978-0077733735 Chapter 22 Lecture Notes

Type

Solution Manual

Book Title

Business Law with UCC Applications 14th Edition

ISBN 13

978-0077733735

April 10, 2019

Chapter 22 - Agency Law

Chapter 22

Agency Law

I. Key Terms

Agency (p. 523) Master (p. 524)

Agency coupled with Negligent hiring (p. 529)

an interest (p. 543) Negligent retention (p. 529)

Agent (p. 523) Negligent supervision (p. 529)

Apparent authority (p. 537) Nondelegable duty (p. 529)

Charitable immunity (p. 533) Partially disclosed principal (p. 535)

Clerical malpractice (p. 534) Principal (p. 523)

Consensual (p. 523) Proprietor (p. 524)

Control test (p. 525) Ratification (p. 537)

Del credere agent (p. 536) Renunciation (p. 542)

Disclosed principal (p. 535) Revocation (p. 542)

Durable power of attorney (p. 542) Scope of authority (p. 539)

Economic reality test (p. 531) Scope of employment (p. 526)

Express authority (p. 536) Servant (p. 524)

Factor (p. 536) Sovereign immunity (p. 531)

General agent (p. 535) Special agent (p. 536)

Gratuitous agency (p. 540) Sui generis (p. 523)

Gratuitous agent (p. 485) Third party (p. 523)

Implied authority (p. 537) Undisclosed principal (p. 535)

Indemnification (p. 540) Uniform Durable Power of

Independent contractor (p. 524) Attorney Act (p. 542)

Lingering apparent authority (p. 537) Vicarious liability (p. 525)

II. Learning Objectives

1. Describe the nature of the agency relationship.

2. Outline the doctrine of vicarious liability.

3. Distinguish among the different types of principals.

4. Distinguish among the different types of agents.

5. Distinguish among express, implied, and apparent authority.

6. Outline the duties of an agent to the principal.

7. Clarify the duties that a principal has in relation to an agent.

8. Name the ways that an agency relationship can be terminated.

9. Identify who is entitled to a notice that an agency has ended.

10. Explain electronic agency.

III. Major Concepts

22-1 The Nature of Agency Law

distribution without the prior written consent of McGraw-Hill Education.

Chapter 22 - Agency Law

Agency is the legal fiduciary relationship that exists when the principal authorizes the

agent to represent the principal. The courts are often called upon to distinguish among

relationships between principal and agent, employer and employee, master and servant,

and proprietor and independent contractor. The terms master (employer) and servant

(employee) are used when questions of tort liability arise. Even though all people are

responsible for their own tortuous conduct, there are times when the law will hold not

only the actual tortfeasor but also the person who engaged the tortfeasor liable for the

tort. The name given to this type of liability is vicarious liability. Other liability questions

include negligent hiring, negligent retention, negligent supervision, contract liability,

criminal liability, statutory liability, sovereign immunity, clergy malpractice, and

charitable immunity.

22-2 Principles of Agency Law

Any person legally capable of entering into a contract may be a principal. There are three

kinds of principals—disclosed, undisclosed, or partially disclosed. Anyone may be

appointed an agent. Agents are commonly classified as general agents, special agents,

factor, and del credere agents. A principal is liable on all contracts that a general or

special agent enters into, as long as the agent acts with the authority of the principal. An

agent’s authority may arise expressly from the written or spoken words of the principal to

the agent or implied from the agent’s reasonable effort to understand the meaning of the

principal’s words describing what the agent is to do. Apparent authority results from

actions by the principal that give a third party reason to believe that an agent has the

authority to act for the principal. Ratification by the principal of an unauthorized act by

another person does not create agency, but it has the effect of agency.

22-3 Duties in Agency Law

As a result of the duciary relationship, the agent owes the principal

the duty of obedience to instructions; loyalty; reasonable judgment,

prudence, and skill; accounting for agency money and property;

personal performance of agency work; and communication of all facts

that affect the subject matter of the agency. In addition to the duties

that the principal owes to the agent under the agency agreement,

there are certain implied obligations. These obligations include the

duty to compensate the agent, reimburse the agent for authorized

expenses incurred, indemnify the agent for losses caused by the

agency relationship through no fault of the agent, and comply with the

terms of the agency contract.

