1.

Agency relationship
Agency relationship: is the fiduciary relationship that arises when one person (a
principal) manifests assent to another person (an agent) that the agent shall act on the
principal’s behalf and subject to the principal’s control, and the agent manifests assent
or otherwise consents so to act. Principals have substantial liability for the actions of
their agents

ATENÇÃO!
Ainda que seja o gerente de uma Seguradora a contratar a trabalhador (Agent),
quem é o Principal é a Seguradora (e não o gerente!!!)

To create an agency relationship, there must be:

1. A principal and
2. An agent
3. Who mutually consent (the principal musk ask the agent to do something and the
agent must agree) that the agent will act on behalf of the principal and

• Steven James met some friends one evening at a restaurant. During the two
hours he was there, he drank four to six beers.
• After leaving the restaurant at about 7:00 p.m., James sped down a highway
and crashed into a car that had stalled on the roadway, thereby killing the
driver. James told the police at the scene that he had not seen the parked
car.
• In a misguided attempt to help his client, James’s lawyer took him to the
local hospital for a blood test. Unfortunately, the test confirmed that James
had indeed been drunk at the time of the accident.
• The attorney knew that if this evidence was admitted at trial, his client would
soon be in jail.

• So the lawyer argued that the blood test was protected by the client-
attorney privilege because the hospital had been his agent and therefore a
member of the defense team.

• The court disagreed, however, holding that the hospital employees were not
agents for the lawyer because they had not consented to act in that role.

• James was convicted of murder in the first degree by reason of extreme

atrocity or cruelty.

4. Be subject to the principal’s control (principals are liable for the acts of their agents
because they exercise control over agents if principals direct their agents to commit
an act, it seems fair to hold the principal liable when that act causes harm)

• William Stanford was an employee of the Agency for International

Development.
 • While on his way home to Pakistan to spend the holidays with his family, his
plane was hijacked and taken to Iran, where he was killed.

• Stanford had originally purchased a ticket on Northwest Airlines but had traded
it in for a seat on Kuwait Airways (KA).

• The airlines had an agreement permitting passengers to exchange tickets from

one to another.

• Stanford’s widow sued Northwest on the theory that KA was Northwest’s

agent.

• The court found, however, that no agency relationship existed because

Northwest had no control over KA.

• Northwest did not tell KA how to fly planes or handle terrorists; therefore it
should not be liable when KA made fatal security errors.

5. Thereby creating a fiduciary relationship (special relationship, with high standards; the
purpose is for one person to benefit another agents have a fidutiary duty to
principals)

• Suppose, for example, that you hire a real estate agent to help you find a
house.
• She shows you a great house, but does not reveal to you the brutal murder that
took place there because she is afraid that you would not buy it and she would
not receive a commission.
• She (agent) has violated her fiduciary duty to put your (principal) interests
first.

The most common way to create an agency relationship is through a CONTRACT

1.1. AGENT
There are two kinds of agents:
(1) employees
(2) independent contractors.

A principal may be liable for the torts of an employee but generally is not liable for the torts of
an independent contractor. VER PONTO 1.2 Principal’s liability FOR TORTS

Employee or Independent Contractor?

The more control the principal has over an agent, the more likely that the agent will
be considered an employee.
Therefore, when determining if agents are employees or independent contractors,
courts consider whether:
–The principal controls details of the work.
–The principal supplies the tools and place of work.
–The agents work full-time for the principal.
–The agents are paid by time, not by the job.
–The work is part of the regular business of the principal.
–The principal and agents believe they have an employer-employee
relationship.
–The principal is in business.

Ex: Winona contracted with XtremeCast, a broadcast media firm, to cohost an Internet-
streaming sports program. Winona and XtremeCast signed a new contract for each episode.
In each contract, Winona agreed to work a certain number of days for a certain salary.

During each broadcast, Winona was free to improvise her performance.

She had no other obligation to work for XtremeCast. Was Winona an independent contractor?

YES. An independent contractor is a person who contracts with another— the principal—to
do something but who is neither controlled by the other nor subject to the other’s right to
control with respect to the performance.
Independent contractors are not employees, because those who hire them
have no control over the details of their performance.

