Law Chapter 14

when is an agency created
Agency is a relationship between a principal and an agent in which the principal confers his or her rights on the agent to act on principal’s behalf. – See more at:
who creates authority in an agent
what does the agent do
Third parties

The agent receives authority & carries out the principal’s instructions

make a contract or are involved in a tort with the agent

The principal is bound by the agent’s acts with a third party
Classification of Agents
Agents are classified on the basis of the authority provided
Universal agents:
General agents:
Do all acts that can be legally delegated, i.e. General Power of Attorney

Execute all transactions in connection with a business, i.e. managers

Special agents:
Agency coupled with an interest:
Execute a specific transaction or series of transactions, i.e. a real estate agent (SPOA)

Agent has paid for the right to have authority for a business

Gratuitous agent:
No payment is made to the agent, i.e. a favor or a volunteer

Agent delegates authority to other agents

Agreement of the Parties..what is the document called and creates what
May be oral or written

The legal document called a power of attorney establishes agency and creates an attorney-in-fact- Is this an attorney?

Implied or Express Ratification by the Principal
A PRINCIPAL accepts responsibility for acts of an agent going beyond his/her authority
Agency by Estoppel
Legally binding agency relationship that may arise where, in fact, no formal agency agreement is in effect. A principal may give an appearance of agency relationship by, for example, furnishing his or her firm’s call cards or other stationery to the agent. In such cases, the existence of an agency may be presumed, and the principal may be bound by the acts of the agent performed on the principal’s behalf.

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Agency by Operation of Law
The agent acts beyond the principal’s authority
Necessity or emergencies create agency existence
The agent does acts and binds the principal by operation of law
Actual Authority
Principal sends signals to the agent to do something with a third party
Express Authority:

Implied Authority:

Oral or written instructions create the authority

Principal’s conduct or trade customs create authority

Apparent Authority
Principal sends signals to the third party that what the agent does binds the principal

There is the appearance of authority that a third party could reasonably conclude

Case Cove Management v. AFLAC, Inc.
Galgano signed an “Associates Agreement” with AFLAC in 2004. Authorized him to solicit applications for AFLAC insurance policies. Agreement stated Galgano was an independent contractor. Without authority to bind AFLAC for his “debts, faults or actions.” Also stated that Galgano may not enter into contracts or incur debt on behalf of AFLAC. Another agreement, signed in 2005: Stated Galgano did not have authority to “rent any office space” or obligate AFLAC without “specific written authorization”.
In 2009: Galgano leased office space from Cove Management. Lease listed the tenant as AFLC and listed Galgano as guarantor for office to be used for “insurance services”
Galgano signed as lessee and guarantor. Later he defaulted on lease payment.
Cove sued AFLAC for losses. Cove noted that office was clearly listed as an AFLAC office and engaged in business for AFLAC.
Cove asserted it had right to presume that Galgano had authority as an agent to bind AFLAC to lease
District court dismissed the suit; Cove appealed.
(ContinuDetermination of Galgano’s authority will define him as either independent contractor or an agent of AFLAC. Authority may be either actual or apparent.
Cove argued that AFLAC clothed Galgano with apparent authority, created liability in AFLAC as lessee under lease. Apparent authority defined: “such authority as the PRINCIPAL KNOWINGLY PERMITS THE AGENT TO ASSUME . . . OR HOLDS HIS AGENT OUT AS POSSESSING . . . .” The other party has “reasonably and detrimentally relied on agent’s authority.”
Most evidence came into existence AFTER signing of the lease.
Court cannot consider: (1) When office was set up, the parking signed had the AFLAC symbol and duck.(2) That there were AFLAC’s stylized blue materials – in and out of office. (3) AFLAC was listed on the director of the building.
Cove did not make any effort to determine if Galgano was independent contractor or agent of AFLAC. Cove relied exclusively on statement and representations of Galgano that he had authority to bind AFLAC to the lease on premises.
HELD: Affirmed.
Galgano was not acting under apparent authority.
What should Cove Management have done to avoid this situation?
Anyone can walk into any office with good-looking business cards and stationery, claiming to represent any company. Hence, especially in commercial dealings, the seller (or landlord) should know to check out the authenticity of the person purporting to have authority to contract on behalf of their real or purported principal.
Did Galgano breach a duty he owed to AFLAC?
Galgano breached his contract with AFLAC and breached his duty as their agent. His power was to obtain insurance contracts, not much more. So he is liable on the debt owed to Cove, but is likely insolvent, which is why AFLAC was brought into the matter anyway.
Principal’s Duties to an Agent
Working Conditions
Indemnify (pay back)
Cooperation –
with the agent in fulfilling the agency purpose

