Part Three:
Agency
CONTENTS
Chapter 19………………………………………………………………….……………..Relationship of Principal and Agent
Chapter 20………………………………………………………………………………………..Relationship with Third Parties
ETHICS QUESTIONS RAISED IN THIS PART
1. Under what circumstances should a principal (employer) be responsible for the torts committed by an agent
(employee)? If an agent injures a third party during the course of employment, to what extent should the
employer be held liable? Under what circumstances should the agent be held personally liable? What
ethical considerations underlie the doctrine of respondeat superior?
2. How much obedience and loyalty does an employee owe to an employer?
3. How much loyalty does an employer owe to an employee?
4. What ethical considerations underlie the concept of agency by estoppel? For whose protection was this
concept developed?
5. To what extent does a principal have a duty to provide safe working conditions for his employees? To what
extent does a principal have a duty to provide safe working conditions for his independent contractors?
6. Some ethicists have suggested that many of the greatest evils in history have been accomplished in the name
of “duty” to a principal by placing the well-being of the principal above that of the public. Do you agree
with this? Can you think of any examples of situations where loyalty to a principal causes harm to the
public?
ACTIVITIES AND RESEARCH PROBLEMS
1. Research cases in your state involving respondeat superior to find interesting cases in which an agency
relationship has been found to exist.
2. Have students interview sales representatives, realtors, insurance agents and others who are commonly
considered to be agents and then discuss some of their personal experiences in terms of the law of agency.
3. Have students research cases involving an undisclosed principal and discuss fact situations where the use of
such a relationship would be useful. In light of the liability of the agent in such a relationship, why would
the agent agree not to disclose the name of the principal?
4. Research the formal requirements necessary in your state to create an attorney in fact relationship through a
written power of attorney. Discuss fact situations when a power of attorney could be a useful device.
5. Research the formal requirements for a durable power of attorney.
6. Chapter 19
7.RELATIONSHIP OF PRINCIPAL AND AGENT
8.
9.
10. A. Nature of Agency
11. 1. Scope of Agency Purposes
12. 2. Other Legal Relationships
13. B. Creation of Agency
14. 1. Formalities
15. 2. Capacity
16. C. Duties of Agent to Principal
17. 1. Duty of Obedience
18. 2. Duty of Good Conduct
19. 3. Duty of Diligence
20. 4. Duty to Inform
21. 5. Duty to Account
22. 6. Fiduciary Duty
a. Conflicts of Interest
b. Self-Dealing
23. c. Duty Not to Compete
24. d. Misappropriation
25. e. Confidential Information
26. f. Duty to Account for Financial Benefits
27. g. Principal’s Remedies
28.
29. D. Duties of Principal to Agent
30. 1. Contractual Duties
31. a. Compensation
32. b. Indemnification and Reimbursement
33. 2. Tort and Other Duties
34. E. Termination of Agency
35. 1. Acts of the Parties
36. a. Lapse of Time
37. b. Mutual Agreement of the Parties
38. c. Revocation of Authority
39. d. Renunciation by the Agent
40. 2. Operation of Law
41. a. Death
42. b. Incapacity
43. c. Change in Circumstances
3. Irrevocable Powers
45.
46. Cases in This Chapter
47. Del Pilar v. DHL Global Customer Solutions (USA), Inc.
48. Miller v. McDonald’s Corporation
49. Detroit Lions, Inc. v. Argovitz
50. Gaddy v. Douglass.
51.
52.
53. Chapter Outcomes
54. After reading and studying this chapter, the student should be able to:
Distinguish among the following relationships: (a) agency, (b) employment,
and (c) independent contractor.
Explain the requirements for creating an agency relationship.
List and explain the duties owed by an agent to her principal.
List and explain the duties owed by a principal to his agent.
Identify the ways in which an agency relationship may be terminated.
55.
56.
57.
58. TEACHING NOTES
59.The law of agency divides into 2 main parts: internal (relationship of principal
and agent) and external (relationship of agent to third persons.)
