indefinite time: [§ 1357] If an agency is created for an indefinite time, it may be revoked at any time by either party, without liability. upon the giving of reasonable notice. [Kinman v, J. P. King Auction Co., 276 So. 2d 569 (Ala. 1973); Want V. Century Supply co., 508 S.W.2d 515 (Mo. 1974))

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C. Revocation of authority: [§! 356J A principal may at any time revoke the authority of the agent. with or without cause, by giving reasonable notice. [Shumaker v . Hazen. 372 P.2d 873 (Okla. 1962)]

(2) Definite contract period: [§ 1358J If the agency employment contract is for a definite period, it may still be revoked by either party. However, revocation Without cause may result in damages for breach of contract. [McDonald V. Da-

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vis, 389 S.W.2d 494 (Tex. 1965); Sunshine v , Manos, 496 S.W.2d 195 (Tex. ]973); Hilgendorf v. Hague, 293 N.W.2d 272 (Iowa 1980)]

d. Revocation by the agent: [§ 1359] The agent may also renounce her power, with or without cause, by giving reasonable notice to the principal. However, she may be liable for damages if she revoked without cause when the contract was for a definite period or specific purpose. (Century Refining Co. v . Hall, J 16 F.2d 15 (IOth Cir. 1963»)

e. Revocation by option: [§ 1360] An option in an agency agreement may provide that either party may terminate by giving a specified notice or paying a set amount to the other.

2. Termination by Operation of Law

a. Death of the principal: [§! 361 J In most states, death of the principal immediately terminates the agency. [Mubi v , Broomfield, 492 P.2d 700 (Ariz. 1972); Weber v. Bridgman, 113 N.Y.600(1889)J

(1) Compare: [§ 1362] Minority rule in a few states provides that the agency is not terminated until the agent is notified of the principal's death. [CaL Civ. Code §2356]

(2) Effect on agent's authority: [§! 363J In most states, third persons can rely on an agent's authority until the third person has received notice of the principal's death.

(3) Exception: [§ J364) In an attorney-client relationship, if the expressed desire of the client was for the attorney to take the case to conclusion. death of the client does not terminate the agency. [Jones v. Miller. 203 F.2d 131 (3d Or. 1953)]

b. Death of agent: [§ 1365] The authority of the agent terminates immediately upon the agent's death. [Commercial Nursery Co. v . Ivey, 51 S.W.2d 238 (Tenn. 1932)]

c. Mental incompetency: [§ 1366] Mental incompetency of either the principal or agent generally terminates the agency.

(I) Note: In some states, a third person who has knowledge of the principal's mental incompetency but deals in good faith with the agent will be protected if an injustice would result.

(2) Judleially declared insanity: [§1367] If 3. person has been declared insane by judicial decree, the agency is terminated because all persons are then presumed to know of the insanity.

d. Bankruptcy: [§ 1368] Bankruptcy of the principal terminates the agency if the agent has received notice. [McKey v. Clark, 233 F.2d 928 (9th Cir. i 916)]

(1) Exception: [§ 1369] If the agent is involved in uncompleted transactions which the agent believes the principal desires completed. the agency is not terminated until the transaction is completed.

(2) Exception; (§! 370J Bankruptcy of the principal does not terminate the authority of the agent to deal with the goods actually in the agent's possession.

e. Impossibility: [§ 1371] An agency terminates when it becomes objectively impossible to perform. Examples of impossibility are:

(1) Chsnge in tbe lsw that makes performance illegal or criminal; (2) Destruction of the subject matter of the agency; and

(3) Death or insanity of the third person in the transaction.

f. War: [§1372] When the outbreak of war places principal and agent in the position of alien enemies, the agency is terminated.ior at least suspended until peace is restored.

g. Change in business conditions: [§1373] An unusual and unanticipated change in the value or of business conditions of such a nature that an agent could reasonably infer the principal would not desire the transaction to be completed. may terminate the agency.

( 1) Example: Broker engaged to sell land at a certain price, but due to oil discovery. land greatly increases in value.

