Chapter 16: Agency Relationships

fiduciary 463

As a noun, a person having a duty created by his or her undertaking to act primarily for another's benefit in matters connected with the undertaking. As an adjective, a relationship founded on trust and confidence.

Undisclosed principal

When neither the fact of agency nor the identity of the principal is disclosed, the undisclosed principal is bound to perform just as if the principal had been fully disclosed at the time the contract was made. The agent is also liable as a party to the contract. When a principal's identity is undisclosed and the agent is forced to pay the third party, the agent is entitled to be indemnified (compensated) by the principal. The principal had a duty to perform, even though his or her identity was undisclosed, and failure to do so will make the principal ultimately liable. Once the undisclosed principal's identity is revealed, the third party generally can elect to hold either the principal or the agent liable on the contract. Conversely, the undisclosed principal can require the third party to fulfill the contract, unless (1) the undisclosed principal was expressly excluded as a party in the contract, (2) the contract is a negotiable instrument signed by the agent with no indication of signing in a representative capacity, or (3) the performance of the agent is personal to the contract, allowing the third party to refuse the principal's performance.

How do agency relationships arise?

by agreement of the parties, by ratification, by estoppel, or by operation of law.

Stonhard, Inc. v. blue ridge farms, llC

ruling: The evidence of the parties' contract indicated that Sussman "at best" was acting as an agent for a partially disclosed principal (or he was acting as an agent for an undisclosed principal). In that capacity, Sussman was personally liable on the contract with Stonhard. The court ruled that Sussman was personally liable on the contract with Stonhard.

What duties do agents and principals owe to each other?

the agent to principal: (1) performance, (2) notification, (3) loyalty, (4) obedience, and (5) accounting. The principal also owes certain duties to the agent. These duties relate to compensation, reimbursement and indemnification, cooperation, and safe working conditions.

whether a worker has the status of an employee or an independent contractor

1. How much control can the employer exercise over the details of the work? (If an employer can exercise considerable control over the details of the work, this would indicate employee status. This is perhaps the most important factor weighed by the courts in determining employee status.) 2. Is the worker engaged in an occupation or business distinct from that of the employer? (If so, this points to independent-contractor status, not employee status.) 3. Is the work usually done under the employer's direction or by a specialist without super- vision? (If the work is usually done under the employer's direction, this would indicate employee status.) 4. Does the employer supply the tools at the place of work? (If so, this would indicate employee status.) 5. For how long is the person employed? (If the person is employed for a long period of time, this would indicate employee status.) 6. What is the method of payment—by time period or at the completion of the job? (Payment by time period, such as once every two weeks or once a month, would indicate employee status.) 7. What degree of skill is required of the worker? (If little skill is required, this may indicate employee status.)

respondeat superior 479

A doctrine under which a principal or an employer is held liable for the wrongful acts committed by agents or employees while acting within the course and scope of their agency or employment.Determining the Scope of Employment The key to determining whether a principal may be liable for the torts of an agent under the doctrine of respondeat superior is whether the torts are committed within the scope of the agency or employment. The factors that courts consider in determining whether a particular act occurred within the course and scope of employment are as follows: 1. Whether the employee's act was authorized by the employer. 2. The time, place, and purpose of the act. 3. Whether the act was one commonly performed by employees on behalf of their employers. 4. The extent to which the employer's interest was advanced by the act. 5. The extent to which the private interests of the employee were involved. 6. Whether the employer furnished the means or instrumentality (such as a truck or a machine) by which the injury was inflicted. 7. Whether the employer had reason to know that the employee would do the act in question and whether the employee had ever done it before. 8. Whether the act involved the commission of a serious crime.

ratification 468

A party's act of accepting or giving legal force to a contract or other obligation entered into by another that previously was not enforceable. when the principal affirms an agent's unauthorized act. When ratification occurs, the principal is bound to the agent's act, and the act is treated as if it had been authorized by the principal from the outset. Ratification can be either express or implied. If the principal does not ratify the contract, the principal is not bound, and the third party's agreement with the agent is viewed as merely an unaccepted offer. Because the third party's agreement is an unaccepted offer, the third party can revoke the offer at any time, without liability, before the principal ratifies the contract. The requirements for ratification can be summarized as follows: 1. The agent must have acted on behalf of an identified principal who subsequently ratifies the action. 2. The principal must know of all material facts involved in the transaction. If a principal ratifies a contract without knowing all of the facts, the principal can rescind (cancel) the contract. 3. The principal must affirm the agent's act in its entirety. 4. The principal must have the legal capacity to authorize the transaction at the time the agent engages in the act and at the time the principal ratifies. The third party must also have the legal capacity to engage in the transaction. 5. The principal's affirmation must occur before the third party withdraws from the transaction. 6. The principal must observe the same formalities when approving the act done by the agent as would have been required to authorize it initially.

disclosed principal 476

A principal whose identity is known to a third party at the time the agent makes a contract with the third party.

undisclosed principal 476

A principal whose identity is unknown by a third party, and that person has no knowledge that the agent is acting for a principal at the time the agent and the third party form a contract.

partially disclosed principal 476

A principal whose identity is unknown by a third party, but the third party knows that the agent is or may be acting for a principal at the time the agent and the third party form a contract.

notary public 472

A public official authorized to attest to the authenticity of signatures.

agency 462

A relationship between two parties in which one party (the agent) agrees to represent or act for the other (the principal). In an agency relationship between two parties, one of the parties, called the agent, agrees to represent or act for the other, called the principal. The principal has the right to control the agent's conduct in matters entrusted to the agent, and the agent must exercise his or her powers "for the benefit of the principal only"

equal dignity rule 472

A rule requiring that an agent's authority be in writing if the contract to be made on behalf of the principal must be in writing. Failure to comply with the equal dignity rule can make a contract voidable at the option of the principal. The law regards the contract at that point as a mere offer. If the principal decides to accept the offer, the agent's authority must be ratified, or affirmed, in writing.