22-4 A Final View of Agency Law

An agency agreement generally terminates when its purposes are accomplished. The

agency may also terminate at any time by the principal’s revocation of the agent’s

authority or by the agent’s renunciation of the agency relationship. If either party dies,

becomes insane, goes bankrupt, or ceases to be qualified to act, the agency relationship is

distribution without the prior written consent of McGraw-Hill Education.

Chapter 22 - Agency Law

terminated by operation of the law. The principal has the duty to notify third parties with

whom the agent has done business when the agency relationship has been terminated by

acts of the parties. Actual notice is required when the third party has given credit to the

principal through the agent. A public notice in a newspaper of general circulation is

sufficient for third parties who have never given credit but who have had cash

transactions with the agent.

IV. Outline

I. The Nature of Agency Law (22-1)

A. Agency and Other Relationships

1. Principal-Agent Relationship Agency

a. Principal-agent relationship agency is a legal relationship in which one party, the

agent, is authorized to transact business for and under the control of the second,

the principal.

b. The principal must indicate that the agent is authorized to act for the principal.

c. An agency relationship is always consensual because the agent must agree to act

for the principal.

d. The agency relationship is a fiduciary relationship because the agent and principal

trust one another.

2. Employer-Employee Relationship

a. The legal principles governing the relationship of principal and agent and of

employer and employee are basically the same.

b. There are employment relationships that are not agency relationships and agency

relationships that are not employment relationships.

c. Agent-employees have the authority to and usually do deal with third parties on

behalf of the principal.

3. Master-Servant Relationship

a. A master is a person who has the right to control the activities of another person.

b. The person whose activities are controlled is called the servant.

c. The terms master and servant are used instead of employer and employee in a

legal setting when questions of tort liability arise.

4. Proprietor-Independent Contractor Relationship

a. An independent contractor is a party who contracts to do a job and retains

complete control over the methods employed until final completion.

b. The party for which an independent contractor works is often referred to as an

employer or proprietor.

c. Independent contractors are not subject to the control of the proprietor.

d. Independent contractors are not employees; however, they may be agents.

e. An independent contractor may be an agent if the independent contractor has the

right to enter a contract on behalf of the proprietor.

B. The Question of Liability

1. Contract Liability

a. An agent is appointed by the principal to negotiate and enter into contracts on

behalf of the principal, and the principal is bound to the terms of those contracts.

distribution without the prior written consent of McGraw-Hill Education.

Chapter 22 - Agency Law

b. Unless an employee is also an agent, he or she has no power to negotiate and

enter contracts for the employer.

c. An independent contractor has no power to bind the proprietor to a contract,

unless expressly authorized to do so.

2. Tort Liability

a. Vicarious liability is based on the principle of respondeat superior.

b. To apply the doctrine of respondeat superior in a tort case, two questions must be

answered.

(a) First, is the alleged tortfeasor was a servant?

(b) Second, was the servant’s action within the scope of employment?

c. The most widely accepted test for determining the existence of a master-servant

relationship, as opposed to the existence of a relationship involving an

independent contractor, is the control test.

d. The control test requires a review of the degree of control, or right to control, that

the hiring person exercises over the hired person.

e. When the degree of control is unclear, additional factors are considered.

f. The court will accept evidence about what the parties called themselves, but will

not sue it as final proof.

g. To determine whether a servant was operating within the scope of employment,

the court will ask the following questions:

(a) Was the action committed by the employee authorized by the employer?

(b) Where did the action take place?

(d) Did the employer supply the instrumentality used in the action?

(e) Was this action performed by other employees on a regular basis?

(f) If the action involved force, was the use of force expected by the employee as

part of the job?

h. While most of the time vicarious liability is applied to negligence actions, under

some situations, masters may be held liable for intentional torts committed by a

servant.

i. In some situations, the court may hold the master liable for the torts of the servant

even when the tort is outside the scope of employment such occurs in some

jurisdictions when the theories of negligent hiring or negligent retention are

applied.

j. Under a theory of negligent supervision, the employer may be liable if, during

employee’s time on the job, the employer fails to properly train, equip, and

oversee the employee’s activities and that lack of management injures an innocent

person.

k. The employer may be open to liability when the employer hires an independent

contractor to perform a nondelegable duty that the law does not permit the

employer to delegate.

l. When required elements are satisfied, some courts recognize that, when an

employee breaches a fiduciary duty towed o a third party, the employer may also

be liable for any injuries that result from that breach.

