AGENCY

PROFESSOR WILLIAM BIRDTHISTLE

CHICAGO–KENT COLLEGE OF LAW

CHAPTER 1: THE AGENCY RELATIONSHIP

A. Overview
• principle
Every agency relationship must have a ____________________________ and an
agent
______________________________________.
• agent
Generally, an _________________________ does things on behalf of the
princple
______________________________________ principle
and the ____________________________
agents
typically directs the ____________________________’s acts.
• Why create an agency relationship?
o economic
To extend the principal's _________________________________________ reach
o To acquire the agent's expertise
o To make money

• Common examples of principal-agent relationships:

o Employee-Employer
o Named agents (e.g., talent agent, governmental agents, etc.)
o Partner-Partnership
o Officer/Director-Corporation

• Whether an agency relationship exists matters because there is a legal consequence to valid
liable
agency relationships; when one exists, a principal can be held ____________________________
for acts of agents.
• When might a principal be liable to third parties for the actions of the agent?

o In contracts
o In torts
B. Components of Creating an Agency Relationship
• Three components of an agency relationship (ABC):

o ssent
A____________________________: This requires that both parties
manifest assent
____________________________________________________ to work with one another
o enefit
B____________________________: The agent agrees to work for the
benefit (making the princple money)
________________________________________________________
 o control
C____________________________: The agent agrees to work subject to the
control
____________________________of the principal

• consideration
There is no requirement of ____________________________ to create an agency relationship.
Example 1: You ask your new roommate to sign up your apartment for
electricity. The roommate orders the electricity. When the bill arrives, will
you be liable for payment?

Yes, agency relationship, you are principle

Answer: ________________________________________________________

Example 2: You ask your roommate to move your car for you for street
cleaning. Your roommate says “Roger that.” When your roommate moves
the car, he hits someone. Are you liable?

Yes, there was assent

Answer: ________________________________________________________

Exam Tip 1: The parties are not going to always say, or even think, that
they are in an agency relationship. As long as the essential elements
are there, an agency relationship exists.

• When one or more parties disclaim the creation of an agency relationship, courts will look to
manifestations
______________________________________________ assent
of ____________________________ ,
which can range from a formal letter, to spoken words, to physical actions. Did they agree?

CHAPTER 2: PRINCIPALS AND AGENTS

A. Who Can Be a Principal?
• legal capacity
Almost any person or entity that has __________________________________ can be a
principal.

o Minors
This excludes: _________________ and anyone incapacitated by illness or intoxication.

• Types of entities that can be principals:

o Employer
o Corporation; LLC
o Partnership; LLP

• Employers typically exert a great amount of control over employees. This includes a significant
day to day
amount of control over the __________________________________ activities of the
employees, including:

o tools
Giving the employees _________________ to work at the workplace;
o pay period
Paying employees on a structured _________________; and
o Directing the ways in which employees should finish and perform the tasks.

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 • unincorporated
While most entities can be principals, __________________________________ associations
legal capacity
cannot because they lack __________________________________.
Example 3: A book group, a bird-watching group, or a collection of folks who
like to hang out at coffee shops do not have legal capacity.

B. Who Can Be an Agent?

• minimal
Any person or entity who has __________________________________ capacity

o minor
A __________________________________ may serve as an agent.

• To have minimal capacity, an agent must be able to:

o assent (knowingly say yes)
__________________________________ to the agency relationship;
o Perform the tasks on behalf of the principal; and
o control
Be subject to the principal’s __________________________________.

• Generally, any type of business entity may serve as an agent.

C. Formalities for Creating an Agency Relationship
• Agency formation simply requires: (i) assent, (ii) benefit, and (iii) control.
• consideration
No __________________________________ is required to form an agency relationship; service
may be gratuitous.
• No evidence in writing is necessary.

D. Types of Agents
• Servants/employees: The employer has the right to control the agent’s
physical
__________________________________ work
conduct of _________________.
• Independent contractors: The principal does not control or have the right to control the agent’s
physical
__________________________________ worl
conduct of _________________.
o Characteristics of an independent contractor:

 independance
Maintain a high level of __________________________________
 Free to work for other people
 fixed fee
Paid on a __________________________________
 tools
Typically owns his own _________________
Example 4: Law firm big wig tells an associate to drive him to a meeting
downtown. That will be an employer/employee relationship. Now contrast
that with the lawyer hailing a cab and telling the cab driver to drive him
downtown.

What are the differences?

When you call the cab, they are an independant contractor
_________________________________________________________________
But the associate, is a employee relationship
_________________________________________________________________

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 liable
This is relevant because principals are more _________________ when they
have more control; they are more legally responsible.

• Either party
Terminating an agency relationship: __________________________________ can terminate an
unilaterally
agency relationship __________________________________.