3. Notice Required to Terminate

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a. Notice to agent: [§1374] The general rule is that an agent's authority continues

until he has notice of any change or termination.

b. Notice to third persons: [§ 1375] Authority of the agent. actual or apparent, continues until such time as the third person receives notice from the principal or some other source that the agent's authority has terminated. (Bussing v, Lowell Film Productions, Inc., 233 App. Div, 493 (1931)]

D. IRREVOCABLE AGENCY [§ I 376J

An agency coupled with an interest (one given as security for a debt or obligation) in the subjeet matter of the agency is irrevocable and the agency cannot be terminated unilaterally by the principal, nor by death. insanity, or bankruptcy. [Sarokhan v, Fair Lawn Memorial Hospital, Inc., supra, § 1354]

I. Example: An agent advances money to her principal for purchase of a business with a condition that the agent be employed as manager until the money advanced has been repaid. This is a "power coupled with an interest" in the subject matter and cannot be revoked until the debt is paid.

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c. Competing: [§ 1388] An agent must not compete with her principal in the subject matter of the agency. [Arnold's Ice Cream Co. v. Carlson, 330 F. Supp. 1185 (E.D.N.Y.1971)]

d. Conflict of interest: [§ 1389) An agent must not represent anyone whose interest conflicts with that of the principal. [Kinert Y. Wright, 81 Cal. App. 2d 219 (1947)] '\tA}j).}l:_." t, z-

e. Com~ingling: [§ 1390] An agent has a duty to act only in the principal's name and not to appear as owner of the principal's property nor to commingle it with that of the agent. [Ramsey v, Gordon, 567 S.W.2d 868 (Tex. 1978)]

(1) Example: An attorney must not put money collected for a client in the attorney's own personal bank account.

9. Duty After Termination: [§ 1391] When an agent's authority has been terminated, she has a duty to cease to act as agent for the principal.

B. DUTIES OF THE PRINCIPAL

I. Duty to Perform the Contract: [§ 1392] The principal has the duty to perform the con-

tract made with his agent. iOo

2. Duty Not to Interfere with the Agent's work: [§1393] The principal cannot unreasonably interfere with the agent's work. [David More Co., Realtors v, McDonald, 294 S.W.2d 282 (Tex. 1973»)

a. Example: Where an agent has been given an exclusive sales territory, the principal may not invade the territory and make sales. [Hacker Pipe & Supply Co. v, Chapman Valve Manufacturing Co., 17 Cal. App, 2d 265 (1936)]

b. But note: Some courts hold that while a principal cannot interfere with an exdu~e agent by appointing another agent to compete, the principal personally may compete. (Stahlman v, National Lead Co., 318 F.2d 388 (5th Cir. "f963)] .

3. Duty to Give the Agent Information: [§ 1394J The principal has the duty to inform the agent of all risks and dangers in connection with the performance of his duty, and to furnish such information as is provided in their agreement or by the custom of the business.

4. Duty to Keep and Render Accounts: [§ 1395] The principal has the duty to keep and render accounts in connection with the agency business, in accordance with their agreement, custom of the business, method of compensation, and other relevan! factors.

5. Duty of Good Conduct: [§ 1396] The principal must conduct himself in such a manner as not to harm the agent's reputation nor make it impossible for the agent to perform the

employment and keep his self-respect, 1

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a. Examp4e: The agent does not have to put up with physical and verbal abuses and in-

suits from the principal. -

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6, Duty to f~aemntfy: [§ J 397J The principal has a duty to indemnify the agent for any losses or damages suffered without the agent's fault while carrying out the agency business. [McKinnon & Mooney v, Fireman's Fund Indemnity Co., 288 F.2d 189 (6th Cir. 1961); Johnson v, Suckow, 370 N,E.2d 650 (Ill. 1977)]

7. Duty to Compensate: (§ 1398] The principal has a duty to pay the agent any agreed salarv, or, if no sum was set, whatever is customary or reasonable under the circumstances. (Floyd v . Morristown European Motors, Inc., 351 A.2d 791 (N.J. 1976)J

8. Duty Not to Terminate: (§ 1399J The principal has a duty not to repudiate or terminate the agency relationship in violation of the employment contract. [Whirlpool Corp. v . Marshall. 445 US 1 ( ! 980)]