– for services rendered
Unless agent agreed to work for free

Working Conditions
Indemnify (pay back)
– of “reasonable” expenses
No reimbursement for agents “misconduct”
– as required by law and meet legal obligations
– for legal liabilities incurred by the agent
Agent’s Duties to the Principal
Obedience and Performance
Reasonable Care & Skill
Obedience and Performance
place the principal’s interest above the agent’s

Can’t compete with principle without permission.

Massachusetts Court: Held CEO would forfeit all compensation paid to him during his disloyalty to the company

– to perform in compliance with the principal’s instructions.

Reasonable Care & Skill
– to perform as is “reasonable under the circumstances” (including emergencies).

– for the funds and property of the principal (avoid mixing personal funds with the principal’s).

– as to all facts of the agency purpose.

Case Bearden v. Wardley Corporation
Bearden listed some rental property for sale with real estate agent, Gritton who worked for Wardley Corp. (real estate firm). After listing property Gritton told Bearden he wanted to buy the property for $89,000. Bearden agreed. Contract called for Gritton to pay Bearden $400/mo., followed by balloon payment after five years. Bearden would keep title until balloon payment was made.
Unknown to Bearden, Gritton gave warranty deed with other documents for Bearden to sign. (Where was Bearden’s attorney??) She signed; he had signature improperly notarized; recorded the deed and title was transferred to Gritton.
Gritton doesn’t keep up on payments.
Bearden hires a lawyer; lawyer discovers Gritton’s fraud and that Gritton had also borrowed money against the property and it was in foreclosure for lack of payments to lender. Bearden paid $60,000 to keep property from being lost.
Sued Gritton and Wardley for breach of contract, fraud, & breach of fiduciary duty.

Jury awarded $75,000 damages + $25,000 punitive damages + $50,000 attorney fees, costs, etc. against Gritton & Wardley. Wardley and Gritton appealed.
HELD: Affirmed.
Listing contract was with Wardley, with “fiduciary duties to seller” clause in it. Wardley’s internal policy prohibited agents to purchase properties they listed.
Gritton was employed by Wardley: Knew of listing agreement; Knew Gritton had purchased the property never questioned Gritton about violating internal policy re: purchase of listed property; Never asked Gritton to stop representing Bearden; Never informed Bearden of Gritton’s internal policy violations.
Wardley breached its duty of care to Bearden and is liable.

There was no evidence that Wardley participated in Gritton’s fraud, so why should it be liable?
Gritton was authorized by Wardley to sign clients. His action, of having a client become a client of Wardley, means that Wardley assumed the responsibility of being Bearden’s agent and had to meet the standards of care expected of such. While Wardley did not approve of, or even know of Gritton’s actions, they occurred in part because of poor internal controls by Wardley.
Suppose Gritton had told Wardley he wanted to buy the property he had listed. What should Gritton have done?
By allowing Gritton to buy the property, he was assuming multiple roles in a transaction that created conflicts of interest. Wardley should have required Gritton to turn over the role of sales agent to another person at Wardley to serve as Bearden’s agent in dealing with Gritton.
Citrin worked for a real estate development company to help identify properties that the company may buy.
He decided to go into business for himself – compete with employer.
To cover his tracks, he installed a program to scrub his company computer clean of all information.
Some of the files would show he was collecting information for himself; others were company files he developed.
His computer had the only copy – valuable info. was destroyed.
Company sued him for violating the Computer Fraud and Abuse Act – that holds it illegal to intentionally damage a protected computer.
Federal Appeals Court held Citrin breached his duty of loyalty.
He then was liable for destroying files by accessing a computer he had no right to use.
Disclosed principal:
Identity of principal is known by the third party at time of making of contract with agent.
Principal is liable to a third party for the contract of the agent if
the agent has actual authority.
If there is apparent authority, the principal is contractually liable to a third party.
However, the principal may sue the agent for losses if agent has breached a duty.
. Undisclosed principal:
Identity of principal is unknown to third party.
when is an agent liable to a third party
An AGENT IS LIABLE to a third party if there is an undisclosed principal.