1.1.1. DUTIES OF AGENTS TO PRINCIPALS:

A AMARELO ESTÃO OS AGENTS

1. Duty of loyalty (all employees owe a duty of loyalty)
o Outside benefits (an agent may not receive profits unless the principal knows and
approves)

• Suppose that Hope is an employee of the agency Big Egos and Talents,
Inc. (BEAT), and she has been representing Will Smith in his latest movie
negotiations.
• Smith often drives her to meetings in his new Maybach.
• He is so thrilled that she has arranged for him to star in the new movie
Little Men that he buys her a Maybach.
• Can Hope keep this generous gift? Only with BEAT’s permission.
• She must tell BEAT about the Maybach; the company may then take the
vehicle itself or allow her to keep it.

o Confidential information (the ability to keep secrets is important in any

relationship, but especially a fiduciary relationship agents can neither disclose
nor use for their own benefit any confidential information they acquire during thei
agency)
 • After the Beatles fired an employee, he passed on to a competitor
confidential information about the royalties on a George Harrison
song.
• The court held that the agent’s obligation to keep information
confidential continued even after the agency relationship ended.

o Competition with the principal (agents are not allowed to compete with their
principal in any matter within the scope of the agency business once the agency
relationship ends, so does the rule against competition)

• Michael Jackson bought the copyright to many of the Beatles’ songs.

If, before he made that purchase, one of his employees had bought the
songs instead, that employee would have violated her duty to Jackson.
• After the employee’s job with Jackson ended, she could bid against him
for the Beatles’ songs
o Conflict of interest between two principals (unless otherwise agreed, an agent
may not act for two principals whose interests conflict)

• Suppose Travis represents both director Steven Spielberg and actress

Angelina Jolie.
• Spielberg is casting the title role in his new movie, Nancy Drew: Girl
Detective, a role that Jolie covets.
• Travis cannot represent these two clients when they are negotiating
with each other, unless they both know about the conflict and agree
to ignore it.

o Secretly dealing with the principal (If a principal hires an agent to arrange a
transaction, the agent may not become a party to the transaction without the
principal’s permission)

• Suppose that actor Matt Damon hired Jane to read scripts for him.
• Unbeknownst to Damon, Jane had written her own script.
• She may not sell it to him without revealing that she wrote it herself.
• Damon may be perfectly happy to buy Jane’s script, but he has the
right, as her principal, to know that she is the person selling it.

o Appropriate behaviour (An agent may not engage in inappropriate behavior that
reflects badly on the principal. This rule applies even to off-duty conduct)

• British Airways fired flight attendants for their off-duty behavior in a

hotel bar.
• One of the attendants raised her shirt so that her female colleague
could caress her breasts while kissing her on the mouth.
• She then lowered her trousers, revealing her underwear.
 • Another crew member took off his shirt and poured wine down his

Example Example VIOLATION

VIOLATION OFDUTIES
OF OTHER DUTY OF LOYALTY:
AN AGENT:
Dimka
Before Corporation
Taylor wants to build
left for a five-week trip toa new mall he
England, on hired
a specific tracttoofrent
Claudia land.his vacation house under a 1-year
contract.
Dimka contracts with Nadine to buy the property. When Nadine learns of the difference between
Claudia neverthat
the price got Dimka
aroundistowilling
listingtohis
payhouse
and on
thethe regional
price rental
at which the list
ownerusedis by all the
willing toarea brokers, but when
sell, she
the wants
Fords contacted her looking for rental housing,
to buy the land and sell it to Dimka herself. she did show them Taylor’s place.
They offered to rent it for $750 per month.
She CAN’T DO THIS!!! Nadine, as an agent, is prohibited from taking advantage of the agency
relationship to obtain property that the principal (Dimka Corporation) wants to purchase.
Claudia called Taylor in England to tell him. He responded that he would not accept less than $850 a month,
This is the duty of loyalty that arises with every agency relationship.
which Claudia thought the Fords would be willing to pay.

He told Claudia to call back if there was any problem.

The Fords decided that they would go no higher than $800 a month.

Instead of calling Taylor in England, Claudia left a message on his home answering machine. When the Fords
pressed her for an answer, she said she could not get in touch with Taylor.

Not until Taylor returned home did he learn that the Fords had rented another house.

trousers.
2. Duty to obey instructions (An agent must obey her principal’s instructions unless the
principal directs her to behave illegally or unethically)

Taylor instructed Claudia to call him if the Fords rejected the offer. When Claudia failed
to do so, she violated the duty to obey instructions

3. Duty of care (An agent has a duty to act with reasonable care. In other words, an agent
must act as a reasonable person would, under the circumstances)
A reasonable person would not have left a message on Taylor’s home answering
machine when she knew he was in Europe. She violated the duty of care

4. Duty to provide information (An agent has a duty to provide the principal with all
information in her possession that she has reason to believe the principal wants to
know)
She also has a duty to provide accurate information. Claudia knew that the Fords had
counter-offered for $800 a month. She had a duty to pass this information on to Taylor,
so she violated the duty to provide information.

