Agency and the Agency and the Employment RelationshipEmployment Relationship

Agency and the Agency and the Employment RelationshipEmployment Relationship

Chapter 14

Definition of an Agency Relationship

Definition of an Agency Relationship

• Agency is created when a person or company (agent) agrees to act for or in place of another person or company (principal)

• 1. The principal creates authority in an agent• 2. The agent receives authority & carries out

the principal’s instructions• 3. Third parties make a contract or are

involved in a tort with the agent• Result: The principal is bound by the agent’s

acts with a third party

Classification of AgentsClassification of Agents

• Universal agents : Do all acts that can be legally delegated, i.e. General Power of Attorney

• General agents: Execute all transactions in connection with a business, i.e. managers

• Special agents: Execute a specific transaction or series of transactions, i.e. a real estate agent

• Agency coupled with an interest: Agent has paid for the right to have authority for a business

• Gratuitous agent: No payment is made to the agent, i.e. a favor or a volunteer

• Subagents: Agent delegates authority to other agents

Creating An Agency

Creating An Agency • Agency by Estoppel

– Actions of the principal lead others to believe an agency exists – the principal is estopped from denying the agency’s existence

• Agency by Operation of Law– The agent acts beyond the

principal’s authority– Necessity or emergencies

create agency existence

– The agent may do the acts and bind the principal by operation

of law

• Agreement of the Parties– May be oral or written– The legal document

called a power of attorney establishes agency and creates an attorney-in-fact

• Implied or Express Ratification by the Principal– A principal accepts

responsibility for acts of an agent going beyond his/her authority

Agent’s Authority to Act for the PrincipalAgent’s Authority to Act for the Principal

• Apparent Authority: – Principal sends signals to

the third party that what the agent does binds the principal

– There is the appearance of authority that a third party could reasonably conclude

• Actual Authority: – Principal sends signals

to the agent to do something with a third party

– Express Authority: Oral or written instructions create the authority

– Implied Authority: Principal’s conduct or trade customs create authority

Town Center Shopping Center, LLC v. Premier Mortgage Funding

• Town Center (TC) owns shopping center in Kansas. TC leased space to Empire Lending for 2-year term. (Lease #1)

• Space could not be sublet without permission of TC.• Bayer, branch manager for Premier, leased the premises from Empire.

Lease could end on 5 days’ notice. (Lease #2) TC was unaware of Lease #2. • Bayer’s employment contract stated she couldn’t enter into a lease without

permission of company president. President of Premier approved Lease #2 and signed it.

• Premier’s central office told Bayer the lease needed to be directly between Premier and TC, not with Empire.

• Bayer then signed a lease on behalf of Premier with TC (Lease #3), but did not send it to the company president.

• Sent signed Lease #3 to TC with a letter from Premier stating that Premier has branch office in good standing in the TC property.

• Lease #3 that Bayer signed was for 3-year term, not one that could be cancelled on 5 days’ notice.

• One year later, Premier gave TC five days’ notice of intent to vacate and left.

Town Center Shopping Center, LLC v. Premier Mortgage Funding

• TC sued for breach.• District court held for TC; awarded $13,493 damages allowed under Lease #3.• Premier appealed, contending Bayer had no authority to sign the lease with TC

– that she only had authority for the first sublease (Lease #2) with Empire. • Both parties admit Bayer did not have actual authority to bind Premier to Lease

#3.• ISSUE: Whether acts and words of Premier induced Town Center to enter into

Lease #3?• ISSUE: Did Bayer have apparent authority that would bind Premier to Lease

#3?• HELD: Affirmed. Town Center wins.• Letter between Premier & TC seemed to give Bayer limitless authority to

conduct business on behalf of Premier as Premier’s agent.• Bayer’s title was “manager.” This word, not alone, but coupled with the

surrounding circumstances, provided a basis to induce TC to sign the lease.• Evidence indicates that Town Center believed Bayer had apparent authority to

act on behalf of Premier.

Principal’s Duties To AgentPrincipal’s Duties To Agent• Cooperation – with the agent in

fulfilling the agency purpose• Compensation – for services

rendered• Reimbursement – of

”reasonable” expenses• Safe Working Conditions – as

required by law and meet legal obligations

• Indemnify (pay back) – for legal liabilities incurred by the agent

Fiduciary Duties of Agents(Fiduciary is a position of trust & honesty)

Fiduciary Duties of Agents(Fiduciary is a position of trust & honesty)

• Loyalty – to place the principal’s interest above the agent’s interests. Can’t compete with principle without permission.

• Obedience and Performance – to perform in compliance with the principal’s instructions.

• Reasonable Care & Skill – to perform as is ”reasonable under the circumstances” (including emergencies).

• Account – for the funds and property of the principal (avoid mixing personal funds with the principal’s)

• Notify – as to all facts related to the agency purpose.

Bearden v. Wardley Corporation

• Bearden listed property for sale with real estate agent, Gritton, who worked for Wardley (real estate firm). After listing property Gritton told Bearden he wanted to buy the property for $89,000. Bearden agreed.

