Law 245 Week 5 Notes
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This 7 page Class Notes was uploaded by Frankie Fucci on Monday February 15, 2016. The Class Notes belongs to LA 245 at Boston University taught by David Randall in Spring 2016. Since its upload, it has received 30 views. For similar materials see Introduction to Law in Law at Boston University.
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Date Created: 02/15/16
Agency Law - your responsibility for the actions of others Creating an Agency Relationship Principal: person who has someone else acting for him Agent: person who acts for someone else Principals have substantial liability for the actions of their agents In an agency relationship, someone (the agent) agrees to perform a task for, and under the control of, someone else (the principal) To create an agency relationship, there must be: o A principle and o An agent o Who mutually consent that the agent will act on behalf of the principal and o Thereby creating a fiduciary relationship Consent - to establish consent, principal must ask the agent to do something, and the agent must agree Control - principals are liable for the actions of their agents because they exercise control over the agents Fiduciary relationship: trustee acts for the benefit of the beneficiary, always putting the interest of the beneficiary before his own o Beneficiary places special confidence in the fiduciary who, in turn, is obligated to act in good faith and candor, putting his own needs second o Purpose is for one person to benefit another o Agents have a fiduciary duty to their principals Elements not required for an agency relationship o A written agreement - oral understand is valid except: Equal dignities rule: if an agent is empowered to enter into a contract that must be in writing, then the appointment of the agent must also be written Ex: under statute of fraud, contract for sale of land must be in writing --> agency agreement to sell land must also be in writing o A formal agreement - don't even need to think the word "agent", so long as they act like an agent and a principal, the law will treat them as such o Compensation - agency relationship doesn't have to meet all the standards of contract law Duties of Agents to Principals - agents owe a fiduciary duty to their principals, 4 elements to this duty: Duty of Loyalty: an agent has fiduciary duty to act loyally for the principal's benefit in all matters connected with the agency relationship o Obligation to put principal first, to strive to accomplish the principal's goals o Otsuka v. Polo Ralph Lauren Corporation Kiser and Germania worked at Ralph Lauren Polo in San Fran She left, he let her buy clothes using merchandise credits made out to nonexistent people and use his employee discount Polo sued Kiser, claiming he violated his duty of loyalty Kiser filed motion to dismiss on the ground that he was such a low-level employee, he didn't owe a duty of loyalty to Polo Issue: DO all employees owe a duty of loyalty to their employees? Third Restatement provides that all employees owe a duty of loyalty to their employers True regardless of how ministerial or routinized the work may be Court DENIES Kiser's motion to dismiss cause of action o Outside benefits - an agent may not receive profits unless the principal knows and approves o Confidential information - agents can neither disclose nor use for their own benefit any confidential information they acquire during their agency Continues even after the agency relationship ends Abkco Music, Inc. v. Harrisongs Music, Ltd. Bright Tunes owned copyright to "He's So Fine" Company sold George Harrison, a Beatle, claiming his composition of "My Sweet Lord" copied "He's So Fine" Klein, at time handled Beatle affairs, met with president of Bright Tunes to discuss settlement Suggested Harrison might be interested in buying copyright to "He's So Fine" Shortly after, Klein's contract with Beatles was up Without telling Harrison, Klein began negotiations with Bright Tunes to purchase the copyright for himself To advance the negotiations, Klein gave Bright Tunes info about royalty income for "My Sweet Lord" (info he got from being Harrison's agent) Trial judge in copyright case ultimately found that Harrison had infringed the copyright on "He's So Fine" and assessed damages of about $1.6 million After trial, Klein bought the copyright and with it, the right to recover from Harrison for the breach of copyright Issue: Did Klein violate his fiduciary duty to Harrison by using confidential information after the agency relationship terminated? The duty of an agent to not use confidential information acquired in his employment in competition with his principal This duty exists well after employment is terminated The knowledge Klein used was not publicly known Klein's conduct didn't meet standard required of him as a former fiduciary o Competition with the principal - agents are not allowed to compete with their principal in any matter within the scope of the agency business This rule ends once the agency relationship ends o Conflict on interest between two principals - unless other wise agreed, an agent may not act for two principals whose interests conflict 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 o Appropriate behavior - an agent may not engage in inappropriate behavior that reflects badly on principal Other Duties of an Agent o Duty to obey instructions - an agent must obey his principal's instructions unless he principal directs her to behave illegally or unethically o Duty of care - an agent has a duty to act with reasonable care; must act as a reasonable person would, under the circumstances Special cases with higher/lower standards: An agent with special skills is held to a higher standard because he is expected to use those skills Gratuitous agents (not being paid) are held to a lower standard because he is doing his principal a favor Gratuitous agents are liable if they commit gross negligence, but not ordinary negligence o Duty to provide information - an agent has the duty to provide the principal with all the information in his possession that he has reason to believe the principal wants to know Also has duty to provide accurate information Principal's Remedies when the Agent Breaches a Duty o Three possible remedies when an agent breaches his duty: Can recover from the agent any damages the breach caused If duty of loyalty is breached, must turn over to the principal any profits he has earned as a result If duty of loyalty is violated, principal may rescind the transaction Duties of Principals to Agents - fewer duties for the principal Duty to compensate as provided by the agreement Duty to reimburse the agent for any expenses he has reasonably incurred: o Principal must indemnify an agent for any expenses/damages reasonably incurred in carrying out his agency responsibilities o Must indemnify an agent for tort claims brought by third party if the principal authorized the agent's behavior and the agent did not realize he was committing a tort o Must indemnify agent for any liability she incurs from third parties as a result of entering into a contract on the principal's behalf, including attorney's fees and reasonable settlements Duty to cooperate o Principal must furnish the agent with the opportunity