III. AGENCY RELATIONSHIP WITH THIRD PARTIES

A. LIABILITY OF PRINCIPAL FOR AGENT'S CONTRACTS [§1400]

A principal is liable to third persons on contracts made by the agent for the principal within the scope of the agent's authority,

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I. Authority of the Agent: (§ 140 II The authority given to the agent by the principal may be either actus/of apparent.

a. Actua! authority: [§] 402J Actual authority is the express or implied authority the principal intentionally confers on the agent. [Jackson v. Goodman. 244 N. W.2d 423 (Mich. 1976)]

(1) Express authority: [§! 403] Express authority is the actual authority given the agent in words-oral or written. [Fidelity & Casualty Co. v, Cominental lllinois Bank & Trust Co .. 25 N.E.2d 550 (Ill. 1940))

(2) Implied authority: [§ 1404] Implied authority is the actual authority of the agent which is inferred from the words or conduct of the principal. [Coblentz v. Riskin, 322 P.2d 905 (Nev. 1958); Freeport Ridge Estates, Ltd. v. Reckner, 266 So.2d 129 (Fla. !9~2)]

(a) Incili~t~'l'~:~~~rity: [§ 1405] Incidental authority is that reasonably nee- I essary to carry out the express authority.

l) Example: When a principal expressly employs and authorizes an agent to manage an apartment building for a stated salary, the implied authority may be inferred to hire needed help, make repairs, purchase heating fuel, and arrange for rubbish pick-up.

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(b) Custo~~'ry auinotity: [§ 1406 J Customary authority is that which, according to the custom of the community, is normally given agents to conduct their business. [Rosenthal v, Art Metal, !rIC" 229 A.2d 676 (N.J. 1967)]

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I} Example! Authority to advertise carries customary incldentnlauthori!y

to contract for television time. [Columbia Broadcasting System v. Stokely- Van Camp, l nc., 522 F.ld 369 (2d Cir. (975)]

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b. j Apparent authority: [§1407] Apparent. or ostensible: authority, is that which the principal either intentionally or negligently allows a third person to believe the agent possesses. [Midway Motors v. Pernworth. 141 Cal. App. 2d 929 (1956); O'Day v . George Arakelian Farms, Inc., 540 P.2d 197 (Ariz, 19(5)]

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(1) Good faith requirement: [§1408] If the third persons reasonably and in good faith rely upon the apparent or ostensible authority of an agent. the principal is bound by the agreement. [System Investment Corp. v. Montview Acceptance Corp" 355 F.ld 463 (IOth Cir. 1966): Loper Lumber Co. v. Windham, 282 So. 2d 256 (Ala. 1973); Dart Distributors, Inc v, Foti Enterprises, Inc .. 271 So. 2d 705 (La. 1971)}

(a) Example: Store manager had the actual authority to receive checks but not to endorse and cash them. However, where he had done so for some time without complaint from the principal, he had the apparent authority to continue.

(2) Acts of principal: [§ 1409] The acts of the principal lead i ng a thi rd person to believe that the agent had authority is the test of apparent or ostensible au

ity. [Walker v, Pacific Mobile Homes, 4 13 P.2d 3 (Wash. 1966); Johnson v, Shenandoah Life Insurance Co., 28i So. 2d 636 (Aia. 1973)]

c. Unauthorized acts: [§ 14! 0] When the agent contracts without actual or apparent authority, the principal is not bound. [Jackson v . Goodman, 244 N.W.2d 423 (Mich. 1976); Taylor v, Equitable Trust cs, 304 A.2d 838 (Md. 1973); Taylor v, Merrill Lynch, Pierce, Fenner & Smith, Inc., 245 A.2d 426 (D.C 1968); Dudley v . Dumont, 526 S.W.2d 839 (Mo. 1975): Shoenberger v: Chicago Transit Authority, 405 N.E.2d 1076 (HI. 1980)]

