Business Law (Chapter 25) Agency Formation and Duties

What's an agency relationship?

Typically contains two parties. The first party is called the agent and the other is the principal. The principal has the right to control the agent's conduct in matters entrusted to the agent.

True or False Only the agent must act with the utmost good faith in a principle-agent relationship.

False Both the agent and principal must act in utmost good faith

True or False? Normally, all employees who deal with first parties are deemed to be agents?

False Normally, all employees who deal with third parties are deemed to be agents. A sales person in a department store is an agent of the store's owner (principal) and acts on the owner's behalf. Therefore, when a customer makes a sale to the agent (sales-person), this transaction is binding on the principal.

True or False An agent doesn't have to notify the principal of all matters that come to her or his attention, concerning the subject matter of the agency.

False The agent needs to notify the principal of all matters

True or False The Agent has a duty to reimburse the Principle for any funds disbursed at the principal's request

False The principle has a duty to reimburse the agent

True or False The principal doesn't need to inspect working areas and to warn agents about any unsafe conditions/situations?

False They need to promote safe working conditions.

What if no amount has been set or agreed on, how does the principal repay the agent?

He/She owes the agent the customary compensation for such services

What is Agency by Ratification?

If a person who is not an agent may make a contract on behalf of another (a principal) If the principal approves or affirms that contract by word or by action, an agency relationship is created by ratification. - (Agent acting beyond of what their authority was. Therefore, the principle can ratify that transaction)

Simplified definition of an agency

In an agency relationship, someone (the agent) agrees to perform a task for, and under the control of, someone else (the principal) "In a principal-agent relationship, the parties have agreed that the agent will act on behalf and instead of the principal in negotiating and transacting business with third parties" (pg. 436)

Fiduciary

noun - a person having a duty created by his or her undertaking to act primarily for another person's benefit in matters connected with the undertaking (having duty under the principle to act on behalf of the principle) adjective - fiduciary relationship (a relationship that involves trust and confidence)

Under the Copyright Act, any copyrighted work created by an employee within the scope of her or his employment at the request of the employer is a

"work for hire" The employer owns the copyright to the work

Book's def for 3rd party reliance in an estoppel agreement

1. 3rd person must prove that he or she reasonably believed that an agency relationship existed 2. Facts and circumstances must show that an ordinary person would have been justified in concluding that the agent had authority

Examples of Independent Contractors

1. Building contractors and subcontractors (a property owner doesn't control the details of the way independent contractors perform) 2. Truck drivers that own their own vehicles and hire out on a per-job basis. (although, regularly employed truck drivers are employees)

Two criteria for ratification.

1. Involves a question of intent 2. intent can be expressed by either words or conduct

What are some reasons an independent contractor use when they want to identify as an employee?

1. Tax purposes 2. employment laws 3. federal statutes governing employment discrimination apply only when an employer-employee relationship exists

Obedience When acting on behalf of the principal, an agent has a duty to follow all _____ and __________ of the principal

1. lawful (instructions) 2. clearly stated instructions

Requirements for Agency by Estoppel

1. must be representation 2. Third party must rely on it 3. Third party should have suffered loss

What about maintaining confidentiality? Is that also a loyalty requirement for agency relationships?

Absolutely It's a breach of loyalty to disclose information that can't be discussed either during the agency relationship or after its termination.

Gratuitous Agents

An agent acts gratuitously (without payment.

Whom do Agency relationships commonly exist between?

Employers and Employees

Example of exclusive agency (newspapers)

River City Times Company (principal) grants Emir (agent) to sell its newspapers at a busy downtown intersection to the exclusion of all other vendors. This creates exclusive territory within which only Emir has the right to sell newspapers. If River City Times allows another competitor to sell within Emir's zone, then Emir can sue River City Times for lost profits.

What are the Agent's Duties to the Principal when it comes to Loyalty?

The agent has the duty to act solely for the benefit of his or her principal and not in the interest of the agent or a third party.

When an employer hires an independent contractor - a freelance artist, writer, or computer programmer, who owns the copyright?

The independent contractor

True or False? Does a gratuitous agent need to perform in an acceptable manner and is subject to the same standards as other agents?

True

True or False? Agency relationships are based on an expressed or implied agreement that the agent will act for the principle.

True 1. express oral contract 2. implied agreement (conduct)

True or False? Employment laws (state and federal) apply only to the employer-employee relationship when it comes to agent contracts.

True Statutes that govern Social Security, withholding taxes, workers compensation, unemployment compensation, and workplace safety apply only when an employer-employee relationship exists

Ree asks Grace, a gardener, to contract with others for the care of his lawn on a regular basis. Does an agency relationship exist if Grace agrees?

Yes Because this is an express

Agency relationships normally are _______

consensual - they come about by voluntary consent and agreement between the parties

In general, when a principle requests certain services from an agent, the agent reasonably expects _________

payment therefore, the principal has a duty to pay the agent for his/her services

Gratuitous Agents are only subject to ______ liability

tort (common law)

The principle-agency is fiduciary (based on _______)

trust

If an agency relationship is created for a purpose that's illegal, it's _____

unenforceable legal = enforceable

exclusive agency

when a principal grants an agent an exclusive territory, in which the principal cannot compete with the agent or appoint or allow another agent to compete.