3. Criminal Liability

distribution without the prior written consent of McGraw-Hill Education.

Chapter 22 - Agency Law

a. The principal or employer ordinarily is not liable for an agent’s or employee’s

crimes, unless the principal or employer actually aids or participates in their

commission.

b. A principal or employer will be held criminally liable for acts done by an agent or

employee to further an illegal business.

c. Most states have enacted statutes, such as those that penalize the sale of impure

foods or alcoholic beverages that hold a principal or employer liable for certain

crimes committed by their agents or employees, even though they acted

disobediently.

4. Independent Contractor Liability

a. Most of the time, any tort committed by an independent contractor is the

responsibility of the independent contractor, not the proprietor.

b. However, the proprietor may be responsible in some situations such as when

nondelegable duties are involved and when the proprietor is not sufficiently

careful in hiring, training, supervising, and/or retaining an independent contractor.

5. Statutory Liability

a. Many statutes govern the employment relationship and are written so that they

apply to employees but not to independent contractors.

b. The Internal Revenue Code has regulations that treat employees one way and

independent contractors another.

c. Some employers label workers as independent contractors to escape or minimize

the effects of the law.

d. In an effort to remedy that situation, courts created a test, called the economic

reality test, to uncover the nature of the employment relationship.

6. The Economic Reality Test

a. The economic reality test is generally tailor made to reflect the goals of each

statute and is, thus, a fairly flexible rule.

b. In application the rule is very similar to the control test used in respondeat

superior.

c. The economic reality test also adds some factors of its own such as whether the

third party invested in the employer’s business and the degree to which the hired

person’s services were integrated into the employer’s commercial activity.

7. Sovereign Immunity and the Federal Government

a. Sovereign immunity is a doctrine preventing a lawsuit against the government

without the government’s consent.

b. The Federal Tort Claims Act of 1946 limits the federal government’s sovereign

immunity but retains immunity for discretionary actions by officials.

8. Sovereign Immunity, Respondeat Superior, and the States

a. The starting point for liability purposes is whether the state has a statute for

preserving or eliminating sovereign immunity.

b. If a statute exists that preserves immunity, the next step is to determine whether

exceptions exist and whether defenses are available to the state.

9. Charitable Immunity

a. The doctrine of charitable immunity is designed to protect charitable institutions,

including churches, from liability for lawsuits based on tort law.

distribution without the prior written consent of McGraw-Hill Education.

Chapter 22 - Agency Law

b. State law on the doctrine varies, and more than half of the states have eliminated

charitable immunity completely.

II. Principles of Agency (22-2)

A. Types of Principals and Agents

1. A disclosed principal is one whose identity is known by third parties dealing with that

principal’s agent.

2. When an agent does not reveal the existence of an agency relationship but appears to

act in his or her own behalf rather than for another, an undisclosed principal exists.

3. A partially disclosed principal exists when the agent, in dealing with third parties,

reveals the existence of an agency relationship but does not identify the principal.

4. A general agent is a person who is given broad authority to act on behalf of the

principal in conducting the bulk of the principal’s business activity on a daily basis.

5. A special agent is a person who is authorized to conduct only a particular transaction,

to conduct a series of related transactions, or to perform only a specified act for the

principal.

6. A factor is a special agent who is employed to sell merchandise consigned for that

purpose.

B. Liability of Principals and Agents

1. The principal is liable on all contracts that a general or special agent may enter into

with third parties, as long as the agent acts within the authority conferred by the

principal.

2. An undisclosed principal can be held liable for the acts of the agent once the identity

of the principal is disclosed, and a third party may sue either the principal or the

agent.

3. When an agent is not known to be an agent and is acting as a principal, the agent can

be held liable as a principal.

4. When a person is known to be an agent, but it is not know for whom the agent acts,

the third party can hold the agent liable.

5. When an agent exceeds the authority conferred by the principal, the agent can be

made personally liable.

C. Scope of an Agent’s Authority

1. Agents who exceed their delegated authority may become personally liable.

2. Unauthorized actions do not bind the principal unless the actions can be reasonably

assumed by a third party to be within the scope of the agent’s authority.