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(I) Ratification: (§ 1411] If the principal subsequently ratifies an unauthorized action of the agent, it becomes authorized. [Benner v . Farm Bureau Mutual Insurance Co., 528 P.2d 193 (idaho 1974): Theis v . Du Pont Glore Forgan, lnc., " 510 p.2d 1212(Kan. 1973); Navrides v. Zurich Insurance Co., supra, §1348]

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2. DisClosed Principal: [§ 1412] Where a principal is named in the contract and not excluded by its terms. and the existence of the agency appears, the authorized contract made by the agent is that of the disclosed principal. (Guillory v. Courville. 158 So. 2d 475 {La. 1963); Robertson v . Bland, 517 S.W.2d 676 (Tex. 1975); Wired Music. Inc. v . Great River Steamboat Co., 554S.W.2d 466 (Mo. 1977)J

3. Undisclosed Principal: [§ 1413] Where an agent enters into a contract on beha~:of his principal without disclosing to the third party that he is acting as an agent. the transaction is for an undisclosed principal. [Mawer-Golden-Annis, Inc. v . Brazilian-s; Columbian Coffee ce., 199 N.E.2d 222 (Ill. 1964); Tarolli Lumber ce., Inc. v. Andreass, 59

App. Div.2d 1011 (1977)]. • J

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a. Right of undisclosed principal: [§ 1414] Since the contract is really made for the principal. even though undisclosed, the principal has the right to enforce it against the third party. [Sago v. Ashford, 358 P.2d 599 (Colo. 1961); Cooper v: Epstein. 308 A.2d781 (D.C.1973)]

b. Rightofthe third party: [§1415] The third party, when he discovers the identity of the undisclosed principal. may enforce the contract against either the agent or the principal. but not against both.

( I) Rationale: The third party originally believed that the agent was the principal, so he may continue to hold him as such, but, in reality, the contract was that of the undisclosed principal. Since there can only be one principal to the contract, the third party must elect which party he intends to hold responsible. [Standard Oil

Co. v . Dcneux, 1 n Cal. App. 2d 608 (1961)] !

(2) Consider: Where the third party sues the agent on the contract and obtains judg ment without knowledge of the principal's identity, he can still sue the principa when discovered. but is limited to a single recovery. [Hugener v. Greider':

Wooden Shoe, Inc" 246 N.E.2d 323 (IlL 1969)]

c. Partially disclosed principal: [§14t6] When the agent makes a contract with; third person and reveals that he is acting as an agent but does not disclose the idem! ty of the principal, most courts treat it as an undisclosed principal.

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( I) Example: An agent contracts with a third person, advises that he is acting as a agent. signs the agreement. "John Doe, agent." but does not identify the princi pal, Unless the parties intended to bind only the principal, not the agent. th }ransacti9_rl~il1 usu~n~be treated as that of an undisclosed principal.

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d. Commercial paper: [§ 1417J An undisclosed principal whose name or descriptio does not appear on commercial paper is not liable as a party thereto" ru,CC §§3-40 l, 3-403J

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1- LIABILITY OF PRINCrP AL FOR AGENT'S TORTS

1. Doctrine of Res;;~~e~d Superio/[§1'4'18 J The doctrine of respondeat superior (let the superior respond) makes the principal, or employer, liable for the torts and wrongful acts of an agent or employee committed within the scope of the agency or employment. [ChevronOiICo.v.Sutton.515P.2d !283 (N.M. 1973)]

a. Fault: [§1419) Fault is immaterial under respondeat superior on the theory that the principal or employer can spread the risk of loss through business overhead or insurance. [Lyons v. Zale Jewelry ce, 150 So. 2d 154 (Miss. 1963)]

b. Authority: (§1420] The majority rule is that it is immaterial that the agent acted in excess of his authority or even contrary to instructions as long as the act was done in the scope of employment. [Lange v. National Biscuit Co" 2i I N.W.2d 783 (Minn. 1973): Dillard Department Stores, Inc. v. Stuckey, 5! 1 S.W.2d 154 (Ark.