Agent may be indemnified by principal if agent acted within scope of his authority.

Case-Undisclosed principal Yim v. J’s Fashion Accessories, Inc.
Benjamin Yim did business under trade name Ho Tae. Ordered goods from J’s Fashion. Invoices were sent to Ho Tae.
Account not paid. Fashion sued Yim. He denied liability, saying he acted as an agent for a corporation-principal, Hosung Enterprise, Inc.
Hosung did business under name Ho Tae.
Fashion said that at no time did Yim disclose existence of corporation entity with whom they were dealing.
Fashion thought they were always dealing with Yim with trade name Ho Tae.
Trial court entered summary judgment against Yim.
He appealed, saying he was only an agent for Hosung Enterprises.

HELD: Affirmed.
Agent who makes a contract without giving identity of principal becomes personally liable.
There is a duty to disclose the principal’s identity.
Agent must be specific in disclosure.
Use of a trade name is not necessarily a disclosure of principal’s identity.
At no point did Yim indicate he was acting other than an individual doing business as Ho Tae.

Terminating an Agency
Either party may terminate (unilateral termination)
Agent says, “I quit!”
Principal says, “You’re fired!”

Specific date set for agency to end
Purpose of agency is fulfilled

Notice of termination must be made to who

Termination by operation of law

3rd parties to end an agent’s apparent authority

Principal or agent dies
Subject matter of the agreement is lost or destroyed

Agent acts on behalf of the principal; Agent has a degree of personal discretion; Principal is usually liable;
Master-Servant or Employer-Employee
Master-servant is old term still often used; Now the term employer-employee is used more; Servant’s conduct is controlled by employer; The servant can also be an agent (distinction is sometimes blurred); Employer is usually liable
Employer-Independent Contractor (I/C)
Not an employment relationship; Employer has no control over the details of the I/C’s performance; Some contractors are not agents; However, sometimes they can be agents (attorneys, auctioneers); Usually employer is not liable for the I/C’s torts
Case France v. Southern Equipment Co.
Hensley did business under trade name Royalty Builders. Hired 16-year-old Robert France to do roofing work.
Southern Equipment needed a new metal roof on a building. Accepted bid from Quality Metal Roof. Quality hired Royalty to work and Quality supplied materials.
While working on roof, France fell and suffered head injuries. He sued Southern (and others) for exposing him to an inherently dangerous job of roofing.
Court granted summary judgment for Southern.
France appealed. Affirmed.
Royalty Builders was an independent contractor. Southern had no control over the work done by Royalty Builders. Southern Equipment could not be held vicariously liable as Royalty Builder’s (thereby France’s) employer.
Employers: Can hire & fire who you want

Employees: May work-at-will or quit when they want
Employees may sue for wrongful discharge under employment contract, BUT must establish contract had limits to employer’s rights to discharge Contract is danger form employer!