3. Authority granted to an agent may be express, implied, or apparent.

4. An agency relationship is generally created by appointment and implication, by

necessity and operation of law, or by estoppel and ratification.

5. Express authority occurs when the principal either orally or in writing creates the

agency relationship.

6. Express authority, also referred to as actual authority, may be indicated by conduct.

7. Implied authority is the agent’s authority to perform acts that are necessary or

customary to carry out expressly authorized duties.

8. Implied authority can be described as incidental authority when the acts performed

are reasonably necessary to carry out an express authority.

9. Implied authority may be described as customary authority when the agent acts in

conformity with the general trade or professional practices of the business.

distribution without the prior written consent of McGraw-Hill Education.

Chapter 22 - Agency Law

10. Apparent authority occurs when a principal, by virtue of words or actions, leads a

third party to believe that an agent has authority even though no such authority was

intended.

11. Apparent authority is sometimes referred to as agency by estoppel, apparent agency,

and ostensible agency.

12. Under a concept sometimes referred to as lingering apparent authority, apparent

authority may be created if the principal terminates an agent’s actual authority but

fails to give proper notice of that termination to those who are entitled to receive such

notice.

13. Ratification occurs when the principal approves of an unauthorized act performed by

an agent or by one who has no authority to act as an agent and the following

conditions are satisfied.

14. Although an agent generally is personally liable to third parties for actions in excess

of the agent’s authority, this liability is not true when the third party knows that the

agent has exceeded the proper level of authority.

15. In some cases, agency authority is bestowed upon employees by statutory law.

16. Principals rely on the agent’s personal skill and integrity, and they do not ordinarily

give agents the power to delegate to someone else the job they have agreed to do.

17. Should an agent delegate authority without authorization, the acts of the subagent do

not impose any obligation or liability on the principal to third parties.

18. In some instances an agent is permitted to delegate authority even if the agency

agreement does not contain an express power of delegation.

19. The purpose of agency cannot be criminal or contrary to public policy.

20. Some acts, such as making a will, must be performed in person, not delegated to an

agent.

III. Duties in Agency Law (22-3)

A. Fiduciary Obligations

1. An individual who acts as an agent for another has a fiduciary relationship with the

principal.

2. An agent may not enter any agency transaction in which the agent has a personal

interest.

3. An agent must not take a position in conflict with the interest of the principal.

B. The Agent’s Obligations to a Principal

1. Obedience and Loyalty

a. The agent, whether being paid or acting gratuitously, must obey all reasonable and

legal instructions issued by the principal that relate to the agency agreement.

b. In obeying the instructions of the principal, the agent is duty-bound to remain

within the scope of authority.

c. The agent may not use confidential information to advance the agent’s own

interests.

2. Judgment, Prudence, Skill, and the Duty to Account

a. Agents imply that they possess the required knowledge, training, and skill to

perform and carry out their agency obligations properly with reasonable care and

diligence.

b. The principal is entitled to expect that the agent has the degree of skill commonly

displayed by others employed in similar work.

distribution without the prior written consent of McGraw-Hill Education.

Chapter 22 - Agency Law

c. An expert must use the skill possessed by others who have been admitted to that

field.

d. An accounting must be given to the principal within a reasonable period of time

after money or property is received or disbursed.

e. Money collected by the agent must be held separately from funds belonging to the

agent, and the failure to do so is known as commingling.

3. Personal Service and Communication

a. The agency relationship is usually one involving an agreement for personal

services.

b. In the absence of authority to do so, an agent may not delegate duties to others

unless such duties are purely mechanical in nature and require no particular

knowledge, training, skill, or responsibility.

c. The agent is obligated to keep the principal fully informed of all facts that

materially affect the subject matter of the agency and that come to the agent’s

attention when acting within the agent’s scope of authority.

d. The law assumes that if an agent receives either notice or information, it was also

communicated to the principal.

4. Remedies Available to the Principal

a. Remedies are always available when an agent fails to observe a duty owed to a

principal.

b. The principal may do one or more of the following:

(a) Terminate the agent’s contract of employment.

(b) Withhold compensation.

(d) Recover money or property gained or held by the agent to which the principal

is entitled.