1974 )J

Scope of employment: [§ 1421} Scope of the employment means that the wrongful act was done in the course of the agency by virtue of the authority of the agency and in carrying out the principal's business. [Harold J. Warren, Inc. v. Federal Mutua! Insurance Co., 386 F.2d 579 (I st Cir. 196 7); Edgewater Motels, Inc. v , Gatzke, 277 N,W.2d 11 (Minn. 1979)]

(1) Acts for personal convenience or pleasure: [§! 422J Acts necessary for the comfort, health, convenience, and welfare of the agent (e.g., coffee breaks, drinking, smoking, warming, and similar acts) are incidents of employment and do not take the agent out of the scope of employment. [DeMirjian v. Ideal Heating Corp" 129 CaL Apr. 2d 758 (1954)J

(2) Deviation and departure: (§ 1423) Slight deviations or departures by the agent or employee to take care of personal business Of pleasure, where the main pure pose of the activity is the principal's business, will not take the agent outside the scope of employment. [Harris v. Oro-Dam Constructors. 269 Cal. App. 2d 911 (1969)]

(a) Example: Truck driver starts on a direct route from his employer's factory to the railroad depot to deliver goods, but on the way. SlOpS by his home, which is a few blocks off the direct route. As he leaves his home. he has an accident due to his negligence. The employer would be liable since the deviation was slight.

(b) Substantia! deviation; [§ 1424] Where the dcviaton or departu re for personal business or pleasure is 2. sub$t~miai one. the ~gent or employee may be held to be on a "!r(JJic"ancrcletf.nN .. "'op . own and the principal WOUld not be liable. [City of Gre:encove Spnngs v , Donaldson, 348 f,2d t 97 l5th Cir. 1(65)]

(3) Coming and going rule: [§ 1425J The "coming going" rule applies' to an

employee or agent going to and from work, or to meals, and is considered as a substantia} departure outside the scope of the employment.

(4) Exceptions to the coming and going rule: [§ 1426 J There are several exceptions to the coming and going rule, where such travel is stil considered within the

scope the employment. .

«

(3.) Bunkhouse rule: [§ 1427] Where the agent or employee lives at place of

in 3. bun , he is considered within the scope

of employment while going to and from his

(b) Trave.ling salespeople. [§ 1.428] Traveling salespeople are generally c;ons~ ered rn the scope of their employment during their entire absence fro home,. e~en when not actually at work,

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(c) SP£9,aljrt_aRd or duatpurpose: [§ 1429] When the going and coming of tl employ~e or agent .has some additional business purpose, the entire trip ms be considered within the scope of employment. [Gipson v. Davis Realty C( 215 Cal. App, 2d 190 (1963): Boynton v, Me Kales, 139 CaL App, 'n (1956)]

I) Example: A night employee went home to get some tools and tHen we to dinner. On his return to work he had an accident. Since his dualpu pose was to get the needed tools and to eat, it was in the scope of h employment.

(d) Employer provides travel: [§ 1430] Where the employer provides the travr compensates the agent or employee for travel time, or defrays expenses, tl courts have held this to be an exception to the coming and going rule,

'-'I''*'<

(e) Special risk: [§ l431 J Where a teacher was mugged in her car just outsir

of the school grounds while driving home. the court applied a "special risl exception since "but (or" the employment, the worker would not have bet at the location of the risk. [Parks v, Workers' Compensation Appeals Boar

33 Cal. 3d 585 (l983)] "

d. Independent c6Wtt1i~1~r~ torts: [§ 1432] Since the principal has no righi of contr over an independent contractor, the respondeat superior rule does not apply. and tJ principal is generally not liable for torts of an independent contractor.

(I) Exceptions: [§ 1433] There are certain exceptional situations in which an er player may be held liable for tortious acts of an independent contract employee.

(a) Highly dangerous acts: [§ 1434 J Where the work is highly dangerous. t) employer may be held liable for injuries caused under a public policy theor (Giem v, Williams, 222 S. W.2d 800 (Ark. 1949)]

(b) Negligent selection of contractor: [§ i 435] Where the employer is neg gent in her selection of an independent contractor, the employer may be he responsible for such negligence.

