B-Law Chapt 16
Agent's Authority (3 of 4) Implied Authority
Agents have the implied authority to do what is reasonably necessary to carry out their express authority and accomplish the objectives of the agency. Actual authority can also be implied by custom or inferred from the position the agent occupies.
Formation of an Agency (3 of 4): Agency by Ratification, Agency by Estoppel
On occasion, a person who is in fact not an agent (or who is an agent acting outside the scope of authority) may make a contract on behalf of another (a principal). If the principal affirms that contract by word or by action, an agency relationship is created by ratification. Ratification involves a question of intent, and intent can be expressed by either words or conduct. When a principal causes a third person to believe that another person is the principal's agent, and the third person deals with the supposed agent, the principal is "estopped to deny" the agency relationship. In such a situation, the principal's actions create the appearance of an agency that does not in fact exist. The third person must prove a reasonable belief that an agency relationship existed. Facts and circumstances must show that an ordinary, prudent person familiar with business practice and custom would have been justified in concluding that the agent had authority. Note that the acts or declarations of a purported agent in and of themselves do not create an agency by estoppel. Rather, it is the deeds or statements of the principal that create an agency by estoppel.
Determining Employee Status (2 of 2) Employee Status & Overtime, Criteria Used by the IRS, Employee Status & "Works for Hire"
According to federal law, employers must pay employees at least one-and-one-half times their regular hourly late for overtime, defined as those hours worked in excess of forty hours per week. Independent contractors are exempt from these overtime rules. The Internal Revenue Service (IRS) has established its own criteria for determining whether a worker is an independent contractor or an employee. The most important factor in this determination is the degree of control the business exercises over the worker. The IRS tends to closely scrutinize a firm's classification of its workers because employers can avoid certain tax liabilities by hiring independent contractors instead of employees. Even when a firm classifies a worker as an independent contractor, the IRS may decide that the worker is actually an employee. If the IRS decides that an employee is misclassified, the employer will be responsible for paying any applicable Social Security, withholding, and unemployment taxes due for that employee. Ordinarily, a person who creates a copyrighted work is the owner of it—unless it is a "work for hire." Under the Copyright Act, any copyrighted work created by an employee within the scope of employment at the request of the employer is a "work for hire." The employer owns the copyright to the work. In contrast, when an employer hires an independent contractor—a freelance artist, writer, or computer programmer, for instance—the independent contractor normally owns the copyright. An exception is made if the parties agree in writing that the work is a "work for hire."
Start Of Note Taker Notes For Chapter 16: Agency relationship are crucial to the business and sometimes the only thing they hire.
Agency Law • employer independent contractor The only time we are liable for our Third-party independent contractor's is if we knew or should have known about something they did. Determining employee status Check out how you are getting paid An employee receives a W-2 A 10-99 is something you give your independent contractor If you make them take a lunch break or wear a uniform that's an indication that you're an employee and not an independent contract An independent contractor is temporary An independent Contractor gets paid in stages were as an employee gets paid weekly, bi weekly or on schedule. Formation of an Agency it can be in the document form if you don't sign it, they can still be your agency. Agency is all about you asking someone else to do something on your behalf. Duties of Agents and Principals Principle is the person hiring someone Agent is acting on their behalf.
Agency Relationships in Business
Agency relationships are crucial to the business world. Indeed, the only way that some business entities—including corporations and limited liability companies—can function is through their agents. Using agents provides clear benefits to principals, but agents can also create liability for their principals. Amelia works as the on-site leasing agent for an apartment complex owned by Premier Properties. As part of her job, she signs leases with tenants and accepts rent on behalf of Premier. She also contracts with companies that do routine maintenance and landscaping at the complex. Is Amelia, as an agent, liable if a maintenance worker is injured while working at the apartment complex? Is Premier (the principal) liable if Amelia makes fraudulent statements to tenants? What happens if Amelia signs a contract for a major renovation of the complex that Premier did not authorize?