(e) Restrain the agent from continuing to breach the agency obligation.

(f) Recover damages from the agent for breach of the contract of employment or

assessed against the principal for the agent’s wrongdoing.

(g) Rescind a contract entered into by the agent based on an improper relationship

between the agent and the third party.

C. The Principal’s Obligations to the Agent (34-3)

1. Compensation

a. The principal is under a duty to pay an agent for work or services.

b. The principal must make salary deductions and payments to the government as

required by law.

c. If an agency relationship does not result from a contract it is a gratuitous agency.

2. Reimbursement

a. The principal is obligated to reimburse the agent for any reasonable expenses

incurred while working on the principal’s behalf and within the scope of the

agent’s authority or employment.

b. The agent cannot recover for expenses incurred due to the agent’s own

negligence.

3. Indemnification

a. Agents are entitled to indemnification if they incur a loss or are damaged as a

result of a request made by the principal.

distribution without the prior written consent of McGraw-Hill Education.

Chapter 22 - Agency Law

b. Indemnification is avoidable if the loss or damage results form an action the agent

knew to be illegal or from the agent’s negligence.

c. State workers’ compensation laws hold that the cost of paying for employee injury

should be a part of the operating expense of the business.

d. Public policy requires employers to indemnify employees for personal injury

sustained in the course of employment, and state worker’s compensation laws

hold that the cost of paying for such injury should be a part of the operating

expense of a business.

4. Cooperation with the Agent

a. The principal, having granted the agent the duty to perform certain tasks, must not

interfere with the performance of those tasks.

b. Should the principal make the agent’s job difficult or impossible, the principal has

breached the duty of cooperation.

D. Remedies Available to the Agent

1. The remedies of an agent against a principal are based upon the principal’s breach of

express or implied contract obligations.

2. The agent has the option of exerting one or more of the agent’s rights as follows:

a. Leave the principal’s employ.

b. Recover damages for the principal’s breach of contract.

c. Recover the value of services rendered.

d. Obtain reimbursement for payments made for the principal.

e. Secure indemnity for personal liability sustained while performing an authorized

act for the principal.

IV. A Final View of Agency Law (22-4)

A. Termination by Actions of the Parties

1. When the contract involving the agency agreement is performed, the agency is at an

end.

2. The agency relationship may also be discharged by mutual agreement.

3. Although a breach of contract may be involved, a principal may terminate an agency

agreement by revoking the agent’s authority.

4. Although it may subject them to damages, agents may terminate an agency by giving

notice to principals that they are quitting, a practice known as renunciation.

B. Termination by Operation of Law

1. The termination of the agency agreement by operation of the law results when

significant events make the continuance of the agency impossible or impractical.

2. The death of either the principal or the agent generally terminates an agency.

3. The insanity of either the principal or the agent usually terminates the authority of the

agent although in some states, under certain circumstances an agent’s powers may

continue.

4. An agency relationship is generally terminated upon the incapacity of the principal,

but many states have adopted the Uniform Durable Power of Attorney Act under

which a person can appoint an agent whose authority is preserved should the principal

become incapacitated.

5. In some cases, the durable power of attorney may activate the agent’s power once the

principal is incapacitated.

distribution without the prior written consent of McGraw-Hill Education.

Chapter 22 - Agency Law

6. The National Conference of Commissioners on Uniform State Laws recently finalized

a new Uniform Durable Power of Attorney Act.

7. In the event of the bankruptcy of the principal, the agency is ended.

8. When an agent goes bankrupt, the principal and the agent may continue the

relationship if they choose.

9. An agency relationship terminates when it is impossible for the agent to accomplish

the purpose of the agency.

10. A change in the law that causes authorized acts to be illegal terminates the agent’s

authority.

C. Agency Coupled with an Interest

1. The only exception to the rule that either the principal or the agent may terminate an

agency relationship at any time arises in the situation of an agency coupled with an

interest.

2. An agency coupled with an interest is an agency agreement in which the agent is

given an interest in the subject matter of the agency.

3. The principal lacks power to revoke agencies coupled with an interest without the

consent of the agent.

D. Notice of Termination to Third Parties

1. The principal has the duty to notify third parties with whom the agent has done

business when the agency relationship has been terminated unless the agency is

terminated by operation of law.