I

2. Intentional Torts: [§ 1436] The principal or employer is liable for the malicious or i tentional acts of the agent or employee done within the scope of employment or conner ed with the employment. [Novick v. Gouldsberry, 173 f.2d 496 (9th Cir. 1949)]

a. Business disputes: [§ 1437] Where a dispute arises between an agent or employ and a thir~ pers51n ove~~M4b~nes~ 2~Jl1t,~.TrpL~YIT!,~tff the principal and employ would be liable tor any assaM't aiid oattery commlt1td~y the agent or employee.

(1) Rationale: When the attack is related to the duties of the employee and the 2 sault occurs within work related limits of time and place, the employer should liable. [Lange v: National Biscuit Co., 21 t N.W.2d 783 (Minn. 1973)] ~~~f-j',)'J'~V}C!

(2) But note: Where the tort results from a persona'ifuageUunrelated to the ernplo ment, the employer or principal would not be lia le even if the act were comrn ted on the employer's premises during business hours.

b. Maintaining order or protecting property: (§ 1438] Where the employment i valves risk of force, and the act is connected with the employment, the employer

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( I ) Example: The employer is liable where a night dub bouncerassauns a noisy cus-

tomer. (34 ALR.2d 372) »< ...

(2) Example: Security guard throws a rock at a trespasser on premises and causes an injury for which the employer is liable.

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(3) Compare: Where a bartender shot a customer who made adv~\!s to another patron, it was held to be outside the scope of his employment. [Howard v , Zaney Bar, 85 A.2d 401 {Pa. ! 952)]

c. Minority rule; [§ r 439J A few states adhere to the rule that the employer is not liable for a willful or malicious act of an employee regardless of purpose .. ~.""

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d. Criminal liability: [§ 1440J Respondeat superior is a rule orvi;;;i~us civil liability for damages in tort and does not apply in criminal taw, Therefore. the principal would be criminally responsible only if she participated in the criminal act or a criminal conspiracy~~.;~'>:::

( ! ) Compare: [§ 1441] A corporation can be held criminally liable for the acts of its officers and employees on the rationale that a corporation can act only through them,

Fraud: [§1442J Generally, the principal is liable for fraudulent representations of a type normally incident to the employment. [Morris Chevrolet, Inc, v. Pitzer, 479 P.2d 958 (Okla. 1971): Weise v. Red Owl Stores, j 75 N. W ,2d 184 (Minn. 1970)]

a. Unusual misrepresentations; [§! 443] Unusual and exceptional misrepresentations of the agent are usually not binding onlD_e principal unless the principal, with knowledge of the fraud, retains thEoenefits of the transactions.

( I} Example: Owner of a business employs a broker to sell it and the broker misrepresents to a buyer the net income of the business and falsely states that an insurance company' is going to build a tract of homes nearby ~hich will greatly in-

crease the business, ,

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(2) Ratlonajer.The first lie is One the principal might expect the agent to make.

SO the"principai would be liable. However, the second would be so unusual to the sale of the business that the principal might not be responsible.

(2) But note: Some states hold the principal liable under respondeat superior regardless of the unusual or extreme nature of the fraudulent statement.

b. Innocent misrepresentation: [§! 444J The agent generally is not liable for deceit if he honestly believes the representations supplied by his principal are true. [Cameron v, Terrell & Garrett. Inc .. 599 S. W,2d 680 (Tex. 1980»)

(1) Notice of falsity: [§ )445] The agent becomes personalty liable for his misrepresentations. once he knows, or should have known. the statements were false.

C. Avoidance of fiabilit)· for fraud by agreement: [§ 1446] Some states provide tha 1 the innocent principal is not liable for the fraudulent statements of hls agent if a written contract between the principal and the concerned third party provides that the principal will not be liable (or any unauthorized statements of his agent. [Taco Be! Zapponc,324So2d l21 (F!a.1976)]

(I) Rationale: Such provision gives notice to the third person that the agent's mis: representations are not authorized. and although the third party might not be able to hold the principal liable, he could still hold the agent liable for fraud.and rescind the contract. [Owen v, Schwartz, 177 F.2d 641 (D.C. Cir. ! 949)]

4. Automobile Statutes: [§ 1447] Many states have statutes which impose liability upon automobile owners and drivers by operation of law.