Formation of an Agency (1 of 4):
Agency relationships normally are consensual. They come about by voluntary consent and agreement between the parties. Normally, the agreement need not be in writing, and consideration is not required. A person must have contractual capacity to be a principal. Those who cannot legally enter into contracts directly generally are not allowed to do so indirectly through an agent. (In some states, however, a minor can be a principal.) Any person can be an agent regardless of whether that person has the capacity to enter a contract (including minors). An agency relationship can be created for any legal purpose. An agency relationship that is created for an illegal purpose or that is contrary to public policy is unenforceable. Similarly, it is also illegal for physicians and other licensed professionals to employ unlicensed agents to perform professional actions. Generally, an agency relationship can arise in four ways: by agreement of the parties, by ratification, by estoppel, or by operation of law.
Duties Of The Principle, Principal's Duties to the Agent (1 of 4)
Compensation: In general, when a principal requests services from an agent, the agent reasonably expects payment. The principal therefore has a duty to pay the agent for services rendered. For instance, when an accountant or an attorney is asked to act as an agent, an agreement to compensate the agent for service is implied. The principal also has a duty to pay that compensation in a timely manner. Unless the agency is gratuitous and the agent does not act in exchange for payment, the principal must pay the agreed-on value for the agent's services. If no amount has been expressly agreed on, the principal owes the agent the customary compensation for such services. Cooperation: A principal has a duty to cooperate with the agent and to assist the agent in performing agency duties. The principal must do nothing to prevent that performance. When a principal grants an agent an exclusive territory, for instance, the principal creates an exclusive agency and cannot compete with the agent or assign or allow another agent to compete. A principal who does so violates the exclusive agency and can be held liable for the agent's lost profits. Safe Working Conditions: A principal is required to provide safe working premises, equipment, and conditions for all agents and employees. The principal has a duty to inspect the working conditions and to warn agents and employees about any hazards. When the agent is an employee, the employer's liability is frequently covered by state workers' compensation insurance, and federal and state statutes often require the employer to meet certain safety standards.
Determining Employee Status (1 of 2) Background: The courts are frequently asked to determine whether a particular worker is an employee or an independent contractor. How a court decides this issue can have a significant effect on the rights and liabilities of the parties. For instance, employers are required to pay certain taxes, such as Social Security and unemployment insurance taxes, for employees but not for independent contractors. Criteria Used by the Courts: Sometimes, workers may benefit from having employee status—for tax purposes and to be protected under certain employment laws, for instance. As mentioned earlier, federal statutes governing employment discrimination apply only when an employer-employee relationship exists. Protection under antidiscrimination statutes provides a significant incentive for workers to claim that they are employees rather than independent contractors.
Determining whether a worker has the status of an employee or an independent contractor, the courts often consider the following: 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 indicates employee status. The employer's degree of control 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.) 3. Is the work usually done under the employer's direction or by a specialist without supervision? (If the work is usually done under the employer's direction, this indicates employee status.) 4. Does the employer supply the tools at the place of work? (If so, this indicates employee status.) 5. For how long is the person employed? (If the person is employed for a long, continuous period, this indicates employee status.) 6. What is the method of payment—by time period or at the completion of the job? (Regular payment by time period, such as once a month, indicates employee status.) 7. What degree of skill is required of the worker? (Independent contractors are more likely to be highly skilled or to have unique skills than to be unskilled, so these types of skills may indicate independent-contractor status.)
Agent's Authority (1 of 4): An agent's authority to act can be either actual (express or implied) or apparent. If an agent contracts outside the scope of the agent's authority, the principal may still become liable by ratifying the contract. Express Authority (1 of 2) Express authority is actual authority declared in clear, direct, and definite terms. Express authority can be given orally or in writing.
Equal Dignity Rule: In most states, the equal dignity rule requires that if the contract being executed is or must be in writing, then the agent's authority must also 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. Modern business practice allows several exceptions to the equal dignity rule. An executive officer of a corporation normally is not required to obtain written authority from the corporation to conduct ordinary business transactions. The equal dignity rule also does not apply when an agent acts in the presence of a principal or when the agent's act of signing is merely a formality. Thus, if the principal negotiates a contract but is called out of town the day it is to be signed and orally authorizes an assistant to act as agent to sign the contract, the oral authorization is normally sufficient. Power Of Attorney: Giving an agent a power of attorney confers express authority on the agent. (An agent who holds the power of attorney is called an attorney-in-fact for the principal. The holder does not have to be an attorney-at-law (and often is not).) The power of attorney is a written document that is usually notarized. (A document is notarized when a notary public—an individual authorized by the state to attest to the authenticity of signatures—signs and dates the document and imprints it with a seal of authority.) Most states have statutory provisions for creating a power of attorney.