60.
61.
62. *** Chapter Outcome ***
63. Distinguish among the following relationships: (a) agency,
(b) employment, and (c) independent contractor.
64.
65. A. NATURE OF AGENCY
66.Agency is a consensual relationship involving three persons. An agent is one who
represents another, the principal, in business dealings with a third person. In
dealing with a third person, the agent acts for and in the name and place of the
principal, who is a party to the transaction (usually contractual).
67.Scope of Agency Purposes
68.The general rule regarding the scope of agency is that a person may do through
an agent whatever business activity he may accomplish personally. Conversely,
whatever he cannot legally do himself, he cannot authorize another to do for him.
69.Other Legal Relationships
70.1) In the employment relationship, employer has a right to control an
employee’s physical conduct. Thus, all employees are agents, even those
employees not authorized to contract on behalf of the employer or otherwise to
conduct business with third parties.
71.2) The person who engages an independent contractor to do a particular job
has no right to control how the contractor does the job.
72. In determining whether an agent is an employee, the courts consider
numerous factors including:
73.(a) the extent of control that the agent and the principal have agreed the
principal may exercise—or has exercised in practice—over details of the work ;
74.(b) whether the agent is engaged in a distinct occupation or business;
75.(c) whether the type of work done by the agent is customarily done under a
principal’s direction or without supervision;
76.(d) the skill required in the agent’s occupation;
77.(e) whether the agent or the principal supplies the tools and other
instrumentalities required for the work and the place in which to perform it;
78.(f) the length of time during which the agent is engaged by a principal;
79.(g) whether the agent is paid by the job or by the time worked;
80.(h) whether the agent’s work is part of the principal’s regular business;
81.(i) whether the principal and the agent believe that they are creating an
employment relationship; and
82.(j) whether the principal is or is not in business.
83.
84. CASE 19-1
85. DEL PILAR v. DHL GLOBAL CUSTOMER SOLUTIONS
(USA), INC.
86. District Court of Appeal of Florida, First District, 2008
87. 993 So.2d 142
88. http://scholar.google.com/scholar_case?q=993+So.2d+142&hl=en&as_sdt=2,34&case=9058638460907179646&scilh=0
89. Kahn, J.
90. Appellant sustained injuries when his car collided with a delivery van painted in the widely
recognized DHL livery, driven by a driver clad in DHL uniform and laden with packages
destined for DHL customers in Duval County [Florida] and beyond. Discovery in the
91. Accordingly, appellee’s agreement with Silver Ink essentially delegated to Silver
Ink the responsibility to service DHL customers in the Jacksonville area. The contract
identified Silver Ink as an “independent contractor” and provided that “the manner and means
by which Contractor performs the services shall be at Contractor’s sole discretion and control
and are Contractor’s sole responsibility.” The agreement also, however, recited an exhaustive
92. Silver Ink employees were contractually required to “wear a DHL uniform and
properly display the DHL Marks (sic) and uniform in a clean, professional, and businesslike
manner”; the contract specified the particular articles of clothing and accessories considered
part of the DHL uniform, the purchase of which was funded by DHL. Silver Ink was required
to submit to unannounced operational inspections and audits at DHL’s sole discretion and was
93. * * *
94. [Danny Del Pilar sued DHL for his personal injuries arising from the auto accident.
The trial court granted summary judgment for DHL after concluding that Silver Ink was an
independent contractor for whose alleged negligence DHL is not vicariously liable. Danny Del
Pilar appealed.]
95. * * *
96. Generally, a principal is not vicariously liable for the negligence of its independent
contractor, but the principal is liable for the negligence of its agent. [Citation.] Whether one
laboring on behalf of another is a mere agent or an independent contractor “is a question of fact
… not controlled by descriptive labels employed by the parties themselves.” [Citations.]