2. When a third party has given credit to the principal through the agent, the third party

is entitled to actual notice of termination of authority.

3. A notice in the classified advertisement section in a newspaper of general circulation

is sufficient for third parties who have never given credit, but who have had cash

transactions with the agent or who know that other persons have dealt with the

principal through the agent.

4. The failure to give third parties appropriate notice results in liability of the principal

on contracts made by a former agent with third parties.

E. Cyber-Agency Statutes

1. The Uniform Computer Information Transactions Act (UCITA) is valuable because it

clearly establishes the nature of an electronic agent.

2. Under the UCITA an electronic agent can be characterized as a computer program

that acts without human intervention to begin an activity, answer cybermessages,

deliver or accept electronic mail, or enter electronic contracts as a representative of an

individual who does not intervene in the action taken by the electronic agent at the

actual time of the electronic agent’s activity.

3. The UCITA makes it clear that a principal who gives authority to an electronic agent

will be liable for the electronic contracts entered by the electronic agent.

4. The Uniform Electronic Transactions (UETA) has legitimized the use of electronic

agents by certifying that contracts made by electronic agents have the same binding

effect as contracts created by human agents.

5. Once an individual has received an e-mail, he or she is considered to have received

notice of an e-contract, even if that person ignores or trashes the e-mail without

opening or reading it.

distribution without the prior written consent of McGraw-Hill Education.

Chapter 22 - Agency Law

V. Background Information

A. Cross-Cultural Notes

1. In the former Soviet Union, all artists and authors were required to use the services of

VAAP, the government literary agency, VAAP held a monopoly on representation of

literary talent. With the breakup of the Soviet Union, artists and authors gained the

freedom to make their own independent contracts.

B. Historical Notes

1. The master is only liable when the servant is acting in the course of employment. If

he was going out of his way, against his master’s implied commands, when driving on

his master’s business, he will make his master liable; but if he was going on a frolic

of his own, without being at all on his master’s business, the master will not be liable.

— Joel v. Morison, 6 Car. & P. 501, 503, 172 Eng. Rep. 1338, 1339 (Ex. 1834)

C. State Variations

1. If an insurance agent sells a policy issued by a company not licensed in the principal’s

state, the agent can be held liable for any bills that the company does not pay. Agents

can also be held liable if they sell a policy with the knowledge that the company is

insolvent. In Texas, an agent has notification duties in relation to an insured.

2. In Tennessee, an employer of a therapist may be liable if sexual misconduct occurred

and the employer fails to take reasonable action when the employer knows or should

have known of such misconduct, or the employer fails to make inquiries of a former

employer of the therapist concerning past sexual misconduct of the therapist.

3. Most states have passed statutes that provide procedures for citizens to sue the state.

Iowa passed the Tort Claims Act, which lists under what circumstances a citizen may

sue the state. It also describes the procedure that should be used.

4. In Florida, minors can execute contracts under the Home, Farm, and Business Loans

Act with the same effect as if they were of legal age.

D. Quotations stop

1. Within the scope of the agency, principal and agent are one.

— Oliver Wendell Holmes (1841–1935), Supreme Court Justice

2. Strictly speaking, laws are nothing more or less than the terms of association of civil

society. The author of the laws ought, therefore, to be the people . . . bound by them;

i.e., the task of formulating a society’s terms of association belongs exclusively to

those who come together in it.

distribution without the prior written consent of McGraw-Hill Education.

Chapter 22 - Agency Law

— Jean Jacques Rousseau, The Social Contract. Chicago: Henry Regnery

Company, 1954, p. 55.

VI. Terms

1. Principal and prince come from the word primus, meaning first. Principal and prince

are also associated with the Latin term princeps, which literally means “one who

takes the first part.”

2. Vicarious means “to serve in place of someone or something else.”

3. Sovereign immunity developed from the theory that the King of England, as the

supreme ruler, was immune from lawsuits. The word sovereign comes from Old

French and from Latin super, meaning “to be above.”

4. Ratify has its origins in the Latin word ratus, which comes from two words meaning

agree and make. In an agency by ratification, the principal makes an agreement to fit

circumstances that already exist.