to work o Principal cannot unreasonably interfere with the agent's ability to accomplish his task o Principal must perform his party of the contract Terminating An Agency Relationship Either agent or principal can terminate the relationship at any time Relationship automatically terminates when principal or agent can no longer perform their required duties or a change in circumstance renders the relationship pointless Termination by Agent or Principal - have 3 choices in terminating relationship: o Term agreement: if they both agree in advance how long their relationship will last Ex: time, achieving a purpose, mutual agreement (decide together at any point) o Agency at will - if no agreement is made in advance about the term of the agreement, either party can terminate at any time o Wrongful termination - if agency relationship isn't working out, the court will not force the agent and principal to stay together Either party always has the power to walk out, but may not have the right If one party's departure violates the agreement and causes harm to the other party, the wrongful party must pay damages, but still permitted to leave If gratuitous agent, has both the power and right to quit at any time, regardless of agreement Principal or Agent Can No Longer Perform Required Duties o If either agent or principal fails to obtain/keep license necessary to perform duties under the agency agreement, agreement ends o Bankruptcy of agent or principal terminates an agency relationship only if it affects their ability to perform More likely to interfere if it is the principal who is bankrupt o Relationship terminates upon the death or incapacity of either party Agency is personal relationship, cannot act on behalf of a nonexistent person and nonexistent person cannot act for another person - not like a business entity o If agent violates her duty of loyalty, agency agreement automatically terminates Changes in Circumstances o If changes are significant enough to undermine purpose of agreement, relationship ends automatically o Change of law - if agent's responsibilities become illegal, agreement terminates o Loss or destruction of subject matter Effect of Termination o Once relationship ends, agent no longer has authority to act for the principal If he continues to act, he is liable to the principal for any damages he incurs as a result o Some duties of both parties continue even after relationship ends: Principal's duty to indemnify agent Confidential information - agent is not entitled to use confidential info even after relationship ends Liability Agency relationship dramatically increases risk of legal liability to third parties Once principal hired an agent, he may be liable to third parties for his acts, even if he disobeys instructions Agents may also find themselves liable to third parties Principal's Liability for Contracts Principal is liable for the acts of an agent if o Agent had authority o Principal ratifies the acts of the agent o "liable for the acts of an agent" = Principal is as responsible as if he's performed the act himself Principal is liable for the statements agent made to third party Authority - principal is bound by acts of an agent if agent has authority o 3 types of authority Express Authority - grants this by word or conduct that cause the agent to believe the principal desires him to act on the principal's account Principal asked the agent t do something and agent does it Implied Authority - unless otherwise agreed, authority to conduct a transaction includes authority to do acts that are reasonably necessary to accomplish it Apparent Authority - 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 to reasonably believe the agent is authorized Ratification - if person accepts the benefit of an unauthorized transaction or fails to repudiate it, then he is as bound by the act as if he had originally authorized it (he has ratified the act) o Even if agent acts without authority, principal can decide later to be bound by her actions so long as: "Agent" indicated to the third party that she is acting for a principal "Principal" knows all the material facts of the transaction "Principal" accepts the benefit of the whole transaction, not just part Third party does not withdraw from the contract before ratification Subagents o Intermediary agent: someone who hires subagents for the principal o General rule, agent has no authority to delegate her tasks to another unless principal authorizes her to do so But when agent is authorized to hire subagents, the principal is liable for the acts of the subagent as he is for the acts of a regular agent Agent's Liability for Contracts Agent's liability depends on how much the third party knows about the principal o Disclosure is agent's best protection against liability Fully Disclosed Principal - an agent is not liable for any contracts she makes on behalf of a fully disclosed principal o Principal is fully disclosed if third party knows of this existence and identity Unidentified (Partially Disclosed) Principal - third party can recover from either agent or principal, in these cases o Principal is unidentified if third party knows his existence but not his identity Undisclosed Principal - third party ca recover from either the agent or the principal o Principal is undisclosed if third party doesn't know of his existence o Due to concerns about fair play, some exceptions to the rule on undisclosed principals Third party is not bound to the contract with an undisclosed principal if: Contract specifically provides that the third party is not bound to anyone other than the agent Agent lies about the principal because he knows third party would refuse to contract with him Unauthorized Agent - if agent has no authority (express, implied or apparent), the principal is not liable to the third party, and the agent is Agency Law & Employment Law Nature of Fiduciary Duties How to create agency relationship: o Consent of both parties o Principal has some control over how the agent does the work How much control is necessary under the circumstances? o Fiduciary duties Fiduciary duty - manifestations of its definition o Agent owes principal a fiduciary duty within the scope of the agent's employment o Loyalty - has obligation to put principal's interests ahead of his/her own interests No outside benefits Maintain confidential information No competition No conflict of interest So, also can't serve principal and yourself No secret dealing Behave appropriately o Obedience o Duty of Care - duty to act as a reasonable person would under the circumstances o Duty to provide information If agent learns info that it relevant to scope of the agreement/that principal would probably want to know, you have a duty to share that info with the principal o Duties of Principals to Agents Duty to compensate - must compensate/reimburse agent for any expenses he incurs while fulfilling the agreement o Must be carried out even if relationship is terminated (unless there is a breach of duty) o Terminating Agency Relationships Either party has the power to terminate the agency relationship, but they may not have the right o "power"= someone always has the autonomy and ability to breach contract o "not have the right" = BUT can still be sued for it
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