Chapter 27 Agency relationships in business

agency by ratification

a party's act of accepting or giving legal force to a contract or other obligation entered into on his or her behalf by another that previously was not enforceable.

agency by operation of law

the courts may find an agency relationship in the absence of a formal agreement in other situations as well. this can occur in a family setting example: a railroad engineer may contract on behalf of her or his employer for medical care for an injured motorist hit by the train

prinicipal agent relationship

the parties have agreed that the agent will act on behalf and instead of the prinicpal in negotiating and transacting business with third parties

principals duties to the agent ( reimbursement / indemnification)

the principal has the duty to reimburse the agent for any payments. agents cannot recover expenses incurred through their own misconduct or negligence.

disputes involving tort liability

effects the liability for the workers actions -AN EMPLOYER IS USUALLY NOT RESPONSIBLE OR LIABLE FOR THE WORKERS ACTIONS

A durable power of attorney (POA)

enables your elderly parent (called the "principal" in the power of attorney document) to appoint an "agent," such as a trusted relative or friend, to handle specific health, legal and financial responsibilities.

Principal

has the right to control the agents conduct in matters entrusted to the agent

termination of agncy

terminated by an act of the parties or by operation of law -most notify the third party that the agency has been terminated ( apparent authority terminated)

Determining employee status

Determining whether they are an independent contractor or an employee is important because it effects taxes, social security, and unemployment insurance

agent

the agent must exercise his or her powers for the benefit of the principal only

formation of an aagency

- Agency relationships are usually consensual and they come about voluntarily and agreement between the parties. - generally the agreement doesn't need to be in writing and consideration is not required

principals duties to the agent ( cooperation)

- a principal has a duty to cooperate with the agent and to assist the agent in performing her or his duties. the principal must do nothing to prevent that performance. - exclusive agency-the principal grants an agent exclusive territory. cannot compete with the agent or assign or allow another agent to compete.

agents duties to the principal ( notification)

- an agent is required to notify the principal of all matters that come to his or her attention concerning the subject matter of the agency -law assumes that the principal knows any information acquired by the agent that is relevant to the agency.

express authority

- auhtority declared in clear, direct, and definite terms. ( orally or in writing) -equal dignity rule- a rule requiring that an agents authority be in writing if the ontact to be made on behalf of the principal must be in writing -if not the contaat can be voidabl at the option of the principal. -if the principal decides to accept the offer, the agent authority must be ratified or affirmed in writtin

apparent authority

- authority that is only apparent, not real. an agents apparent authority arises when the principal causes a third arty to believe that the agent has authority, even though she or he does not - causes a third party to reasonably believe that an agent has authority to act

agency by agreement

- based on express or implied contract

fiduciary

- heart of agency law -as a noun- a person having a duty created by his or her undertaking to act primarily for anthers benefit in matters connected with the undertaking. as an adjective- a relationship founded on trust and confidence

unauthorized acts

- if an agent has no authority but nevertheless contracts with a third party, the principal cannot be held liable on the contract. in general the agent is liable on the contract.

agents duties to the principal ( performance)

- implied in every contract is the agents agreement to use reasonable diligence and skill in performing the work. - if they dont perform the duties with reasonable care , liability for breach of contract may result -agents sometimes work for no monetary compensation ( gratuitous agent). gratuitous agent cannot be liable for breach of contract but can be liable for tort liability.

agents duties to the principal ( loyalty)

- loyalty is one of the most fundamental duties in a fiduciary relationship. the agent has the duty to act solely for the benefit of the principal and not in the interest of the agent or a third party. - example: cannot represent two principals in the same transaction unless both know of the dual capacity and consent to it -any information or knowledge acquired through the agency relationship is considered confidential.

Criteria used by the IRS ( internal revenue service)

- the degree of control the business exercises over the worker. -Just because a business calls a worker an "Ind. Contractor" doesn't mean IRS will accept that classification. -IRS closely monitors this, as it wants proper collection of Social Security, withholding, and UIC -Penalties for misclassification

implied authority

- to do what is reasonably necesary to carry out his or her express authority and acomplsh the objectives of the agency.

principals duties to the agent ( safe working conditions)

-- the principal has the duty to inspect the working conditions and to warn the employees and agents about any hazards.

Independent Contractor

-Hiring Entity does not pay SS/UIC -Hiring Entity typically not responsible for torts of Independent Contractor -Ind. Contractor Controls own work -Ind. Contractor Retains compensation for work -Ind. Contractor owns Copyright (unless contract states otherwise)

agents duties to the principal ( accounting)

-The agent has the duty to keep and make available to the principal an account of all property and funds received and paid out on behalf of the principal. Includes gifts -The agent has a duty to maintain spate accounts for the principal's funds and for the agent's personal funds.

agents duties to the principal ( obedience)

-agent has a duty to follow all lawful and clearly stated instructions of the principal.

principals duties to the agent ( compensation)

-agent reasonably expects payment -principal has duty to pay the agent for services rendered

liability for contracts

-depends on how the principals are classified 1) disclosed principal 2) partially disclosed principal 3)undisclosed principal - and if the actions were authorized or unauthorized

duties of agents and principals

-each party owes the other the duty to act with the utmost good faith.( fiduciary)

termination by act of the parties

-lapse of time -purpose achieved -occurrence of a specific even -mutual agreement -at the option of one party wrongful termination notice of termination- if the agent authority is in writting usually it must be revoked in writting - principles duty to inform any third partyies who know of the existence of the agency that it has been terminated. -agents apparent authority contiues until the principal notifies the third parties.