CHAPTER 3: SPECIFIC LIABILITY OF PRINCIPALS TO THIRD PARTIES

A. Introduction
• When you encounter an agency problem on the bar, the fact pattern will include:

1) Activity that arguably constitutes the formation of an agency relationship between the
principal and the agent;

2) The agent will do the work, either by entering into a contract on behalf of the principal
or by doing a task in which the agent commits a tort; and

3) The principal is going to be sued by the third party—a contractual third-party or tort
victim.
B. Contract Liability
• When is a principal liable for contracts that an agent enters on behalf of the principal? The
principal is bound on a contract when:

o has authorized
The principal __________________________________ the agent to enter into the contract;
and
o legal authority
The agent acted with __________________________________

• There are four types of legal authority:

o Express actual
__________________________________ authority
o Implied actual
__________________________________ authority
o apparent
__________________________________ authority
o Ratification
Exam Tip 2: As a general rule, when you are trying to discern between
actual authority and apparent authority, look to the communication.
When the principal is communicating with the agent, there is actual
authority; when the principal is communicating with the third party,
there is apparent authority.

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CHAPTER 4: ACTUAL AUTHORITY
A. Actual Express Authority
• Look to communication between agent and principal.
• words
The principal creates actual express authority by using _________________,
written
_________________ spoken
or _________________ to convey authority to the agent.
Example 5: You whisper in the ear of your roommate to have your car
washed. Or you write something down on paper to tell your roommate to
have the car washed, but then you burn the paper. When you receive a bill
from the car wash, who is liable to pay? Why?

principle
Answer: The __________________________________ is bound to pay. An
agency relationship existed. The agent had actual express authority to act on
the principal’s behalf.

1. Requisite Intent
o believe
Subjective intent: The agent must _________________ that he is doing what the principal
wants
_________________ him to do.
o reasonable
Objective intent: The belief must be objectively __________________________________.

2. Termination by Death
o terminates
Upon the death of the principal, actual express authority ____________________________
actual knowledge
when the agent has __________________________________ of the principal’s death.
o immediately
Actual express authority terminates __________________________________ upon the
death of the agent.
B. Actual Implied Authority
• princple
Look to communication between _________________ agent
and ____________________________.
• A principal creates actual implied authority by using words, written or spoken, or
other conduct
__________________________________ to convey authority to the agent to take whatever
necissary
steps are __________________________________ to achieve the principal’s objectives.
• The agent has actual implied authority (absent express instructions to the contrary) to act within
business custom
the accepted ___________________________________________________ or general
general trade useage
___________________________________________________.
Example 6: You tell your roommate, who happens to be a talent agent, to get
you a role in the new Aquaman film. In an attempt to do this, your
roommate takes the producer of the film out to dinner and tells the waiter
to send the bill to you. Are you bound by the bill?

Yes
Answer: _________________. The agent had actual implied authority to do
whatever was necessary, under accepted business custom or trade usage, to
secure the role for the principal.

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 Example 7: A barista has been signing invoices for cups without receiving
instructions from the restaurant’s owner. The owner has seen this take
place several times. One morning, a delivery of cups arrives and the barista
signs for the delivery without first receiving authorization from the owner.
The owner, seeing this take place, does not object. Will the owner be liable
for deliveries signed by the barista?

Answer: Yes, because the owner saw and did not object.

CHAPTER 5: APPARENT AUTHORITY AND RATIFICATION

A. Apparent Authority
• principle
Look to communication between the __________________________________ and the
third party
__________________________________.
• The principal creates apparent authority by words, written or spoken, that cause the
third party
__________________________________ to reasonably believe that the principal
consents agent
____________________ to have acts done on the principal’s behalf, by the ________________.
• Is the third party’s belief reasonable? Have the principal and the third party had similar dealings
before?
Example 8: I tell the wine store that my butler has the authority to buy my
apparent authority
wine for me. The butler has __________________________________.

If I send a letter to the wine store instead, would I, as principal, be bound by the
yes
butler’s actions? _________________.

I tell the wine store the same thing, but I tell the butler that I can’t stand the
German stuff, and not to order any. The butler does it anyway. Am I bound to
Yes
pay? _________________.

What if I fire the butler, but he still occasionally orders things and puts it on my
Yes
bill, am I still liable? _________________, until the apparent authority is
revoked. The principal must tell the store that he is no longer bound.

B. Ratification
• There's no pre-act communication to consider.
• Ratification requires that (i) the principal has knowledge of the material terms of the contract
accept
and (ii) the principal then __________________________________ the contract’s
benefits
__________________________________.
Example 9: I have said nothing to my butler about wine, and I have said
nothing to the store. I just hired the butler yesterday. The butler, to cheer
me up, goes down to the store on the very first day of employment and
orders me a huge crate of wine; I have not authorized him and I have not

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 said anything to the store. He brings the crate of wine back and gently
drops it at my feet.

If I reject the wine, I am bound to pay the bill?

No
Answer: _________________

If I accept the wine, knowing the contract he entered to buy it for me, I am
bound to pay the bill?

