Scope of Agent’s Authority

Scope of Agent’s Authority

Principal is liable for acts entered into by Agent when she gives Agent either actual or apparent authority:

§  Actual Authority: express or implied.

§  Apparent Authority: estoppel, emergency and ratification.

Agency, Liability to Third Parties and Termination

Introduction

ü Is Principal liable for contracts entered into by his Agent?

ü Is Agent liable for contracts entered into for Principal?

ü When is a third party liable to Principal and to Agent?

ü When is Principal liable for the torts of his Agent?

ü When is Agent liable for torts committed while working for Principal?

Rights and Remedies of Agents and Principals

Rights of Agents

§ Right to compensation, reimbursement, indemnification and cooperation.

§ Agent can withhold performance and demand an accounting.

§ Agent can recover damages for past services and future damages.

Principal’s Rights and Remedies:

§ Contract remedies for breach of fiduciary duty and performance.

§ Can sue in tort: libel, slander, trespass, deceit, fraud.

§ Constructive Trust – money/ property agent steals from Principal.

§ Avoidance of contract if agent does not do as told.

§ Indemnification  

Agent’s Duties to Principal & Principal’s Duties to Agent

Agent’s Duties to Principal

Performance: reasonable diligence and skill (special skills).

Notification to P.

Loyalty (no conflict of interest).

Case 31.3:  American Express v. Topel (1999).

Obedience. 

Accounting.

Principal’s Duties to Agent

Compensation (Express or Implied).

Reimbursement and Indemnification.

Cooperation.

Provide safe working conditions.

Formation of the Agency Relationship & Types of Agencies

Formation of the Agency Relationship

ü Consensual Agreement.

ü No consideration required.

ü Principal needs contractual capacity, Agent does not.

ü For any legal purpose.

Types of Agencies

ü Agency by Agreement.

ü Agency by Ratification.

ü Agency by Estoppel.

ü Agency by Operation of Law.

§ Necessaries for family.

§ Emergency.

Agency by Agreement

Formed through express consent (oral or written) or implied by conduct.

Case 31.2:  Acordia of Virginia Insurance Agency v. Genito Glenn (2002).

Agency by Ratification

Principal either by act or by agreement ratifies conduct of a person who is not in fact an agent.

Agency by Estoppel

ü Principal causes a third person to believe that another person is the Principal’s Agent, and the third person acts to her detriment in reasonable reliance on that belief.

Agency by Operation of Law

Agency based on social duty is formed in certain situations when the Agent is unable to contact the Principal.

§ Necessaries.

§ Emergencies.

Employer Liability

Employer Liability

Determining whether the worker is an employee or an independent contract affects liability of Principal/Employer.

§ Tax Liability: Employer liable if employee.

§ Contract Liability: Employer not necessarily liable.

§ Tort Liability: Employer liable for torts of employee within scope of employment.

§ Works for Hire.   Case 31.1:  Graham v. James  (1998).

Agency Formation and Duties

Introduction

ü Agency=Principal and Agent.

ü Agency is the most common and most important legal relationship.

ü Understanding agency is crucial to understanding the legal environment of business.

ü Principals use agents to be able to conduct multiple business operations simultaneously in various locations.  

ü The principal has the right to control the agent in matters entrusted to the agent.

Agency Relationships

ü Agency is a “fiduciary” relationship based on trust and confidence.

ü Distinguish Employee vs. Independent Contractor  Relationships.

Federal Limits on HDC Rights

Federal Limits on HDC Rights

FTC Rule 433 (1976) abolished the HDC doctrine in consumer credit transactions.

§ Allows Buyer to assert any defense she might have against the Seller of goods or services (Car Dealer), against the subsequent HDC (Bank) as well.

§ So Buyer’s duty to pay is conditional on Seller’s full performance under contract.

Discharge

Discharge from liability on an instrument can occur by:

§ Payment.

§ Cancellation or Surrender.

§ Reacquisition.

§ Impairment of Recourse.

§ Impairment of Collateral.

Defenses

Defenses

Universal or Real - can be used to defeat a holder and a HDC.

Personal - can be used to defeat a holder but not a HDC.

Universal Defenses

Forgery of maker’s or drawer’s signature.

§ Or if an authorized agent exceeds his authority to the amount which exceeds his authority.

Fraud in the execution - the”autograph” situation, not fraud in the inducement.

Material Alteration.

§ Do not have to pay the altered amount ($8 to $800), only a personal defense to the original amount ($8).

§ Not a real defense if instrument left blank, (.. filled in $800), then have to pay all ($800).

Discharge in Bankruptcy.

Infancy (Minority).

Illegality - severe enough to make contract void.

Mental Incapacity (adjudicated by court).

Extreme Duress. If instrument signed under threat of immediate force or violence.

Personal Defenses

Valid against holders but not HDC’s.

§ Breach of contract or warranty.

§ Lack of consideration.

§ Fraud in the inducement.

§ Illegality - not severe enough to make void.

Mental incapacity - not severe enough to make void.

Discharge.

§ By payment or cancellation.

§ Unauthorized completion.

§ Non-delivery of instrument.

§ Ordinary duress or undue influence rendering contract voidable.

Warranty Liability and Transfer Warranties

Warranty Liability

Extends to both signers and non-signers.

Breach of warranty can occur when the instrument is transferred or presented for payment.

Transferors make certain implied warranties regarding instruments they negotiate.

Liability not subject to dishonor, presentment, notice.

Liabilities: Transfer or Presentment.

Transfer Warranties

Following transfer warranties extend to all subsequent holders:

§ Transferor is entitled to enforce the instrument.

§ Signatures are authentic and authorized.

§ Instrument has not been altered.

§ Instrument not subject to defense.

§ Transferor has no notice of insolvency.

Presentment Warranties

Person who presents an instrument makes the following presentment warranties:

§ No missing or unauthorized indorsement.

§ Instrument has not been altered.

§ Person obtaining payment has no knowledge signature is unauthorized.

Case 26.3: First National Bank of Chicago v. MidAmerica Federal Savings (1999).