What are some of the ways in which an agency relationship can be terminated?

An agency may be terminated by act of the parties in any of the following ways: 1. Lapse of time. When an agency agreement specifies the time period during which the agency relationship will exist, the agency ends when that period expires. If no definite time is stated, the agency continues for a reasonable time and can be terminated at will by either party. What constitutes a "reasonable time" depends, of course, on the circumstances and the nature of the agency relationship. 2. Purpose achieved. If an agent is employed to accomplish a particular objective, such as the purchase of breeding stock for a cattle rancher, the agency automatically ends after the cattle have been purchased. If more than one agent is employed to accomplish the same purpose, such as the sale of real estate, the first agent to complete the sale automatically terminates the agency relationship for all the others. 3. Occurrence of a specific event. When an agency relationship is to terminate on the happening of a certain event, the agency automatically ends when the event occurs. If Posner appoints Rubik to handle her business affairs while she is away, the agency terminates when Posner returns. 4. Mutual agreement. The parties to an agency can cancel (rescind) their contract by mutually agreeing to terminate the agency relationship, even if it is for a specific duration. 5. Termination by one party. As a general rule, either party can terminate the agency relationship (the act of termination is called revocation if done by the principal and renunciation if done by the agent). Although both parties have the power to terminate the agency, they may not possess the right.

implied warranty of authority

An agent impliedly warrants that he or she has the authority to enter a contract on behalf of the principal. If the third party knows at the time the contract is made that the agent does not have authority—or if the agent expresses to the third party uncertainty as to the extent of her or his authority—then the agent is not personally liable.

apparent authority 474

Authority that is only apparent, not real. An agent's apparent authority arises when the principal causes a third party to believe that the agent has authority, even though she or he does not. If the third party changes his or her position in reliance on the principal's representations, the principal may be estopped (prevented) from denying that the agent had authority.

power of attorney 472

Authorization for another to act as one's agent or attorney in either specified circumstances (special) or in all situations (general).

What is the difference between an employee and an independent contractor?

Employment laws (state and federal) apply only to the employer-employee relationship. Statutes governing Social Security, withholding taxes, workers' compensation, unemployment compensation, workplace safety, employment discrimination are applicable only if employer-employee status exists. These laws do not apply to an independent contractor. Independent contractors are not employees because, by definition, those who hire them have no control over the details of their physical performance. [An independent contractor is] a person who contracts with another to do something for him [or her] but who is not controlled by the other nor subject to the other's right to control with respect to his [or her] physical conduct in the performance of the undertaking. He [or she] may or may not be an agent.

vicarious liability 479

Indirect liability imposed on a supervisory party (such as an employer) for the actions of a subordinate (such as an employee) because of the relationship between the two parties.

independent contractor 463

One who works for, and receives payment from, an employer but whose working conditions and methods are not controlled by the employer. An independent contractor is not an employee but may be an agent.

Copyright Act of 1976

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," and the employer owns the copyright to the work. When an employer hires an independent contractor—a freelance artist, writer, or computer programmer, for example—the independent contractor owns the copyright unless the parties agree in writing that the work is a "work for hire" and the work falls into one of nine specific categories, including audiovisual and other works.

When is a principal liable for the agent's actions with respect to third parties? When is the agent liable?

depends on how the principal is classified and on whether the actions of the agent were authorized or unauthorized. Principals are classified as disclosed, partially disclosed, or undisclosed. A disclosed or partially disclosed principal is liable to a third party for a contract made by an agent who is acting within the scope of her or his authority. If the principal is disclosed, an agent has no contractual liability for the nonperformance of the principal or the third party. If the principal is partially disclosed, in most states the agent is also treated as a party to the contract, and the third party can hold the agent liable for contractual nonperformance. Unauthorized Acts: If an agent has no authority but nevertheless contracts with a third party, the principal cannot be held liable on the contract. It does not matter whether the principal was disclosed, partially disclosed, or undisclosed. The agent is liable, however.

Lundberg v. Church farm, Inc.

did the manager of a horse breeding operation had the authority to bind the farm's owner in a contract guaranteeing breeding rights? ruling: The state appellate court affirmed the lower court's award of $147,000 to the Lundbergs. Because Church allowed circumstances to lead the Lundbergs to believe Bagley had authority, Church was bound by Bagley's actions. (apparent authority)

Coker v. Pershad

summary: a tow truck driver who assaulted the passenger of a vehicle the company had been hired to tow. Ruling: AAA could not be held liable for the actions of Five Star, its independent contractor, because "AAA did not control the manner and means of Five Star's work."