• Contract called for Gritton to pay Bearden $400/mo., followed by balloon payment after five years. Bearden would keep title until balloon payment was made.

• Unknown to Bearden, Gritton gave her warranty deed and other documents to sign. She signed; he had signature improperly notarized; recorded the deed and title was transferred to Gritton.

• Gritton doesn’t make payments; Bearden hires a lawyer; lawyer discovers Gritton’s fraud and that Gritton borrowed money against the property; it was in foreclosure for lack of payments to lender.

• Bearden paid $60,000 to keep property from being lost. Sued Wardley for breach, fraud, & breach of fiduciary duty.

Bearden v. Wardley Corporation

• Jury awarded $75,000 damages +$25,000 punitive damages + $50,000 attorney fees, costs, etc. against Gritton & Wardley. Wardley was stuck with most of the judgment and appealed.

• HELD: Affirmed. Listing contract was with Wardley, with “fiduciary duties to seller” clause in it.

• Wardley’s internal policy prohibited agents to purchase properties they listed.

• Gritton was employed by Wardley; it knew of listing agreement; knew Gritton had purchased the property; never questioned Gritton about violating internal policy about purchase of listed property; never asked Gritton to stop representing Bearden; and never informed Bearden of Gritton’s internal policy violations.

• Wardley breached duty of care to Bearden and is liable.

Liability for Contracts if Principals are Disclosed or Partially

Disclosed

Liability for Contracts if Principals are Disclosed or Partially

Disclosed

• 1. A disclosed or partially disclosed principal is liable to a third party for the contract of the agent if the agent has actual authority.

• 2. If there is apparent authority, the principal is contractually liable to a third party. However, the principal may sue the agent for losses if agent has breached a duty.

• 3. An agent is liable to a third party if there is an undisclosed principal. Agent may be indemnified by principal if agent acted within scope of his authority.

Yim v. J’s Fashion Accessories, Inc.

• Benjamin Yim did business under trade name Ho Tae.• Ordered goods from J’s Fashion. Invoices were sent to Ho Tae.• Account not paid. J’s Fashion sued Yim.• He denied liability, saying he acted as an agent for a corporation-

principal, Hosung Enterprise, Inc.• Hosung did business under name Ho Tae.• Fashion said that at no time did Yim disclose existence of

corporation entity with whom they were dealing.• Fashion thought they were always dealing with Yim with trade name

Ho Tae.• Trial court entered summary judgment against Yim.• He appealed, saying he was only an agent for Hosung Enterprises.

Yim v. J’s Fashion Accessories

• HELD: Affirmed.• Agent who makes a contract without giving identity

of principal becomes personally liable.• There is a duty to disclose the principal’s identity• Agent must be specific in disclosure.• Use of a trade name is not necessarily a disclosure

of principal’s identity.• At no point did Yim indicate he was acting other than

an individual doing business as Ho Tae.

Termination of Agency

• Either party may terminate (unilateral termination)– Agent says, “I quit!”– Principal says,

“You’re fired!”

• Notice of termination must be made to 3rd parties to end an agent’s apparent authority

• Termination by operation of law– Principal or agent dies– Subject matter of agreement

is lost or destroyed– Economic conditions render

the subject matter unreasonable to work on

– Bankruptcy of either the principal or the agent will terminate the agency if it makes the agent unable to perform necessary duties

Essential Employment RelationshipEssential Employment Relationship• Principal-Agent

– Agent acts on behalf of the principal– Agent has a degree of personal discretion– Principal is usually liable

• Master-Servant or Employer-Employee – Master-servant is old term still often used– Now the term employer-employee is used more– Servant’s conduct is controlled by employer– The servant can also be an agent (distinction may blur)– Employer is usually liable

• Employer-Independent Contractor (I/C)– Not an employment relationship– Employer has no control over the details of the I/C’s performance– The contractor is usually not an agent– However, sometimes they can be agents (attorneys, auctioneers)– Usually employer is not liable for the I/C’s torts

France v. Southern Equipment Co. • Hensley did business under trade name Royalty Builders.

• Hired 16-year-old Robert France to do roofing work.

• Southern Equipment needed a new metal roof on a building.

• Accepted bid form Quality Metal Roof.

• Quality hired Royalty to work and supply materials.

• While working on roof, France fell and suffered head injuries.

• He sued Southern (and others) for exposing him to an inherently dangerous job of roofing.

• Court granted summary judgment for Southern.

• France appealed.

• Affirmed.

• Royalty Builders was an independent contractor.

• Southern had no control over the work done by Royalty Builders.

• Southern Equipment could not be held vicariously liable as Royalty Builder’s (thereby France’s) employer.