97. A particularly significant factor in the determination of status is “the degree of
98. In most cases, the terms of a contract between the parties is a pertinent index of the
principal’s right of control and should factor heavily into the inquiry, “unless other provisions
of the agreement, or the parties’ actual practice, demonstrate that it is not a valid indicator of
status [or] … belie the creation of the status agreed to by the parties.” [Citation.] In that case,
“the actual practice and relationship of the parties should control.” [Citation.]
99. Elements of control that tend to suggest a relationship in which the principal is
vicariously liable for the agent’s negligence include, but are not limited to, (1) the principal’s
right to control the agent’s use of the principal’s trademarks, [citation]; (2) reservation to the
principal of the unilateral right to prohibit the agent from working on behalf of competitors,
100. * * *
101. Here, the contract between appellee and Silver Ink certainly recites in conclusory
terms the status of independent contractor; it identifies Silver Ink as an independent contractor
and provides that “the manner and means by which Contractor performs the services shall be at
Contractor’s sole discretion and control and are Contractor’s sole responsibility.” This
observation does not conclude the matter.
102. When we look, as we must, more deeply than the agreement’s conclusory language,
we find that, like provisions of the franchise agreement at issue in [citation], the balance of
DHL’s contract with Silver Ink “leaves nothing to chance.” [Citation.] Somewhat
inconsistently with the conclusory language purporting to confer broad discretion upon Silver
103. * * * The trial court erred in concluding, as a matter of law, that Silver Ink was
appellee’s independent contractor. The question of DHL’s control over Silver Ink operations
should go to the jury. [Citations.]
104. * * *
107.
108.
109. *** Chapter Outcome ***
110. Explain the requirements for creating an agency relationship.
111.
112. B. CREATION OF AGENCY
113. An agency may be created absent a contract, so consideration may not be
required. What is required is a manifestation by the principal to have the agent
act on his behalf and a consent to so act by the agent.
114. In some circumstances a person is held liable as a principal, even though no
actual agency has been created. Agency by estoppel exists when the situation
reasonably leads someone to believe an agency exists.
115.
116.
117. CASE 19-2
118.MILLER v. MCDONALD’S CORPORATION
119. Court of Appeals of Oregon, 1997
120.150 Or.App. 274, 945 P.2d 1107
121. http://scholar.google.com/scholar_case?q=945+P.2d+1107&hl=en&as_sdt=2,34&case=16078633099320931234&scilh=0
122. Warren, J.
123. Plaintiff seeks damages from defendant McDonald’s Corporation for injuries that she
suffered when she bit into a heart-shaped sapphire stone while eating a Big Mac sandwich
that she had purchased at a McDonald’s restaurant in Tigard. The trial court granted summary
judgment to defendant on the ground that it did not own or operate the restaurant; rather, the
owner and operator was a nonparty, 3K Restaurants (3K), that held a franchise from
defendant. Plaintiff appeals, and we reverse.
procedures, business practices, and other management, advertising, and personnel policies. 3K,
as the licensee, agreed to adopt and exclusively use the formulas, methods, and policies
contained in the manuals, including any subsequent modifications, and to use only advertising
and promotional materials that defendant either provided or approved in advance in writing.
126. The Agreement described the way in which 3K was to operate the restaurant in
considerable detail. It expressly required 3K to operate in compliance with defendant’s
prescribed standards, policies, practices, and procedures, including serving only food and
127. The Agreement required 3K to keep the restaurant open during the hours that
defendant prescribed, including maintaining adequate supplies and employing adequate
personnel to operate at maximum capacity and efficiency during those hours. 3K also had to
keep the restaurant similar in appearance to all other McDonald’s restaurants. 3K’s employees
had to wear McDonald’s uniforms, to have a neat and clean appearance, and to provide
competent and courteous service. 3K could use only containers and other packaging that bore
128. In order to ensure conformity with the standards described in the Agreement,
defendant periodically sent field consultants to the restaurant to inspect its operations. 3K
trained its employees in accordance with defendant’s materials and recommendations and sent
some of them to training programs that defendant administered. Failure to comply with the
agreed standards could result in loss of the franchise.