1.1.2. PRINCIPAL’S REMEDIES WHEN THE AGENT BREACHES A DUTY

A principal has three potential remedies when an agent breaches her duty:
I. The principal can recover from the agent any damages the breach has caused.
 Thus, if Taylor can rent his house for only $600 a month instead of the $800
the Fords offered, Claudia would be liable for $2,400—$200 a month for one
year.
II. If an agent breaches the duty of loyalty, he must turn over to the principal any
profits he has earned as a result of his wrongdoing.
III. If the agent has violated her duty of loyalty, the principal may rescind the
transaction.
When Jane sold a script to her principal, Matt Damon, without telling him
that she was the author, she violated her duty of loyalty. Damon could
rescind the contract to buy the script.

1.1.3. AGENT’S LIABILY FOR TORTS

It is important to remember that agents are always liable for their own torts. Agents who
commit torts are personally responsible whether or not their principal is also liable.
Even if the tort was committed to benefit the principal, the agent is still liable.
This rule makes obvious sense. If the agent were not liable, he would have little incentive to be
careful Agents, as a rule, may have fewer assets than their principal, but it is important that
their personal assets be at risk in the event of their negligent behavior.

1.1.4. AGENT’S LIABILITY FOR CONTRACTS

The agent’s liability on a contract depends upon how much the third party knows about the
principal.
Disclosure (divulgação) is the agent’s best protection against liability.

1) Fully Disclosed Principal (PRINCIPAL TOTALMENTE DIVULGADO) (if the third party
knows of his existence and his identity)

An agent is not liable for any contracts she makes on behalf of a fully disclosed principal.
A principal is fully disclosed.
Augusta acts as agent for Parker when he buys Tracey’s prizewinning show horse.
Tracey does not know Parker, but she figures any friend of Augusta’s must be OK.
 She figures wrong—Parker is a charming deadbeat (CALOTEIRO). He injures Tracey’s
horse, fails to pay the full contract price, and promptly disappears.
Tracey angrily demands that Augusta make good on Parker’s debt.
Unfortunately for Tracey, Parker was a fully disclosed principal—Tracey knew of his
existence and his identity.
Augusta is not liable because Tracey knew who the principal was and could have
investigated him.
Tracey’s only recourse is against the principal, Parker (wherever he may be).

2) Unidentified Principal/ Partially disclosed principal (if the third party knew of his
existence but not his identity).

In the case of an unidentified principal, the third party can recover from either the agent or
the principal.
Suppose Augusta had simply said, “I have a friend who is interested in buying your
champion.”
Parker is an unidentified principal because Tracey knows only that he exists, not who
he is.
She cannot investigate him because she does not know his name.
Tracey relies solely on what she is able to learn from the agent, Augusta.
Both Augusta and Parker are liable to Tracey.
They are jointly and severally liable, which means that Tracey can recover from either
or both of them.
She cannot, however, recover more than the total that she is owed: if her damages are
$100,000, she can recover that amount from either Augusta or Parker, or partial
amounts from both, but in no event more than $100,000.

3) Undisclosed Principal (if the third party did not know of his existence)

In the case of an undisclosed principal, the third party can recover from either the agent or
the principal.
The principal is always liable, but the agent is not unless the principal’s identity is a mystery.
Suppose that Augusta simply asks to buy the horse herself, without mentioning that she
is purchasing it for Parker.
In this case Parker is an undisclosed principal because Tracey does not know that
Augusta is acting for someone else.
Both Parker and Augusta are jointly and severally liable
 Ex AGENT’S LIABILITY FOR CONTRACTS

Davis (agent) contracts with Estee (principal) to buy a certain horse on her behalf. Estee asks Davis not to
reveal her identity.

Davis makes a deal with Farmland Stables, the owner of the horse, and makes a down payment. Estee does not
pay the rest of the price.

Farmland Stables sues Davis for breach of contract. Can Davis hold Estee liable for whatever damages he has
to pay? Why or why not?

Yes. A principal, regardless of whether he or she is disclosed to third parties or not, has a duty to indemnify
(INDEMNIZAR) an agent for liabilities incurred because of authorized and lawful acts and transactions and for
losses suffered because of the principal’s failure to perform his or her duties.