Examples of loyalty when it comes to confidentiality

Trade Secrets and Customer Lists

Again, what's the one exception to the independent contractor rule for copyrights?

Work For Hire Any scope of work created within the scope of her/his employment

If the agent, on the principal's behalf, forms a contract with a third party, and the principal fails to perform the contract, can the third party sue the agent for damages?

Yes The principal is obligated to compensate the agent for any costs incurred by the agent as a result of the principal's failure to perform the contract

What about liabilities that were incurred because of authorized and lawful acts, and transactions.

Yes The principal is responsible for compensating that

Principal's duties to the agent (4 requirements)

1. Compensation 2. Reimbursement and Indemnification 3. Cooperation 4. Safe Working conditions

7 criteria to distinguish an independent contractor from an employee.

1. How much control does the employer exercise over the details of the work? (employer has considerable control over the details of the work and day-to-day activities of the worker, then it's an employee). MOST IMPORTANT FACTOR 2. Is the worker engaged in an occupation or business distinct from that of the employer? (yes = independent contractor) 3. Is the work usually done under the employer's direction or by a specialist without supervision? (yes = employee) 4.Does the employer supply the tools at the place of work? (yes = employee) 5. For how long is the person employed? (long period of time = employee) 6. What is the method of payment-by time period or at the completion of the job? Payment time period of every two weeks/once a month = employee status 7. What degree of skill is required of the worker? Great degree of skill required = independent contractor

Bower's friend Alcott is a real estate broker. Alcott offers to sell Bower's vacation home at no charge. If Alcott doesn't attempt to sell the home, does Bower have any legal cause of action to force her to do so? If Alcott attempts to sell the home to Friedman, but does it negligently, can Bower sue Alcott for negligence?

1. No 2. Since Alcott violated "Standard of Care" (negligent performance), then Bower can sue Alcott

Cooperation (for a principal)

A principal has a duty to cooperate with the agent and to assist the agent in performing his/her duties

Things that employees are required to pay, but not for independent contractors. (taxes)

1. social security 2. unemployment taxes

If the IRS decides that an employee is misclassified, the employer will be responsible for paying any applicable ___________, __________, and ____________ taxes

1.Social Security 2.Withholding 3.Unemployment

How many duties does the Agent owe to the Principle?

5 duties 1. Performance 2. Notification 3. Loyalty 4. Obedience 5. Accounting

Artisan House, Inc., hired a professional photographer, Steven H. Lindner, owner of SHL Imaging, Inc., to take pictures of its products for the creation of color slides to be used by artisan's sales force. Linder controlled his own work and carefully chose the lighting and angles used in the photographs. When Artisan published the photographs in a catalogue and brochures without Lindner's permission, SHL filed a lawsuit for copyright infringement. Artisan claimed that its publication of the photographs was authorized because they were works for hire. SHL had not given Artisan permission (a license) to reproduce the photographs in other publications Who is in violation of copyright infringement? Artisan or SHL?

Artisan SHL didn't give Artisan permission to reproduce the photographs in other publications. Artisan was an employee for SHL.

El Palmar Taxi, Inc., requires its drivers to supply thier own cabs, which must display El Palmar's logo. The drivers pay gas, maintenance, and insurance costs, and a fee to El Palmar. They're expected to comply with the law, including licensing regulations, but they can work when they want for as long as they want. Mario Julaju drove a taxi under a contract with El Palmar that described him as an independent contractor. El Palmar sent Julaju to pck up Maria Lopez and her children. During the ride, Julaju's cab collided with a truck. To recover for their injuries, the Lopezes sued El Palmar. Which side will the court take preferences on? El Palmar or Maria?

El Palmar Because Julaju was an independent contractor. Therefore, an employer normally is not responsible for the actions of an independent contractor with whom the employer contracts.

Does the agreement for Agency relationships need to be in writing, and be under consideration?

No

Do employment laws apply to independent contractors?

No Those who hire independent contractors have no control over the details of their work performance

A Puerto Rican tv station, WIPR, contracted with Victoria Albertly-Velez to cohost a tv show. Victoria signed a new contract for each episode and was committed to work for WIPR only during the filmingof the episodes. WIPR paid her a lump sum for each contract and didn't withhold an taxes. When Victoria became pregnant, WIPR stopped contacting her. Therefore, she filed a lawsuit claiming that WIPR was dsicriminating against her in violation of federal antidiscrimination laws. According to the tax documents, they identified Victoria as an independent contractor. Therefore, would the court enforce these anti-discrimination laws?

No, independent contractors aren't protected under discrimination laws. Only employees

Archer (principal) contracts with Burke (agent) to sell illegal drugs. Is this agency relationship enforceable?

No, because it breaks the law. Therefore, if Burke breaches the relationship and keeps the money, Archer can't sue him.

Can a gratuitous agent be liable for breach of contract?