129. Despite these detailed instructions, the Agreement provided that 3K was not an
agent of defendant for any purpose. Rather, it was an independent contractor and was
responsible for all obligations and liabilities, including claims based on injury, illness, or death,
directly or indirectly resulting from the operation of the restaurant.
130. Plaintiff went to the restaurant under the assumption that defendant owned,
controlled, and managed it. So far as she could tell, the restaurant’s appearance was similar to
advertising that defendant had run. To the best of plaintiff’s knowledge, only McDonald’s sells
Big Mac hamburgers.
131. * * *
132. Under these facts, 3K would be directly liable for any injuries that plaintiff suffered
as a result of the restaurant’s negligence. The issue on summary judgment is whether there is
evidence that would permit a jury to find defendant vicariously liable for those injuries because
of its relationship with 3K. Plaintiff asserts two theories of vicarious liability, actual agency
and apparent agency. We hold that there is sufficient evidence to raise a jury issue under both
theories. We first discuss actual agency.
133. The kind of actual agency relationship that would make defendant vicariously liable
for 3K’s negligence requires that defendant have the right to control the method by which 3K
134. * * *
135. A number of other courts have applied the right to control test to a franchise
relationship. The Delaware Supreme Court, in [citation], stated the test as it applies to that
context:
136. If, in practical effect, the franchise agreement goes beyond the stage of setting standards,
and allocates to the franchisor the right to exercise control over the daily operations of the
franchise, an agency relationship exists. [Citation.]
137. * * *
138. * * * [W]e believe that a jury could find that defendant retained sufficient control
over 3K’s daily operations that an actual agency relationship existed. The Agreement did not
simply set standards that 3K had to meet. Rather, it required 3K to use the precise methods that
defendant established, both in the Agreement and in the detailed manuals that the Agreement
incorporated. Those methods included the ways in which 3K was to handle and prepare food.
the third person for harm caused by the lack of care or skill of the one appearing to be a servant
or other agent as if he were such. [Citation.]
141. We have not applied § 267 to a franchisor/franchisee situation, but courts in a
number of other jurisdictions have done so in ways that we find instructive. In most cases the
courts have found that there was a jury issue of apparent agency. The crucial issues are whether
the putative principal held the third party out as an agent and whether the plaintiff relied on that
holding out.
142. * * *
143. In this case * * * there is an issue of fact about whether defendant held 3K out as its
agent. Everything about the appearance and operation of the Tigard McDonald’s identified it
with defendant and with the common image for all McDonald’s restaurants that defendant has
worked to create through national advertising, common signs and uniforms, common menus,
common appearance, and common standards. The possible existence of a sign identifying 3K
144. Defendant does not seriously dispute that a jury could find that it held 3K out as its
agent. Rather, it argues that there is insufficient evidence that plaintiff justifiably relied on that
holding out. It argues that it is not sufficient for her to prove that she went to the Tigard
McDonald’s because it was a McDonald’s restaurant. Rather, she also had to prove that she
went to it because she believed that McDonald’s Corporation operated both it and the other
McDonald’s restaurants that she had previously patronized. * * *
145. * * *
146. * * * [I]n this case plaintiff testified that she relied on the general reputation of
McDonald’s in patronizing the Tigard restaurant and in her expectation of the quality of the
148.
149.
150.
151. Formalities
152. In most situations a written contract is not required to create an agency
relationship, except where the contract is to run for more than a year and in
some states which require a writing if an agent is to sell land. Some states have
“equal dignity” statutes providing that a principal must grant his agent in a
written instrument the authority to enter into any contract required to be in
writing. A power of attorney is a formal, written agency appointment.
153. Capacity
154. A principal must have the capacity to contract while capacity is not absolutely
required of an agent. This distinction is made since in consummating a contract
on behalf of the principal an agent is creating a legal relationship that is binding
on the principal, not the agent.
155. A durable power of attorney is a written instrument that expresses the
principal’s intention that the agent’s authority will not be affected by the