1.2. PRINCIPAL

1.2.1. DUTIES OF PRINCIPALS TO AGENTS

2. Reimburse the agent for reasonable expenses;

3. Cooperate with the agent in performing agency tasks;

4. Provide safe working conditions for the agent;
5. Honor their agency contract (pay the agent)

1.2.2. LIABILITY

Although an agent can greatly increase his principal’s ability to accomplish her goals, an
agency relationship also dramatically increases the risk of the principal’s legal liability to third
parties.

1.2.3. PRINCIPAL’S LIABILY FOR TORTS

ATENÇÃO!

VER DISTINÇÃO ENTRE 2 TIPOS DE AGENTES: 1-EMPLOYEES ; 2- INDEPENDENT

CONTRACTORS (ponto 1.1) e VER AGENT’S LIABILITY FOR TORTS (1.1.3.)

A principal may be liable for the torts of an employee but generally is not liable for the torts of
an independent contractor.

• An employer is liable for a tort committed by his employee acting within the scope of
employment or acting with apparent authority.
• This principle of liability is called respondeat superior, which is a Latin phrase that means
“let the master answer.”
• Under the theory of respondeat superior, the employer (i.e., the principal) is liable for
misbehavior by the employee (that is, the agent) whether or not the employer was at
fault.
• Indeed, the employer is liable even if he forbade or tried to prevent the employee from
misbehaving.

• The logic is that, because the principal controls the agent, he should be able to prevent
misbehavior.

• If he cannot prevent it, at least he can insure against the risks.

• Furthermore, the principal may have deeper pockets than the agent or the injured third
party and thus be better able to afford the cost of the agent’s misbehavior.

NEGLIGENT HIRING

• As a general rule, principals are not liable for the torts of an independent contractor.

• There is, however, one exception to this rule:

The principal is liable for the torts of an independent contractor if the principal has been
negligent in hiring or supervising her.

• Thus an employment agency would be liable if it failed to run a background check on a

nanny with a criminal record who then harmed a child in her care.

• An employee is acting within the scope of employment if the act:

– Is one that employees are generally responsible for
– Takes place during hours that the employee is generally employed
– Is part of the principal’s business
– Is similar to the one the principal authorized
– Is one for which the principal supplied the tools; and
– Is not seriously criminal

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.

Although Jane has often told Hank not to speed when driving the delivery van, Hank
ignores her instructions and plows into Bernadette. Hank was authorized to drive the van but
not to speed. However, his speeding was of the same general nature as the authorized act, so
Jane is liable to Bernadette.

ABANDONMENT
The principal is liable for the actions of the employee that occur while the employee is at
work, but not for actions that occur after the employee has abandoned the principal’s
business.
The employer is liable if the employee is simply on a detour from company business, but the
employer is not liable if the employee is off on a frolic of his own.
Suppose that Hank, the delivery van driver, speeds during his afternoon commute home.
An employee is generally not acting within the scope of his employment when he commutes to
and from work, so his principal, Jane, is not liable.
On the other hand, if Hank stops at the Burger Box drive-in window en route to making a
delivery, Jane is liable when he crashes into Anna on the way out of the parking lot because
this time he is simply making a detour.

NEGLIGENT AND INTENTIONAL TORTS

The principal is liable if the employee commits a negligent tort that causes physical harm to a
person or property. (When Hank crashes into Anna, he is committing a negligent tort, and Jane is liable
if all the other requirements for respondeat superior are met. )
BUT
A principal is not liable for the intentional torts of the employee unless the employee intended
to serve some purpose of the employer.

1.2.4. PRINCIPAL’S LIABILITY FOR CONTRACTS

• A principal is liable on contracts entered into on his behalf by her agent, if the agent is
authorized.
• He may even be liable if the agent is not authorized but appeared to be so.
• There are three types of authority: 1. express, 2. implied, 3. apparent.
1) EXPRESS AUTHORITY

• The principal grants express authority by words or conduct that, reasonably

interpreted, cause the agent to believe the principal desires her to act on the
principal’s account.

• In other words, the principal asks the agent to do something and the agent does it.
 Craig calls his stockbroker, Alice, and asks her to buy 100 shares of Banshee Corp. for his
account. She has express authority to carry out this transaction.

