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Chapter 35 - The Agency Relationship
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5. Duty to notify the principal:
a. Discuss the basic notification rule stated in the text.
Additional Example: Problem Cases ## 5, 6, and 9.
c. You might want to note that there is usually no duty to disclose relevant information
conflict. On the one hand, we have the agent's duty not to disclose confidential
information obtained during a past or present agency. On the other, there is the
agency.
6. Duty to account: Note that the text discusses two distinct "duties to account." The first is
basically a duty to account for any unbargained-for profits received by the agent as part of
principal.
b. Note that the parties' agreement that the agent may retain benefits need not be express.
wine after the consummation of a deal.
c. Example: Ethics in Action (p. 960): Note how a firm like Starbucks attempts to
reduce the risk of its employees violating this part of the duty to account by having a
employees deal on behalf of Starbucks.
d. Note that the duty to report the agency’s financial affairs arises both when the
principal makes a reasonable demand for an accounting, and also at the termination of
the agency.
the records at regular intervals, and try to get the principal's written agreement that
they are in order; (4) have a mutually agreed-upon CPA inspect the records. Of
f. Example: Problem Case # 4.
7. Sanders v. Madison Square Garden L.P. (p. 961): This case may be of special interest to
your students who follow sports, who may have read or heard about this case involving
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this situation, using the faithless servant doctrine.
Point for Discussion: Why didn’t MSG win on the faithless servant argument? MSG
failed to show that Brown Sanders’s behavior adversely affected her job performance.
The courts was unwilling to allow MSG to retain the benefits of her work without having
8. The material on the principal's remedies for an agent's breach of fiduciary duty has been
eliminated. Here is the text from the 9th edition:
threatens to disclose confidential information, or misappropriates or threatens to
misappropriate the principal's property. In addition, a principal may rescind contracts
Tort claims are possible when the agent has misbehaved. A principal may recover for
losses caused by his agent's negligent failure to follow instructions, to notify, or to perform
misappropriated the principal's property.
9. Chapter Introductory Problem (p. 952): This is a good capstone question on agents’
fiduciary duties.
10. The Global Business Environment (p. 963): The Code of Conduct of the International
Consortium of Real Estate Associations illustrates that ethics codes and legal duties exist
in the real estate agency industry worldwide.
E. Duties of Principal to Agent
1. Duty to compensate
a. Besides the examples in the text, the principal is ordinarily not bound to compensate
close family members.
order. But no matter how hard the agent works, the commission will not be payable if
her efforts fail to produce suitable orders--unless the principal's failure to accept and
compensation is contingent.
2. Duties of reimbursement and indemnity: These duties are difficult to distinguish, and it
3. The material on the agent's remedies for breach of the principal's duty has been eliminated.
Here is what a previous edition said on the subject:
Chapter 35 - The Agency Relationship
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
An agent's claim for breach of the duties just discussed often is contractual, and normal
contract remedies--except specific performance--are available. In some cases, a principal's
failure to pay, indemnify, or reimburse an agent enables the agent to acquire a lien on
render further services to the principal.
Of course, an agent's own breach of duty--especially the duties of loyalty and obedience--
F. Termination of Agency
1. Distinguish termination by acts of the parties and termination by operation of law.
2. Go through the various examples of termination by acts of the parties. In this regard, note
that:
by the agent or by another.
c. Unilateral termination of the agency is called revocation when done by the principal,
the traditional doctrine of employment at will discussed in Chapter 51.
3. Review the various bases for termination by operation of law.
4. Effect of Termination on Agent's Authority
a. First, get the easy rule out of the way: termination by any of the means just discussed
explain why.