Can be contractual limits to at-will
There may be a general public policy against dismissal
Refusing to violate laws
Important public duty (jury duty)
Public right (filing for workers’ compensation)
“Whistle Blowing”
Breach of employment contract through express contract; implied contract; or implied covenant of good faith and fair dealing
Case Guz v. Bechtel National, Inc.
Guz worked for Bechtel (BNI) 1971-1993 with a good employment record under employment at will. Termination would be for unsatisfactory performance or due to a layoff.
Budget for Guz’s division was cut; he and others were terminated. The company was doing well. Guz’s duties were transferred to other employees. He applied for other positions at BNI but was rejected.
He sued, alleged breach of implied contract to be terminated only for good cause and breach of implied covenant of good faith & fair dealing.
Trial court dismissed suit, saying he was an at-will employee. Appeals court reversed, holding that his longevity, raises, etc. warranted a retrial. Is this the law??
HELD: Reversed in favor of BNI.
Employment relationship is contractual and parties may define for themselves causes for termination. Here, there is no evidence that BNI had additional terms to employment security and BNI had the right to reorganize and terminate employees as they wished.
Successful service, in and of itself, does not create a contractual guarantee for employment security.
Is there an incentive for employers to make it very clear to employees that they are strictly at will and there is no assurances of continued employment?
There is an employment contract in all cases. One is offered employment and provides labor in exchange for pay. That is consideration by the employer. There is no need for an employer to specify other terms, such as the details of dismissal procedures.
Is there an employment contract? Guz had to follow the requirements of his employer; what consideration did the employer give?
There is an employment contract in all cases. One is offered employment and provides labor in exchange for pay. That is consideration by the employer. There is no need for an employer to specify other terms, such as the details of dismissal procedures.
Employment Handbooks
Explain company policies, benefits and procedures

Discuss grounds for discipline and dismissal

May limit rights of employers to dismiss employees under Employment-At-Will Doctrine

Employment Handbooks
May be interpreted as creating express or implied contract between employer and employee
Some employers place bold disclaimer in front of handbook saying it is not a contract – have employees sign
Employment handbooks problems
Boiler plate language
Not following procedures
Creating probationary period when indicate that permanent status when probation ends
Failure to update
Not mentioning at will or right to change terms
Listing firing offenses as only ones
Social Media
Companies adjusting to new technologies/innovations
Improper actions can bring lawsuits or bad image
Section 230 of Communications Decency Act (CDA) provides immunity for content posted/ submitted by 3rd parties if company is merely a publisher
This will not help content posted by company employees
Even if employee is not tweeting in official capacity
Employee still within “scope of employment”
Reasonable person could expect that tweeter was authorized by the company
To minimize liability, companies restrict unofficial company social media endeavors:
Limit who can post official social media; Limit want can be posted
Have means for addressing infringement & other claims
Companies may restrict links to outside sites (i.e. You Tube)
Editing offensive content is important
Problems with sending e-mails that could create sexual harassment
Companies may want to restrict employees’ non-work blogs
Under employment-at-will firms can impose restrictions.
Fire those who break the rules.
Principal’s Liability
If the PRINCIPAL directs the agent to do tortious acts, then the principal is liable.

Principal may give actual authority or instructs to do a certain act.
Principal ratifies agents conduct.
Vicarious Liability

Liability for unauthorized acts of the agent”
Was the agent acting “within the scope of his/her employment”?
Courts use the doctrine of respondeat superior.
Rare for an employer to be liable for acts committed by an independent contractor.
Employers may be liable for torts of employees due to negligent hiring or supervision.
Case Armstrong v. Food Lion, Inc.
Armstrong went to Food Lion store with his mother, Tillie, to buy food.
Three men in Food Lion uniforms approached Ronnie. One, Brown, had been in a fight with Ronnie 2 years before. He attacked Ronnie with a box cutter. Another employee, Cameron, also attacked Ronnie.
When Tillie came to help Ronnie, Cameron punched her and knocked her down. Another shopper helped Tillie and called for assistance.
Armstrong sued Food Lion for numerous torts.
Trial held for Food Lion; appeals court affirmed. Armstrong appealed.
HELD: Affirmed. Respondeat superior does not apply here.
Acts of the employees were for an independent purpose than service to their employer at the store.
Brown and Cameron were not furthering Food Lion’s business in any manner when they attacked the Armstrong.
Negligent Hiring
Intentional torts committed by an employment who is not acting in the scope of employment
Negligent Hiring:
Obligations to check background of an employee
Since no longer that costly, duty arises by employee to do background checks
Negligent Hiring:
Obligation to check independent contractor for doubtful history. i.e.
Child molester: Should not be in routine contact with children
Bad driving record: Should not be permitted to drive a company truck

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