BLAW 2301 Lecture Notes - Lecture 28: Independent Contractor, Real Estate Broker, Fiduciary
26 Jun 2018
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CHAPTER 28: AGENCY LAW
Creating agency relationship:
•Principal: the person for whom an agent is acting
•Agent: the person who is acting on behalf of a principal
•In an agency relationship, the agent agrees to perform a task for, and under the control of
the principal
For there to be an agency there must be:
1)A principal
2)An agent
3)Who mutually consent that the agent will act on behalf of the principal:
-To establish consent, the principal must ask the agent to do something in their behalf, and the agent
must agree.
4)Be subject to the principal’s control:
-Principals are liable for the acts of their agents because they exercise control over that person.
-EX: Florist runs stop sign while intoxicated and didn’t do background check. Negligence by
employment. If agent does the same but there was a background check, principal is still liable becuz its
in scope of employment.
- An agent and principal must not only consent to an agency relationship, but the principal must also
have control over the agent.
-EX: 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;
5) Thereby creating fiduciary (trustful) relationship:
–A trustee (agent) acts for the benefit of the beneficiary (principal), always putting the interests of the
beneficiary before his own.
–All three elements – consent, control, and a fiduciary duty are necessary to create an agency
relationship.
Elements Not Required for an Agency Relationship:
1)Written agreement
Exception-Equal Dignities Rule (requires writing agreement): 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: For example, under the statute of frauds, a contract for the sale of land is unenforceable unless
in writing
2) No Formal agreement: The principal and agent need not agree formally that they have an agency
relationship. So long as they act like an agent and a principal/ consent tht they are, the law will treat
them as such.
3)Compensation: valid even if the agent is not paid.
Duties of Agents to Principals:
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1) duty of loyalty
–An agent has a fiduciary duty
–Components of the duty of loyalty include:
Outside Benefits: An agent may not receive profits unless the principal knows and approves. Ex:
restaurant tips vs giving tips/gifts to workers in parking lots
Confidential Information: Agents can’t disclose or use confidential info for their own good. This
duty continues even after the agency relationship ends.
Competition With The Principal: Agents are not allowed to compete with their principal in any
matter within the scope of the agency business.
Conflict of Interest Between Two Principals: Unless otherwise agreed, an agent may not act for
two principals whose interests conflict. Ex: lawyer can represent both husband and wife in a divorce
case.
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. EX: secretly
dealing with the principal without letting them know, im abc incorporated and I get principal to
make dealing with me for tht property n they dnt know im the owner. BUT, it if it truly is the best
property just tell them ur the owner and know principal is aware.
Appropriate Behavior: An agent may not engage in inappropriate behavior that reflects badly on
the principal. This rule applies to even off-duty conduct.
Ex: BOA employee smokes cigarette off duty, I can fire them. I can fire u for anything as long as its not
legally prohibited for an at will agency. But for a contract employee if the contract prohibits me from
firing in a certain way then I can’t, but if it doesn’t I can fire u just the same way as the at will.
–An agent is bound by the duty of loyalty, whether or not the agent and principal have consciously
agreed to it. You have to be loyal- we didn’t have to have a discussion on this.
–Basically the duty of loyalty comes with the package of an agency relationship.
Other duties of an agent:
2)Duty to Obey Instructions
-An agent must obey her principal’s instructions, unless the principal directs her to behave illegally or
unethically
EX: pharmacist not giving birth control to patient cuz it goes against their morals as abortion. But now
doesn’t matter anymore cut if ur 16+ dnt need a prescription for contraceptives.
3)Duty of Care
-An agent has a duty to act with reasonable care
-An agent with special skills is held to a higher standard. Ex: lawyers, doctors etc.
-Gratuitous agent: Someone not paid for performing duties
–Held to a lower standard because she is doing her principal a favor
–*Gratuitous agents are liable if they commit gross negligence, but not ordinary negligence.
4)Duty to Provide Information
–An agent has a duty to provide the principal with all and accurate information in her possession.
-EX: real estate agent working with buyer and seller. Real estate agent must maintain confidentiality of
the buyer to the seller. BUT, real estate agent also has obligation to give info to principal/seller tht they
find more resources at oneclass.com
find more resources at oneclass.com
want to know. Conflict of interest. It would be smart to have to diff agents for the seller and buyer,
unless they sign off on it saying they want the same agent.
PRINCIPAL’S DUTY TO AGENT:
5)Duty to Indemnify
–principal must indemnify (reimburse) the agent for any expenses she has reasonably incurred.
–three categories:
reasonably incurred in carrying out his agency responsibilities
tort claims brought by a third party if the principal authorized the agent’s behavior and
the agent did not realize he was committing a tort.
any liability to third parties she incurs as a result of entering into a contract on the principal’s
behalf, including attorney’s fees and reasonable settlements.
EX: they must do this unless employer specifically states tht they will no the liable for it when
contract is signed.
6) Duty to Cooperate
–Principals cannot impede the agent’s efforts
The principal must furnish the agent with the opportunity to work
cannot unreasonably interfere with the agent’s ability to accomplish his task
must perform her part of the contract
Principal’s Remedies When the Agent Breaches a Duty:
Damages: The principal can recover from the agent any damages the breach has caused. EX:
Thus, if Taylor can rent his house for only $600 a month instead of the $800 the Fords offered,
Angie would be liable for $200 a month for one year.
Profits : agent must turn over to the principal any profits he has earned as a result of his
wrongdoing
Rescission: If the agent has violated her duty of loyalty, the principal may rescind the
transaction. EX: When Trang sold a script to her principal, Matt Damon, without telling him that
she was the author, Damon could rescind the contract to buy the script.
Terminating An Agency Relationship
Either the agent or the principal can terminate the agency relationship at any time
The agency relationship terminates automatically if the principal or agent can no longer perform
their required duties or a change in circumstances renders the agency relationship pointless.
Principal or Agent Can No Longer Perform Required Duties:
Loss of Qualification: If either the principal or the agent is unable to obtain – or keep – any
licenses. EX: losing a law license.
Bankruptcy: The bankruptcy of the agent or the principal terminates an agency
relationship only if it affects their ability to perform
Death or Incapacity of The Principal or Agent.
Disloyalty of Agent: If the agent violates her duty of loyalty, the agency agreement
automatically terminates.
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
3)who mutually consent that the agent will act on behalf of the principal: To establish consent, the principal must ask the agent to do something in their behalf, and the agent must agree. Principals are liable for the acts of their agents because they exercise control over that person. Ex: florist runs stop sign while intoxicated and didn"t do background check. If agent does the same but there was a background check, principal is still liable becuz its in scope of employment. An agent and principal must not only consent to an agency relationship, but the principal must also have control over the agent. Ex: 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; A trustee (agent) acts for the benefit of the beneficiary (principal), always putting the interests of the beneficiary before his own.