Employment-At-Will• Free Market Concept• Employers: Can hire & fire who you want• Employees: May work-at-will or quit when they want

– Employees may sue for wrongful discharge under employment contract, BUT

– Must establish contract had limits to employer’s rights to discharge • Can be contractual limits to at-will• Exceptions:

– Refusing to violate laws– Important public duty (jury duty)– Public right (filing for workers’ compensation)– “Whistle Blowing”– Breach of employment contract through express contract; implied

contract; or implied covenant of good faith and fair dealing

Guz v. Bechtel National, Inc.

• Guz worked for Bechtel (BNI) 1971-1993 with a good employment record under policy of employment at will. Termination would be for unsatisfactory performance or due to a layoff. Budget for Guz’s division was cut and he and other employees were terminated. The company was doing well financially.

• Guz’s duties were transferred to other employees. He applied for other positions at BNI but was rejected. He then filed suit, alleged breach of implied contract to be terminated only for good cause and breach of implied covenant of good faith & fair dealing.

• Trial court dismissed the suit, saying he was an at-will employee. Guz appealed.

Guz v. Bechtel National, Inc.

• Appeals court reversed, holding that his longevity, raises, etc. warranted a retrial. BNI appealed.

• HELD: Reversed in favor of BNI by California Supreme Court.

• Employment relationship is contractual and parties may define for themselves causes for termination.

• Here, there is no evidence that BNI had additional terms to employment security and BNI had the right to reorganize and terminate employees as they wished.

• Successful service, in and of itself, does not create a contractual guarantee for employment security.

Employment Handbooks and Manuals

• Explain company policies, benefits and procedures

• Discuss grounds for discipline and dismissal

• May limit rights of employers to dismiss employees under Employment-At-Will Doctrine

• May be interpreted as creating express or implied contract between employer and employee– Some (smart) employers place bold

disclaimer in front of handbook saying handbook can be changed any time – have employees sign

Social Media• Companies adjusting to new technologies/innovations

• Improper actions can bring lawsuits or bad image

• Section 230 of Communications Decency Act (CKA) provides immunity for content posted/submitted by 3rd parties, if company is merely a publisher

• This will not help content posted by company employees– Even if employee is not tweeting/posting in official capacity– Employee still within “scope of employment”

• Reasonable person could expect that tweeter was authorized by the company

• To minimize liability, companies restrict social media– Limit who can post official social media– Limit want can be posted– Have means for addressing infringement & other claims– Companies may restrict links to outside sites (i.e. You Tube)– Editing offensive content is important

• Problems with sending e-mails that could create sexual harassment

• Companies may want to restrict employees’ non-work blogs

• Under employment-at-will firms can impose restrictions. Fire rule breakers.

Principal’s Liability For Torts

Principal’s Liability For Torts

• Liability of Principal– If principal directs the agent to do tort, the principal is liable– Principal may gives actual authority/instructs to do a certain act– Principal ratifies agents conduct

• Vicarious Liability: Liability for unauthorized acts of the agent– Was the agent acting “within the scope of his/her employment”?– Courts use doctrine of respondeat superior– Rare for an employer to be liable for acts committed by an

independent contractor • Commuting? Usually not liable for normal commutes• Deviations Rule: When the agent departs from his employment to the

point that he is no longer within the scope of his employment, principal is no longer liable. Jurisdictions differ on the deviations rule.

Negligent Hiring or SupervisionPrincipal’s Liability

• Negligent Hiring: Intentional torts committed by an employment who is not acting in the scope of employment

• Obligations to check background of an employee– Since no longer that costly, duty arises by

employee to do background checks

• Obligation to check independent contractor for doubtful history. i.e.– Child molester: should not be in contact with

children

– Bad driving record: should not be permitted to drive a company truck

Armstrong v. Food Lion

• Ronnie Armstrong went to Food Lion store in Winnsboro, SC with his mother, Tillie, to buy groceries.

• Men in Food Lion uniforms approached Ronnie.• One, Brown, had been in a fight with Ronnie 2 years

before.• He attacked Ronnie with a box cutter. • Another employee, Cameron, also attacked Ronnie.• When Tillie came to help Ronnie, Cameron punched her

and knocked her down.• Another shopper, Loner, helped Tillie and called for

assistance.• Armstrong sued Food Lion for numerous torts.

Armstrong v. Food Lion• Trial held for Food Lion.• Appeals court affirmed.• Armstrong appealed to S.C. Supreme Court.

• Held: Affirmed. Respondeat superior does not apply in this instance.

• Acts of the employees were for an independent purpose than service to their employer at the store.

• Brown and Cameron were not furthering Food Lion’s business in any manner when they attacked the Armstrong.

Agent’s Liability• Crimes: Agents liable for own crimes; principals are

NOT liable for their agents’ crimes– Principal may be liable for conspiracy

• Unauthorized Deviations: Agents are liable• Torts/Contracts: Agent must indemnify the principal for

wrongful acts resulting in injury to the principal– Q: Did the agent breach a duty? – A: If yes, then the agent will be liable

• Employers often try to define the independent contractor relationship– Sometimes a ploy to avoid state and federal taxes,

social security, workman’s compensation, etc.