5. Subagents working for independent contractors are often called subcontractors. In

construction, for example, a general contractor may hire a subcontractor to install

plumbing or electrical systems.

6. The word mingle, part of commingle, means “to mix.” Things are commingled when

they are blended, or mixed, into a whole.

7. The word compensate comes from the Latin word compensatus, meaning “to weigh

together.”

VII. Related Cases

1. Difficulties resulting from borrowed servants are not new. In 1826, a country

gentleman, who had just arrived in town without means to get around, hired a carriage

with horses and a driver from a stable keeper. The driver negligently drove the

gentleman’s coach into another vehicle. The judges of the King’s Bench divided two

to two on the question of liability of the gentleman. Laugher v. Pointer, 5 B & C 547.

2. The Barrowses entered into the state of marriage by proxy (Barrows was to be away,

so an agent stood in for him at the ceremony). When Barrows died, the couple’s life

insurance company attacked the validity of the marriage. The court ruled that there is

a long history of proxy marriages; therefore, the deceased’s father cold not attack the

validity of the proxy marriage. Barrows v. U.S., 191 F. 2d 92 (9th Cir. 1951).

3. The general manager of a corporation, while buying supplies for his company,

purchased an additional quantity of supplies on his own account and sold them at a

distribution without the prior written consent of McGraw-Hill Education.

Chapter 22 - Agency Law

profit. The corporation sued, the defendant’s discharge was upheld, and the

corporation was awarded the proceeds from the sale of the goods. Michigan Crown

Fender Co. v. Welch, 178 N.W. 684 (Mich. 1920).

4. In Valles v. Albert Einstein Medical Center, 758 A2d 1238 (Pa. Super. Ct. 2000), a

medical malpractice case, the court addressed the issue of whether the defending

hospital was vicariously liable for the failure of a physician, a radiologist, to obtain

informed consent. While the court acknowledged that the physician had a contract of

employment with the hospital, the court noted that nothing in the record indicated that

the hospital exercised control over the manner in which the physician was to perform

radiology work. On that basis, the court found that the hospital was not vicariously

liable for the failure of the physician to obtain informed consent and granted a

summary judgment ruling to the hospital.

VIII. Teaching Tips and Additional Resources

1. Ask students if they have ever been considered an independent contractor when a

designation of employee would have been more appropriate. Information from the

Internal Revenue Service on determining whether someone is an employee or

independent contractor for tax purposes is available at

http://www.irs.gov/taxtopics/tc762.html. Information on the self-employment tax is

available at

https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employmen

t-Tax-Social-Security-and-Medicare-Taxes.

2. An article titled “Employer Liability for an Employee’s Bad Acts” is available on the

Findlaw web site at

http://smallbusiness.findlaw.com/business-operations/insurance/liability-employee-ac

ts.html.

3. Ask students their opinions on whether employees should be able to avoid civil and

criminal liability by claiming that they were following orders of a superior.

Information regarding the Nuremberg Trials and the refusal to allow the defense of

following orders of a superior is available from the Holocaust Research Project at

http://www.holocaustresearchproject.org/trials/nurnbergtrial.html.

4. An article titled “Vicarious Liability: ‘Let the Master Answer’” addressing vicarious

liability in the health care setting is available on the web site of the American

Academy of Orthopedic Surgeons at

http://www.aaos.org/news/bulletin/jun07/managing6.asp.

5. The Colorado Bar Association has information available on financial powers of

attorney at http://www.cobar.org/index.cfm/ID/20877.

6. An article titled “Advance Directives: Creating a Living Will and Health Care Power

of Attorney” is available from the AARP at

distribution without the prior written consent of McGraw-Hill Education.

Chapter 22 - Agency Law

http://www.aarp.org/relationships/caregiving-resource-center/info-11-2010/lfm_living

_will_and_health_care_power_of_attorney.html.

7. An article from USA Today titled “Power of attorney can be valuable and dangerous

tool” is available at

http://www.usatoday.com/money/perfi/columnist/block/2008-12-08-managing-money

-power-attorney_N.htm.

8. The National Hospital and Palliative Care Organization has a section on advance

directives and choosing an agent at http://www.caringinfo.org/i4a/pages/index.cfm?

pageid=3284. An article titled “Selecting Your Healthcare Agent” is available on the

web at http://www.caringinfo.org/i4a/pages/index.cfm?pageid=3286.

