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LS 422 Agency

by: Rachel Sutherland

LS 422 Agency 422

Rachel Sutherland
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About this Document

These notes cover pages 4-15 from weeks 1 and 2.
Commercial Law
Joshua Sheffer
Class Notes




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This 5 page Class Notes was uploaded by Rachel Sutherland on Tuesday September 13, 2016. The Class Notes belongs to 422 at Grand Valley State University taught by Joshua Sheffer in Fall 2016. Since its upload, it has received 24 views. For similar materials see Commercial Law in Legal Studies at Grand Valley State University.

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Date Created: 09/13/16
Chapter 1 Agency 1.1Agency 1. A relationship where one person acts for another person a. The person acting is the agent b. The person being acted for is the principal 2. Agent a. Can be paid or unpaid b. Performs specified or general tasks c. Gets authority to ask from the principal 3. Types of Agents a. General agent i. Authorized to transact all types of business with the principal b. Special agent ii. Authorized to do only certain acts iii. Any acts done outside of those certain acts would be unauthorized c. Since agents perform tasks for the principal, the principal can be held liable for the agent’s actions, only if it appears that the agent’s actions have been authorized by the principal 1.2An Agent’s Authorities 1. Actual authority a. Authority granted by the principal to the agent b. Express authority i. Somebody either said or wrote something down (better to have written agency agreement) c. Implied authority i. Through the actions, authority to do what is reasonably necessary to accomplish objectives of the agency ii. Can be limited by principal 2. Apparent authority a. Caused by the principal making it look like there is an agency relationship b. Principal’s conduct causes reasonable belief that a person is acting as his agent c. A third party must rely on that implication (third party is any relationship outside of the agent-principal relationship) d. Third party has to have acted to cause her harm in relying on that implication e. May be intentional or negligent 3. Ratified authority a. Agent did not originally have the authority to act on behalf of the principal, but they did anyway (ratified authority happens after the fact) b. What must occur for ratified authority i. Agent has to act on behalf of the principal, who then ratifies (approves) the act ii. Principal has to know all of the facts in the act iii. The entire act must be ratified iv. Principal has to have had authority to authorize the act when it had happened and when it was ratified v. The ratification must happen before the third party voids the act 4. Estoppel a. A public policy argument which changes what the law would otherwise hold, based on a “fairness” argument (innocent third party, reasonable belief that someone is an agent on another person’s behalf) b. Similar to apparent authority (which has more to do with the principal’s actions) c. Has more to do with the agent’s actions d. Bargaining power often an issue (court would usually find it in favor of the smaller vs. larger company) 1.3Duties Agents and Principals Owe Each Other 1. Source of Duties a. Contract i. Written or verbal agreement between two parties b. Common law of agency i. Laws that will come from judicial decisions over time 2. Duty of Performance a. Duty to obey instructions b. Instructions vs. personal judgement? i. You follow the principal’s instructions c. When there are no instructions? i. You use your best/personal judgement d. Liability for failure to follow i. The agent is liable e. Emergencies i. Implied authority to take care of something 3. Duty to Exercise Care & Skill a. Ordinary skill that is common for the type of work that is done b. Paid vs. gratuitous (free) agent i. If the paid agent does not perform, it’s a breach in contract ii. If you’re getting paid, you have a higher duty of care and skill than someone who is unpaid 4. Duty of Notification a. Knowledge acquired in course of responsibilities b. Anything relevant to the agency i. Anything they know or should know concerns the principal c. Imputed knowledge i. Principal is assumed to know anything about the agency that the agent knows 5. Duty of Loyalty a. Most important duty on agent owes a principal b. Agent is a fiduciary i. What is a fiduciary? Some who is trusted to act with the principal’s best interests in mind and not their own ii. Duty of loyalty cannot be contracted (reduced/eliminated) away 6. Duty of Loyalty: Conflicts of Interest (COI) a. Agent must avoid COI i. Complete honesty ii. Full disclosure iii. Waiver  Principal may wave COI an agent may have  Voluntary relinquishment of known right iv. Appearance of impropriety (wrongdoing) v. Competition with principal  When agency is terminated vi. Dual agency  Everybody has to be aware when there is a dual agency 7. Duty of loyalty: Confidentiality a. Cannot disclose principal’s secrets (if principal does not treat them as secrets, then agent doesn’t know they’re secrets) i. Trade secrets ii. Processes iii. Formulas iv. Recipes v. Customer lists vi. Selling techniques b. Principal must treat as secret c. Cannot use secrets when you are done working for them 8. Duty of Accounting a. Property i. Duty to give property back to principal in good condition b. Accounting i. Keeping track of receipts and expenditures c. Commingling of assets i. If agent takes money on behalf of principal, he can’t put it into his own account (monies will be mixed up) d. Embezzling 9. Principal’s Duties to Agent (source of duties are same as agent’s duties to principal’s) a. Duty of compensation i. Implied if not dealt with in an agreement b. Agency agreement should state i. Amount ii. When earned c. Contingent compensation d. Draw i. A base that you get paid  Commission based sales  Ex: $1000.00 draw, you make a total of $1500.00, so you take home $500.00 e. Real estate agents f. Principal’s duty to keep accounts 10.Duty of Reimbursement a. Agent spends own money conducting principal’s business b. To make repayment to someone for expense or loss incurred for the exact amount c. Expenses without authorization i. If no payment is discussed previously, then the payment should be whatever is normal/custom in the industry 11.Duty of Indemnification a. If agent acts negligently, the principal/employer is required to compensate the employee for a civil lawsuit against the agent b. If the behavior is intentional, the principal would not be required to pay 12.Breach by Agent (principal can…) a. Deduct from compensation b. File a civil suit c. Refuse compensation (even if there was no loss suffered/didn’t cost any money) 13.Breach by Principal a. Lien (a right to keep possession of property belonging to another person until a debt owed by that person is discharged) b. File a civil suit 1.4Liability of Principal and Agents to Third Parties  Third party is whoever the agent is dealing with/anyone outside of the agent-principal relationship 1. Liable for Agent’s Torts (two types) a. Direct liability i. When principal intended for tort to occur ii. Negligent hiring iii. Negligent supervising b. Vicarious liability i. Principal is liable for tort committed by the agent, who must have been acting within the course and scope of employment when he committed the act (principal is held liable for injury that was caused by his agent) ii. The relationship must be a principal-agency one and not an independent contractor one in order for the principal to also be found vicariously liable for the acts of his agent 2. Employee vs. Independent Contractor a. Independent contractor i. Works according to his own methods ii. Principal controls results, agent controls how b. Employee i. Principal controls the results and how/methods c. Scope of employment i. Time and space limits ii. Intended to serve employer iii. Act of type authorized 3. Negligence vs. Intentional Tort a. Negligence i. Principal is often liable b. Intentional i. Principal is not liable unless the principal caused it or it was foreseeable by the principal 4. Agent’s Representations a. Principal bound if: i. Express authority ii. Implied authority iii. Apparent authority b. Protections i. Exculpatory (evidence favorable to the defendant to exonerate guilt) clause  Exculpatory clause is a contract provision that relieves one party of liability if damages are caused during the time of the contract ii. Printed offer forms 5. Notice to Agent  When third party gives notice to agent: a. Considered notice to principal if: i. Relates to the business of the agency ii. Within the scope of the agency’s responsibility and authority iii. If it’s outside of that scope and authority, it’s only notice to the principal if the agent actually gives that notice to the principal


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