ratification

-principal affirms an agent's unauthorized act - the principal is bond to the agents act -i.e. nephew signs unauthorized contract and owner affirms it

requirements ratification

1) Agent must have acted on behalf of identified principal who subsequently ratifies action 2) Principal must know all material facts involved in transaction. If principal ratifies contract without knowing all facts, principal can rescind (cancel) contract 3) Principal must affirm agent's act in its entirety 4) Principal must have legal capacity to authorize transaction at time agent engages in act and at time principal ratifies; third party must also have legal capacity to engage in transaction 5) Principal's affirmation must occur before third party withdraws from transaction. 6) Principal must observe same formalities when approving act done by agent as would have been required to authorize initially.

termination by operation of law

1) Death or insanity 2) Impossibility 3) Changed circumstances 4) Bankruptcy 5) War

how courts determine employee status ( criteria)

1) How much control can the employer exercise over the details of the work? 2) Is the worker engaged in an occupation or business distinct from that of the employer? ( if yes independent contractor) 3) Is the work usually done under the employer's direction or by a specialist without supervision? 4) Does the employer supply the tools at the place of work? 5) For how long is the person employed? 6) What is the method of payment—by time period or at the completion of the job? 7) What degree of skill is required of the worker?

Agency relationship can come about in 4 ways?

1. agreement by the parties 2. ratification 3.estoppel 4. operation of law

principals duties to the agent? (5)

1. compensation 2. reimbursement / indemnification 3. cooperation 4. safe working conditions

liability for agents negligence

1. determining the scope of employment 2. the distinction between a "detour" and a "frolic" -if somebody takes a detour the employer is liable -if somebody frolic on his own and not in any way doing business. the employer is not liable 3. employee travel time -going to and from work is usually considered outside the scope of employment 4. notice of dangerous conditions - the employer is charged with knowledge of any dangerous conditions discovered by an employee and pertinent to the employment situation.

authorized acts

1. liability of principal- if an agent w/in the scope of authority, typically the principal is liable under the contract 2. liability of agent: depends on whether: - disclosed or partially disclosed principal ( liable to a third party for the contract made by the agent) - undisclosed principal ( no contractual liability)

agents duties to the principal (5)

1. performance 2.notification 3.loyalty obedience 5.accounting

liability for torts and crimes

1. principal tortious conduct -a principal conducting an activity through an agent may be liable for harm resulting from the principals own negligence or recklessness. 2. principles authorization of agents tortious conduct -a principle who authorizes an agent to commit a tort may be liable to persons or property injured . an agent acing at the principals direction can be liable as tortfeaser ( one who commits the crime) even if they were unaware of the trotious act 3. liability for agents misrepresentation -the principal is always liable for misrepresentations made within the scope of the agents authority 4. liability for agents negligence - an agent is liable for his or her torts. -a principle may also be liable for harm an agent caused to a third party based on respondeat superior respondeat superior- 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 vicarious liability- indirect liability imposed on a supervisory party ( such as an employer for the actions of a subordinate ( such as an employee) because o the relationship between the two parties. negligence both the agent and principal are liable.

Agency

A relationship between two parties in which one party (the agent) agrees to represent or act for the other ( the principal)

Employer v. Independent Contractor

Employment relationship -Employer pays Social Security taxes -Employer pays Unemployment taxes (UIC) -Employer responsible for torts of employee -Employer owns copyright of employee's work -Employee protected by employment laws -Employee protected against discrimination -Employee receives insurance, vacation pay, etc.

employer versus independent contractor

Independent contractors are not employees because those who hire them have no control over the details of their physical performance. -examples: building contractors, subcontractors, truck drivers who own their own equipment and hire themselves out on a per- job basis

employer to employee relationship

all employees who deal with third parties are deemed to be agents. a salesperson in a department store , is an agent of the principal ( the store owner) and acts on the owners behalf Sales are binding on principal even if made by the agent overlap of agency law and employment law agency law ( broader reach than employment law) based on common law employment law ( based on statutory law)

Respondeat superior

an employer may be liable for the harm that an agent or employee causes to a third party in the course or scope of their employment

independent contractor

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

special attorney

permitting the agent to do specified acts only

general attorney

permitting the agent to transact all business for the principal

power of attorney ( express authority)

power of attorney- authorization for another to act as ones agent or attorney either in specified circumstances ( special ) or in all situations ( general) - usually notary public- a public official authorized to attest to the authenticity of signatures.

disclosed principal

principal whose identity is known by the third party at the time the contract is made by the agent

partially disclosed principal

principal whose identity is not known by the third party

undisclosed principal

principal whose identity is totally unknown by the third party, and the third party has no knowledge that the agent is acting in an agency capacity at the time the contract is made

agency by Estoppel

when a principal causes a third person to believe to that another person is his or her agent, and the third person deals with the supposed agent, the principal is ""estopped to deny" the agency relationship. the principals actions create the appearance of an agency that does not in fact exist for an agency of estoppel to be found, the third person must prove that she or he reasonably believed that an agency relationship existed.

disputes involving employment law

workers may benefit from having employee status. for ex purposes and to be protected under certain employment laws an example is discrimination laws only apply in a employer to employee relationship