Gniadek v. Camp Sunshine at Sebago Lake, Inc. (p. 966): The court discusses
whether a camp can be liable for the tort of its former employee when the former
employee attacks a former camper when the camp is not in session. The court held
that the former employee had no actual authority to act for the camp and even if the
on his application to work for the camp for the following summer session. Why could
the former employee nonetheless have apparent authority? It would be reasonable for
Chapter 35 - The Agency Relationship
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
the former employee. The assault was unconnected to his apparent authority, it any,
as a camp employee. There was no “close link” between his apparent authority to
work for the camp and his assault of the camper while on a trip that he arranged by
himself during the off-season.
c. Note, however, that apparent authority will automatically end in certain situations
involving termination by operation of law: principal’s death, principal’s incapacity, or
impossibility.
What is so special about these particular categories of termination? In the cases of
provide a kind of notice.
d. Finally, state that the safest course for the principal to eliminate an agent’s apparent
authority is to notify third parties himself and discuss the situations where personal
communication is needed and where constructive notification should suffice.
Restatement (Third) section 3.11 has a simply, but ambiguous rule: apparent authority
authority to act for the principal.
5. Example: Problem Case #10.
G. Log On (p. 929): Some students, especially those interested in the business of music, motion
IV. RECOMMENDED REFERENCES
A. Hynes and Loewenstein, Agency, Partnership, and the LLC in a Nutshell (5th ed. 2011).
F. Restatement (Third) of Agency (2006).
V. ANSWERS TO PROBLEMS AND PROBLEM CASES
1. No. Agency power to act for a principal must come from the principal. Euclid did not confer
that Euclid had acquired the property at the tax sale. Therefore, Del-Mar had no apparent
2. No. The court held that an e-mail domain name is sufficiently analogous to business cards,
company vehicles, and letterheads, which convey some indicia of apparent authority between
Chapter 35 - The Agency Relationship
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suggested that CSX could have protected itself better by requiring a purchase order form from
IDEC or Recovery. The court stated that before delivering goods worth over $115,000 to a
stranger, one reasonably should be expected to inquire as to the authority of that person to
have made such a deal. Given the anonymity of the Internet, this case illustrates the potential
consequences of operating in today’s world of fast-paced communications. CSX Trans., Inc.
3. The court listed 13 factors from the Reid case, which is cited in the CBS Corp. case on page
956, and determined that Eisenberg was an employee. The court considered most important
The court also found other factors supported a finding of employee status: the skill required,
the source of instrumentalities used by the employee, the location of the work, the hiring
Storage, Inc., 237 F.3d 111 (2d. Cir. 2000).
services of Merrill employees. Merrill employees should service only Merrill clients. Merrill
may recover all the profits Jarvin earned from the 15 clients. In addition, he must reimburse
Merrill may also recover the value of Jarvin’s time used serving the 15 clients.
5. The Creteaus alleged that their agent failed to inform them of material information regarding
the safety of the lodging, neither of which was true in this case. Creteau v. Liberty Travel,
Inc., 600 N.Y. Supp. 2d 576 (N.Y.A.D. 1993).
receiving any commission from Lindholm. Moreover, Vail Associates was not an agent for
Lindholm even in the Rickstrew sale, as it only introduced Lindholm to Rickstrew and
(Colo. 1997).
finance under Grogan, he should possess and use the skill and care of the ordinary person in
Chapter 35 - The Agency Relationship
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
such a finance position, including making a reasonable investigation into the facts regarding
the show. The only possible defense for Harvey may be that NBCU knows he is
inexperienced, which excuses him from exercising ordinary care during the time he is learning
his craft.
not to compete and their duty of confidentiality by giving their employer’s customer list to a
competing business that they owned, but the court did not need to do so to justify the issuance
of the preliminary injunction. Huong Que, Inc. v. Mui Luu, 58 Cal. Rptr. 3d 527 (Super. Ct.
Cal. 2007).
9. The court held that Underwood was acting as Demming's agent for the purpose of purchasing
the properties. Underwood clearly could have breached the fiduciary duties arising out of that
Ct. App. 2011).
10. The court held that the Mrs. Trepanier continued to have authority to act for her husband after
he lapsed into a coma. A comatose person, the court wrote, is mentally competent while his
