Chapter 15 Agency n Agents are frequently used

Chapter 15 Agency

n Agents are frequently used to contract on behalf of a business or an individual n Agency is an area of contract law n “An agent for a particular act or transaction is called a special agent. All others are general agents” [Civil Code § 2297]

I. The Employee, The Agent, and The Independent Contractor

n EMPLOYEES work for the employer n AGENTS work for the employer and can contract on behalf of the principal (employer) n INDEPENDENT CONTRACTORS are hired by the employers to work “independently” and not under the direction and control of the employer as to the details of the work n The most significant factor in determining whether a person is an employee is the right of another to control the details of how the job is done, even if the right to control is not being exercised

II. Creation of the Agency

n “Any person having capacity to contract may appoint an agent, and any person may be an agent” [Civil Code § 2296] n “An agency is either actual or ostensible” [Civil Code § 2298] n ACTUAL AGENCY is created by an employment contract between the principal and the agent n OSTENSIBLE AGENCY is created by actions, or inactions, of the principal that cause a third person to believe another to be the agent of the principal when that is not the case [Civil Code § 2300]

n An agency can be created by ratification n RATIFICAITON takes place when the principal accepts the benefits of a transaction done by a person who is not the agent for the principal n The person whose unauthorized action is being considered for ratification must have told the third person that he or she was acting as agent for the principal n An agent for a particular act or transaction is called a SPECIAL AGENT n All others are considered GENERAL AGENTS

III. The Agent’s Relationship with the Principal

n An agent owes the highest degree of diligent and loyal service to the principal (fiduciary duty)

A. Duty of Care n The DUTY OF CARE requires the agent to follow the instructions of the principal using reasonable care and skill in performance of the job n An agent cannot disobey the instructions of a principal unless it is clearly in the best interest of the principal to do so and there is no time to communicate with the principal for instructions

B. Duty of Loyalty n An agent must display the utmost good faith as a fiduciary n The DUTY OF LOYALTY requires that an agent be loyal to the principal at all times. Usually, this means obedience, accounting, and notification. n Any secret profit or gifts that an agent acquires as a result of the agency can be recovered by the principal, unless they agree otherwise n An agent cannot place his or her personal interest ahead of the principal’s interest n An agent must make full and complete accounting of agency affairs if requested by the principal

IV. Duties of Principal to Agent

Duties n If the agent is also an employee, the employer (principal) is obligated to the employee (agent) for all of the responsibilities provided in the California Labor Code n The primary duties owed by a principal to an agent are set out in the terms of the agency contract n Additionally, the principal must indemnify the agent for costs and expenses incurred in performing the duties of the agency

V. Relationship Between Principal, Third Person, and Agent

A. Actual Authority n ACTUAL AUTHORITY – is that which the principal expressly gives the agent, or intentionally or by want of ordinary care, allows the agent to believe the agent has [Civil Code § 2316] n Actual authority also consists of any authority given to the agent by statute [Civil Code § 2316] n Power of Attorney

B. Ostensible Authority n OSTENSIBLE AUTHORITY of the agent, like ostensible agency, comes from actions or statements, or the lack thereof, made intentionally or carelessly by the principal causing a third person to believe that the agent has authority to act on behalf of the principal [Civil Code § 2317] n The principal becomes liable on the contract if the third person changed his or her position by relying upon the ostensible authority of an agent n Ostensible authority is sometimes referred to as implied authority

C. Ratification n RATIFICATION means the principal agrees to be liable for an unauthorized act n Usually, ratification will take place by acceptance of the benefit of the transaction by the principal

D. Undisclosed Principal n The principal becomes an UNDISCLOSED PRINCIPAL and retains an agent to carry out the undisclosed principal’s directions without telling the third party that a principal is involved n In the event of a breach of contract, the third person can alternatively hold either the agent or, upon discovery of the principal’s identity, the principal liable for breach of contract

VI. The Relationship Between The Agent and the Third Person

n When an agent performs an authorized act on behalf of the principal with a third person, the contract is between the principal and the third person n The agent is not a party to that contract and is not liable should either the principal or the third party breach the contract n An agent or employee is always liable for his or her own torts [Civil Code § 2343(3)]

VII. Termination of the Agency

A. Civil Code Provisions

B. Termination By The Principal n Agency can be terminated by revocation by the principal or the death or incapacity of the principal [ Civil Code § 2356] n A contract will be binding if a bona fide transaction was entered into through the agent with a third person acting without knowledge of the revocation, death or incapacity of the principal

C. Notice of Termination n There are two kinds of notice ACTUAL and CONSTRUCTIVE n Actual notices must be given to third parties where third party had previously dealt with the agent on behalf of the principal or where the principal knows the agent had begun to negotiate n Notice of termination that is publicly advertised in a newspaper of general circulation in the area where the agent conducted business on behalf of the principal is CONSTRUCTIVE NOTICE

D. Power Coupled With An Interest n A POWER COUPLED WITH AN INTEREST is a power that accompanies, or is connected with, and interest

VIII. Principal’s Liability For Torts of The Agent

A. Principal Ratifies or Authorizes Agent’s Wrongful Acts n A principal is liable for wrongful acts committed by an agent transacting business for the principal and the principal authorized or ratified those acts [CC§ 2339] n A principal is also liable if the principal ratifies a wrongful act by an agent

B. Doctrine of Respondeat Superior n The DOCTRINE OF RESPONDEAT SUPERIOR holds the principal liable for the torts of employees 1. Requirements Employee Carelessness Employee Assaults Fraud Unlicensed Contractors as Employees 2. 3. 4. 5.

IX. Employer’s Liability for Actions of Independent Contractors

n Historically, an employer was not liable for harm caused by the actions of an independent contractor n If the employer was negligent in checking out the qualifications of an independent contractor or if the independent contractor is not competent and has a history of careless acts, the employer may be liable for injuries caused by the contractor’s lack of skill or inability to act with reasonable care n INHERENTLY DANGEROUS WORK is generally considered that which cannot be made safe in spite of attempts to do so

Chapter Summary n n n Employee, Agent, Independent Contractor Creation of Agency n n n Duties of Principal to Agent n n n Duty of Care Duty of Loyalty Actual Authority Ostensible Authority Ratification Undisclosed Principal Relationship Between Agent & 3 rd Party Termination of Agency n Agent’s Relationship with Principal n n n Principal’s Liability for Torts of the Agent n n n Civil Code Provisions Termination by the Principal Notice of Termination Power Coupled with an Interest Principal Ratifies or Authorizes Agent’s Wrongful Acts Doctrine of Respondeat Superior Employer’s Liability for Actions of Independent Contractor