a. Owner's "permissive use" liability: (§ 1448] Some statutes. on an agency theory, hold the owner of a vehicle liable for limited amounts of damages caused by anyone

driving the vehicle with the owner's permission. [Cal. Vehicle Code § 17150J ~

b. Minor's driver's licenses: [§ 1449] Parents or guardians who sign applications by minors for driver's licenses are held to limited financial responsibility for any damage caused by the minors in the operation of motor vehicles,

c. "Family-purpose" doctrine: [§ 1450J Some states provide that a person owning or supplying a vehicle that he permits to be used by members of his family is liable for any damages caused by the negligent operation of the vehicle by such members of the family.

d. Guest statutes: [§ J 45 [J Many states relieve the driver of an automobile from civil liability for injuries sustained by a nonpaying guest riding in her vehicle. if the injury

was caused by only ordinary negligence as contrasted to gross negligence. -e

)

(I) But note: The California State Supreme Court held that the California guest statute was unconstitutional as a violation of the equal protection of the laws guarantee. [Brown v , Merlo. 8 Cal. 3d 885 (1973)]

e. Employer not liable for unauthorized operation of automobile: [§1452] Unless there is a statute imposing liability or personal fault on the part of the owner, an employer is not liable for the negligent use of a motor vehicle under the following circumstances:

(i) An employee who was not authorized to use the vehicle;

(ii) An employee who was not subject to control in the operation of the vehicle;

(iii)An employee who without authorization in rites a person to ride with him:

(iv) An employee who permits another to drive the vehicle without authority; and

(v) A non-employee bailee,

[Bafinovic v. Evening Star Newspaper Co., 113 F.2d 505 (D.C. Cir. 1 940)}

C. LIABILITY OF THIRD PERSON TO PRINCIPAL

A third person can be liable to the principal in contract or in tort.

1. Liability in Contract: [§ 1453] Third persons contracting v.ith an agent for a disclosed principal are liable on the contract to the principal as though it was made directly with the principal.

a. Unautborized contracts: [§ 1454] If the contract made by the agent was unauthorized, it is not binding on the third person until ratified by the principal.

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b. UOdisc.osed principal: [§1455] Third persons are liable to the principal on contracts made by an agent even though the principal was undisclosed.

rms- (1) Express exception: (§ 1456] If the terms of the contract expressly bar any un-

:>t be disclosed principal, there is no third party liability.

land

(2) Fraud exception: [§ l457] Where the third person would not contract with a particular principal and this is known to both the principal and agent. it is fraud

upon not to disclose the principal's identity.

Liability in Tort: [§1458] Third persons are liable in tort to a principal for injuries

eory, committed bJ:' them to a principal's property or interest in the hands of an agent just as if

yone they were dealing directly with the principal whether known or undisclosed.

a. Inducing fiduciary breach: [§ 1459] A third person who knowingly induces or aids

s by an agent in breaching the fiduciary duty owed to the principal is liable to the

am- principal.

(I) Example: The third person bribes an agent to obtain confidential information belonging to the principal,

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b. Fraud and collusion: (§ 1460] A third person who colludes with an agent to repre-

sent the third person rather than the principal is liable for fraud.

g or : for s of

civil tury

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( I) Exception; [§ 1461] Where the third person acts under a reasonable belief that the principal has knowledge of the facts and consents. there is no fraud.

c. Inducing breach of contract: [§ 1462] A third person who induces an agent to fail in performance of her contract with the principal is liable to the principal for damages.

., D.LlABILlTY OF AGENT TO THIRD PERSON

less . Under certain circumstances an agent may become personally liable to a third person.

mgl. Torts: [§ 1463] An agent. like any other tortfeasor, is personally responsible for any wrongful act committed by him. regardless of the respondeat superior liability of his .: principal.

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a. Tort directed by principal: (§ 1464] Even if the tort has been committed pursuant to instructions of the principal. the agent is still responsible for his intentional wrongful acts.

(!) Principal's responsibility: [§ 1465] When an innocent agent commits a tort pursuant to the principal's instructions and the agent is required to pay damages to the injured party. the agent is entitled to reimbursement from the principal.