2) IMPLIED AUTHORITY
 Unless otherwise agreed, authority to conduct a transaction includes authority to
do acts that are reasonably necessary to accomplish it.
David has recently inherited a house from his grandmother.
He hires Nell to auction off the house and its contents. She hires an auctioneer,
advertises the event, rents a tent, and generally does everything necessary to conduct a
successful auction.
After withholding her expenses, she sends the tidy balance to David.
Totally outraged, he calls her on the phone, “How dare you hire an auctioneer and rent a
tent? I never gave you permission! I refuse to pay these expenses!”
David is wrong!

A principal almost never gives an agent absolutely complete instructions.

Unless some authority is implied, David would have had to say, “Open the car door, get
in, put the key in the ignition, drive to the store, buy stickers, mark an auction number on
each sticker . . .” and so forth. THIS DOES NOT HAPPEND

3) APPARENT AUTHORITY (AGENCY BY ESTOPPEL)

• A principal can be liable for the acts of an agent who is not, in fact, acting with
authority if the principal’s conduct causes a third party reasonably to believe that the
agent is authorized.
• Because the principal has done something to make an innocent third party believe
the agent is authorized, the principal is every bit as liable to the third party as if the
agent did have authority.
Two stockbrokers sell fraudulent stock out of their offices at a legitimate brokerage
house, using firm e-mail accounts and making presentations to investors in the firm
conference rooms.

Although the two brokers do not have actual or implied authority to sell the stock, their
employer is nonetheless liable on the grounds that the brokers appeared to have
authority.

Of course, the company has the right to recover from the two brokers if it can compel
them to pay.

1.2. AGENCY BY RATIFICATION

An agency relationship that arises when an individual misrepresents himself or herself
as an agent for another party and that party accepts the unauthorized act.

There are two requirements for agency by ratification:

 1) An individual must misrepresent himself or herself as an agent for another
party.
2) The principal accepts or ratifies the unauthorized act.

For ratification to be effective, two additional requirements must be met:

1) The principal must have complete knowledge of all material facts regarding the
contract.
2) The principal must ratify the entirety of the agent’s act. (The principal cannot
accept certain parts and reject other parts of the agent’s act.)

Vivian, owner of Wonder Goods Company, employs Xena as an administrative assistant.

In Vivian’s absence, and without authority, Xena represents herself as Vivian and signs a
promissory note in Vivian’s name.

In what circumstance is Vivian liable on the note?

 When a person enters into a contract on another’s behalf without the authority to
do so, the other may be liable on the contract if he or she approves or affirms that
contract.
 In other words, the employer-principal (Vivian-owner) would be liable for the note
in this problem on ratifying it.
 Whether the employer-principal ratifies the note or not, the unauthorized agent
(Xena) is most likely also liable for it.

1.3. TERMINATING AN AGENCY RELATIONSHIP

Either the agent or the principal can terminate the agency relationship at any time. Here are
their options:
1. Term Agreement. The principal and agent can agree in advance how long their
relationship will last.

Alexandra hires Nicholas to help her purchase exquisite enameled Easter eggs made
for the Russian czars by Fabergé. If they agree that the relationship will last five
years, they have a term agreement.
2. Achieving a Purpose. The principal and agent can agree that the agency relationship
will terminate when the principal’s goals have been achieved.

Alexandra and Nicholas might agree that their relationship will end when Alexandra
has purchased 10 eggs.

3. Mutual Agreement. No matter what the principal and agent agree at the start, they
can always change their minds later on, as long as the change is mutual.

If Nicholas and Alexandra originally agree to a five-year term, but after only three
years Nicholas decides he wants to go back to business school and Alexandra runs out
of money, they can decide together to terminate the agency.
4. Agency at Will. If they make no agreement in advance about the term of the
agreement, either principal or agent can terminate at any time.

5. Wrongful Termination. An agency relationship is a personal relationship. If an

agency relationship is not working out, the courts will not force the agent and
principal to stay together.
Either party always has the power to walk out. They may not, however, have the
right.
If one party’s departure from the agency relationship violates the agreement and
causes harm to the other party, the wrongful party must pay damages.

If Nicholas has agreed to work for Alexandra for five years but he wants to leave
after three, he can leave, provided he pays Alexandra the cost of hiring and training
a replacement.

6. The agency agreement also terminates if either the principal or the agent becomes
unable to perform his required duties.

7. If either the principal or the agent dies, the agency agreement automatically
terminates.

8. Agreement also terminates if the activity becomes illegal. Andrew and Zach hired
Lucia to perform their marriage ceremony in California, but then the voters changed
the law to make gay marriage illegal. The agency agreement automatically ended.