Yes
Answer: _________________

Exam Tip 3: Remember that regardless of whether the principal is liable,

the agent may still be liable for violating a contract or committing a
tort, regardless of his status as an agent. In other words, it is possible
for both the agent and the principal to be liable.

CHAPTER 6: DISCLOSURE OF PRINCIPALS

• Three types of principals:
1) Principals can be disclosed. The third party knows: (i) the agent is acting on behalf of a
principle
__________________________________ and (ii) the principal’s
Identity
__________________________________.

• In these scenarios, the parties to the contract are the third party and the principal.
2) Sometimes, the principal is partially disclosed. The third party knows that the agent is
identity
working on behalf of a principal, but not the __________________________________
of the principal.

• In these scenarios, the parties to the contract are the third party, the principal, and
the agent.
Note 1: The two scenarios above assume that the agent had the proper
authority to bind the principal to a contract. Note that disclosed and
partially disclosed principals only become parties to a contract if (i) the
agent had authority to bind the principal to the contract, or (ii) the
principal ratified the contract.

3) The principal can also be undisclosed. The third party knows neither agent’s status as an
agent nor the principal’s identity.

• In these scenarios, the parties to the contract are the

agent
__________________________________ third party
and the _________________.
• Whether an undisclosed principal is also party to the contract depends on whether
authority
the agent had the __________________________________ to bind the principal to
the contract.

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CHAPTER 7: PRINCIPALS’ LIABILITY FOR TORTS
A. Vicarious Liability
• Vicarious liability, or respondeat superior: A principal may be liable for the tortious acts of his
agent.
• Requirements for respondeat superior to apply:
control
1) The principal has sufficient __________________________________ over the agent’s
conduct
__________________________________ such that the agency relationship is employer-
employee; and

2) The tort committed by the agent was committed while the agent was acting within the
scope
_________________ employment
of his __________________________________.

• Sufficient control: A principal who controls, or has the right to control, the
physical conduct
___________________________________________________ (manner and means) of the
agent’s performance of work is in the higher category of employer-employee status.
• A principal does NOT have vicarious liability for torts committed by an independent contractor.

o Exceptions:
 inherently
The task is __________________________________ dangerous.
Example 10: You hire an independent contractor to remove your spent
uranium from your bedroom.

 hiring
The principal was negligent in __________________________________ the
independent contractor.
Example 11: If you just picked a name out of a hat for your uranium removal,
you could be liable.

 tasks
The principal retains control over certain _________________ and the tort occurs within
tasks
those _________________.

• To determine scope of employment, ask:

o benefit
Did the agent intend to _________________ the principal?
o hired
Was the agent’s conduct of the kind that the agent was _________________ to perform?
o on the job
Did the tort occur “__________________________________?”

• Look for frolic and detour:

o significant
Frolic: A __________________________________ deviation from an assigned path; outside
scope of employment
Example 12: A UPS driver, while making a delivery, stops to play basketball and
commits a tort against one of the other players. There is no liability to the
principal because the tort was outside the scope of employment.

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Think, detour, shortcut, but comes back on track

diminimous
o Detour: A __________________________________ deviation from an assigned path; within
scope of employment
Example 13: A UPS driver takes a shortcut and gets in an accident with
another driver. The principal is probably liable because the tort was within
the scope of employment.

Example 14: A UPS driver comes back to the office and dribbles a basketball
around the office while waiting to load the trucks. The principal is probably
liable because the tort was within the scope of employment.

B. Intentional Torts
outside
• Generally, intentional torts are __________________________________ the scope of
employment. Therefore, there would not be liability for the
intentional tort
__________________________________.
• Exceptions in which a principal may be held vicariously liable for intentional torts:
space time
o The conduct occurred within the general _________________ and _________________
limits of employment.
benefit
o The agent was motivated in some part to __________________________________ the
principal.
o The act is of a kind that the agent was hired to perform.
Example 15: A pitcher is warming up at the ballgame in the bullpen, and a fan
is mouthing off to him. The pitcher beans the fan in the head with one of
the balls.

Example 16: A salesperson intentionally lies about a product.

CHAPTER 8: FIDUCIARY DUTIES

• Three duties that all agents owe to principals—even if the agent is unpaid:
care
1) Duty to exercise reasonable _________________
give
2) Duty to _________________reasonable instructions

3) Duty of loyalty

A. Duty of Loyalty
usurp
• The agent cannot _________________ a business opportunity.
Example 17: A machinist is working for a company and has the opportunity to
moonlight or do some separate work on the side; he cannot do it.
Secret profits
• The agent cannot take in __________________________________.

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 Example 18: If a soldier, in uniform, uses the uniform to help smugglers get
supplies past a military checkpoint, then those are secret profits that should
have been disgorged to the soldier’s boss.

• The agent cannot compete in competing businesses with the principal.

Example 19: A cleaner who leaves the employ of a cleaning company and
takes the customer list.

[END OF HANDOUT]

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