2. Contract Made in the N~;;elofi~t

a. Undisclosed agency and undiselosed principal: [§1466} When the agent's name appears alone on the contract without identity of the principal or statement of the fact of agency. the agent is personally liable. [Lagniappe, Ltd. v. Denmark, 330 So. 2d 626 (L'L 1976): Rosen v. Deporter-Butterworth Tows, lnc., 379 N.E.2d 407 (Ill. 1978)]

b. Disclosed agency and partially disclosed principal: (§ 1467) Most states hold that when an agent signs a contract as an agent, but does not identify the principal, the agent becomes liable on the contract unless otherwise agreed.

( I) Minority rule: [§ 1468J California and some other states hold the agent liable even if the fact of agency is disclosed unless it appears on the face of the ins> . ment that only the principal is to be bound.

I

/

I

(2) Election by third person; [§ 1469] When the third person discovers the w' Ip"" .... ,';!W of the undisclosed or partially disclosed principal, he has the choice of holding ther the agent or the principal to the contract, but not both.

(a) Note: Once the third person has made the election to hold either the agent undisclosed principal, the third person is bound by the choice and --""'''''"l>I hold the other.

c. Nonexistent principal: (§ 1470 J When an agent purports to make a contract for a nonexistent principal. the agent is bound by the agreement [Dixie Drive It Y System v, Lewis, 50 S.E.2d 843 (Ga. 1948); Smith & Edwards v . Golden Spike little league, 577 P.2d ! 32 (Utah 1978)]

3. Warranty of Authority: [§ 1471] Every agent warrants that he is authorized by the principal to do what he is doing; if the act is unauthorized, then the agent is personally' liable unless it is later ratified by the principal. [Daan Equipment Co. V. Owens, 408 S. W.2d 566 (Tex. 1966): Killinger v . lest. 428 P.2d 490 (Idaho 1967) J

4. Incompetency of Principal: [§ 1472] Most states hold that the agent does not warrant the competency of the principal to make contracts. [Goldfinger v, Doherty, 153 Misc. 826(1934)]

a. Duty to inform: [§ 1473] When the agent knows that her principal tacks capacity to contract. she has a duty to so advise third persons, and failure to disclose may constitute fraud,

5. Wrongful Receipt of Money: (§ 1474 J An agent is liable to a third person for the

wrongful receipt of money from the third person. .

a. Illegally obtained: (§1475) Where the agent obtains money from the third person by illegal means, the agent is liable.

b. Overpayment: [§I476] When a third person makes an overpayment to the agent, or makes payment when none is due, the agent is liable to the third person if the agent knows that the payment was improper.

E. LIABILITY OF THIRD PERSON TO AGENT

L Contract Liability: [§ 1477J When an agent makes a contract with a third person on behalf of a disclosed principal, usually neither the agent nor the third person has an action against the other on the agreement.

a. Undisclosed and partially disclosed principal: [§ 1478] Where the principal was undisclosed or partially disclosed, the agent may hold the third person liaple on the contract until such time as the principal asserts his rights under the contract.

b. Agent intends to be bound: [§ l479J If the parties intended that the agent be bound on the contract. even though the agency was known, rljc agent may bring action against the third person for breach of contract.

2. Tort Liability: [§ 1480] The third person is liable for fraudulent or other wrongful acts causing injury to the agent.

a, Example: The third person lies to the principal about the agent's conduct, causing the discharge of the agent who has a cause of action against the third party.

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3. Agent as AsSignee: [§ 1481] If the principal assigns or otherwise transfers her rights or claims to the agent, the agent then acquires the rights of the principal to bring an action against the third person.

: identity )ldinger.

a. Example;Prindpal assigns agent some outstanding debts for collection; the agent may then sue the third person for the debts.

4. Agent's Action for Injury to Principal's Property: [§ 1482) An agent in possession of his principal's property has an interest in such property and may maintain an action against a third person who disturbs his possession or unlawfully injures the property,

a. Extent of third person's liability: [§ I 483] The third person's liability is not limited to the agent's interest, but covers the entire amount involved. The agent is required to account to the principal for any recovery in excess of the agent's interest.

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