9. The National Association of Realtors has a “Law, Ethics & Policy” section at

http://www.realtor.org/law-and-ethics.

10. Various publications may be obtained electronically from the Equal Employment

Opportunity Commission at http://www.eeoc.gov/eeoc/publications/index.cfm.

11. Ask students to think of certain situations in which they have made contracts through

third parties. Agency relationships are not always recognized as involving agency, so

you might offer some examples. For instance, salespeople act as agents for their

employers when they make contracts with customers. Ask students if any of them are

independent contractors. If so, have them describe their relationships with the other

parties to the contracts.

12. For a more detailed explanation of the development of agency law see: Holmes,

Oliver Wendell, Jr. The Common Law. New York: Barnes and Noble Books, 2009,

pp. 6–12.

13. With help from students, create a list of occupations that are often performed by

independent contractors. Then have the students choose one of the occupations listed

and research the responsibilities involved, compiling a list of the costs of being an

independent contractor in that occupation. Remind students to take into account

personal expenses, such as insurance and taxes, as well as costs of the occupation,

such as hiring subcontractors, renting space, and purchasing materials.

14. Have students discuss whether the U.S. government should be liable for all improper

actions or only those that are allowed under the Federal Tort Claims Act. Does the

historical background of sovereign immunity have any relevance today?

15. Explain that an agent works for and on the behalf of a principal and is subject to the

principal’s control. Review the three types of principals and ask students to suggest

examples of each type.

distribution without the prior written consent of McGraw-Hill Education.

Chapter 22 - Agency Law

16. Have students interview local real estate brokers about the status of the agents

working for them. Students should find out what kind of agency relationships exist

between the brokers and the agents. Have students find out about multiple listings

services and what happens when an agent sells property listed with a different

brokerage firm.

17. Ask students to think about the responsibilities of the parties involved in a contract.

Give some examples of different types of contracts and have students identify in

whose interest each party acts. Next, name some examples of agency relationships

and ask the students in whose interest each party acts. Make sure students recognize

the fundamental distinction between acting for oneself and acting for another.

18. Bring in the want ads from several editions of a local newspaper and distribute them

to small groups of students. Ask students to look through the ads and discuss in their

groups which jobs require an employee to act as an agent for the employer. Then have

student groups share their discoveries with the rest of the class.

19. Obtain standard forms for a power of attorney and have students examine them.

Discuss the forms’ terminology.

20. Inform students that the apparent principal is estopped to deny the authority of the

apparent agent. This is so a principal does not unjustly benefit from the actions of an

agent without also taking responsibility for the actions of the apparent agent.

21. Ask students to come up with instances in which an agent may be acting without

authority, but the principal’s actions would lead a reasonable person to believe that

the agent did have authority. One example would be if a used car salesman acted

outside of the agency relationship but the dealer/owner did not affirmatively disavow

the agent’s actions. Contrast the apparent authority with implied authority. How are

they different? How are they the same?

22. Some writers’ agents are creating their own compensation by identifying news stories

with best-seller potential and recruiting writers and publishers for the project. Agents

comb newspapers and magazines for ideas.

23. There is no promise to indemnify implied if the act directed to be performed was one

in which the agent knew or must be presumed to have known to be illegal. Not even

an express promise to indemnify would be enforced under those circumstances.

24. Invite a real estate broker or car dealer to class to discuss agency relationships. A

broker might relate anecdotes about contracts with both sellers and buyers, while a

car dealer could discuss experiences with buyers and the salespeople who act as

agents. Ask the visitors to share stories about how agency relationships can end.

distribution without the prior written consent of McGraw-Hill Education.

Chapter 22 - Agency Law

25. Explain to the class that agency relationships eventually end. Tell students that

termination may come by operation of the law or by the acts of the parties involved.

Discuss the differences between these two kinds of termination and ask for examples.

26. The agency coupled with an interest is not a true agency power because it cannot be

terminated at will. It may be terminated only as agreed to in the transaction that

created it or if the subject matter of the interest is destroyed.

distribution without the prior written consent of McGraw-Hill Education.

Solution manual

978-0077733735 Chapter 22 Lecture Notes

Business Law with UCC Applications 14th Edition