No, because there is no contract formed for a gratuitous agent. (Applebees driver chasing down teens refusing to pay for their meals. Wasn't made under contract by Applebees)

Can an agent represent two principals

No, because this goes against the duties of one (or the other) principal. It's only allowed if both of the principles know the dual capacity and consent to it.

Example Patty and Alan Agent (singing contract)

Patty is a singer. Alan Agent (Patty's Agent) acts on her behalf. On Tuesday, Alan meets a promoter and enters into a deal with the promoter. If this contract was out of Alan's agent status, then patty must ratify it. If she thinks that this contract is good, then she can ratify it Antique bicycles (two for $500) but the agent only has a $400 limit

Section 1(1) of the Restatement of Agency How do they define an agency?

The fiduciary relation that results from the manifestation of consent by one person to another that the other shall act in his/her behalf and subject to his/her control, and consent by the other so to act?

What would've happened if Marsha (Michael's Mom) didn't sign the contract for Michael

Then Motorsport would not have been justified in believing that Michael was Wiedmaier's agent

Accounting requirements for an agency contract

The agent must keep and make available to the principal an account of all property and funds received and paid out on the principal's behalf. (unless stated otherwise) Agent must maintain a separate account for the principal's funds and must not intermingle these funds with the agent's personal funds.

When it comes to performance, What is the implied condition in every agency contract?

The agent's agreement to use reasonable diligence and skill in performing the work When an agent fails to perform his or her duties, liability for breach of contract may result

What does the IRS use to identify an independent contractor.

The degree of control the business exercises over the worker. employers can avoid certain tax liabilities under an independent contractor. Therefore, the IRS closely scrutinizes a firm's classifications of its workers.

What's Standard of Care

The degree of skill or care required of an agent is usually that expected of a reasonable person under similar circumstances. "Ordinary Care" If an agent has represented herself/himself as possessing special skills, the agent is expected to exercise the degree of skill claimed If not, then this is a breach of the agent's duty

What's Agency by Estoppel?

When a principal causes a third person to believe that another person is the principal's agent and the third person acts to his or her detriment in reasonable reliance on that belief. Principle is "estopped to deny" (prevented from denying) the agency relationship

(Obedience) What about during an emergency situation (if the principal can't be consulted) What about when instructions aren't clearly stated

When the principal can't be consulted, the agent may deviate from the instructions without violating this duty. Whenever instructions are not clearly stated, the agent can fulfill the duty of obedience by acting in good faith and in a manner reasonable under the circumstances.

Alternate Agency by Estoppel definition

When the principal's actions have created the appearance of an agency that doesn't exist

Marsha and Jerry Wiedmaier owned Wiedmaier, Inc., a corp that operated a truck stop. Their son, Michael, didn't own any interest in the coroporation but had worked at the truck stop as a fuel operator. Michael decided to form his own business called Extreme Diecast, LLC. After Marsha had signed as "Secretary-Owner" of Wiedmaier, Inc., Michael added his name to the list of corporate owners and faxed the form to Motorsport. Michael asked his mother to sign the credit application form. Michael stopped making payments on the merchandise he had ordered, Motorsport sued Wiedmaier, Inc., for the unpaid balance. Is Michael an agent?

Yes, Michael was acting as Wiedmaier's agent in ordering the machine. Even when his mother signed the document for him.

Does a person need contractual capacity to be a principle?

Yes, those who cannot legally enter into contracts directly should not be allowed to do so indirectly through an agent.

Don Cousins contracted with Leo Hodgins, a real estate eagent, to negotiate the purchase of an office building. While working for Cousins, Hodgins discovered that the property owner would sell the building only as a package deal with another parcel. Holdgins bought two properties intending to resell the building to Cousins. Did Hodgins breach his contract?

Yes, Hodgins had a duty to communicate all offers to his principal and not to secretely purchase the property and then resell it to his principle.

A hotel expressly allows only Boris Renke to park cars, but Renke has no employment contract there. The hotel's manager tells renke when to work, as well as where and how to park cars. The hotel's conduct manifests a willingness to have Renke park its customers' cars, and Renke can infer from the hotel's conduct that he has authority to act as a parking valet. Is an implied contract formed?

Yes, Renke is an agent of the hotel and provides valet parking services for guests.

Perez, an artist, is about to negotiate a contract to sell a series of paintings to Barber's Art Gallery for $25,000. Perez's agent learns that Barber is insolvent and will be unable to pay for the paintings. Does the agent have to notify Perez of Barber's insolvency?

Yes, it's relevant to the subject matter of the agency (sale of Perez's paintings)

Can any person be an agent?

Yes, regardless of whether he or she has the capacity to contract (including minors)

Independent Contractor Section 2 of the Restatement (Third) of Agency

a person who contracts with another to do something for him/her but who is not controlled by the other nor subject to the other's right to control with respect to his/her physical conduct in the performance of the undertaking. He/she may or may not be an agent Independent Contractor Relationships may or may not involve an agent

Can courts find an agency relationship in the absence of a formal agreement?

yes 1. Family relationships (1 spouse purchases certain basic necessaries and charges them to another spouses account) 2. Emergency Situations - (If an agent cannot contact the principal)

Does compensation also need to be in a timely manner?

yes (unless the agency relationship is gratuitious