Principal's Duties to the Agent (2 of 4) Spotlight on Taser International: Case 16.1: Taser International, Inc. v. Ward 2010 (example on compensation) (1 of 2)
Facts: Taser International, Inc., develops and makes electronic control devices—stun guns—as well as accessories for them, including a personal video and audio recording device called the TASER CAM. Steve Ward was Taser's vice president of marketing when he began to explore the possibility of developing and marketing devices of his own design, including a clip-on camera. Ward talked to patent attorneys and a product development company and completed most of a business plan. After he resigned from Taser, Ward formed Vievu, LLC, to market his clip-on camera. Ten months later, Taser announced the AXON, a product that provides an audio-video record of an incident from the visual perspective of the person involved. Taser then filed a suit in an Arizona state court against Ward, alleging that he had breached his duty of loyalty to Taser. The court granted Taser's motion for a summary judgment in the employer's favor. Ward appealed. Issue: Can an employee, while working at a company, research and develop a device to use in competition with the company's products? Decision: No. A state intermediate appellate court agreed with Taser that an employee may not actively compete with his employer before his employment is terminated. But the parties disagreed as to the extent of Ward's pre-termination efforts, creating a genuine issue of material fact that could not be resolved on a motion for summary judgment. The appellate court thus reversed the lower court's decision in Taser's favor and remanded the case for further proceedings.
Why Does Agency Relationships in Business Matter to Me? "[It] is a universal principle in the law of agency, that the powers of the agent are to be exercised for the benefit of the principal only, and not of the agent or of third parties." Joseph Story 1779-1845 (Associate justice of the United States Supreme Court, 1811-1844)
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. Agents must exercise their powers "for the benefit of the principal only," as Justice Joseph Story indicated in the chapter-opening quotation.
Agency Law (3 of 3) (Employer-Independent Contractor Relationships)
Independent contractors are not employees because, by definition, those who hire them have no control over the details of their physical performance. Section 2 of the Restatement (Third) of Agency defines an independent contractor as follows: [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. [Emphasis added.] Examples of Independent Contractors: Building contractors. subcontractors. Truck drivers who own their equipment and hire themselves out on a per-job basis. The relationship between a person or firm and an independent contractor may or may not involve an agency relationship. For Example: A homeowner who hires a real estate broker to sell the property has contracted with an independent contractor (the broker). The homeowner also has established an agency relationship with the broker for the specific purpose of selling the property. Insurance agents also operate in this manner, as they are both independent contractors and the agents of the insurance companies for which they sell policies. (Note that an insurance broker, in contrast, normally is an agent of the person obtaining insurance and not of the insurance company.)
Principals duties to the agent Reimbursement and indemnification Indemnification part is more of liability indemnification is something you weren't anticipating but was held accountable Reimbursement is like a pay back for something you had to pay for. Agents Authority • Equal dignity rule If whatever they are doing for me has to be in writing, whatever our relationship is needs to be in writing as well. Power of attorney- has to always be in writing power of attorney- you can hire someone to make decisions for you If you're not their or going to be gone somewhere It can be specified or general.
Liability for going Contracts (Liability in agency Relationship) Liability means responsibility Disclosed principal (name on the Contract undisclosed) Undisclosed principal (you can hire an agent to remain anonymous) Unauthorized acts - if the agent has no authority on certain contracts, the principal not liable for the contract Put a waiver or you're going to be responsible Liability for Torts & Crimes If the agent does something to harm someone the principal is liable Employer is responsible for the employee's actions. Termination of an Agency If you don't want your agent working for you, you would terminate the agent
Formation of an Agency (2 of 4): Agency by Agreement, Spotlight Case Example 16.4 Laurel Creek Health Care Center v. Bishop, 2010
Most agency relationships are based on an express or implied agreement that the agent will act for the principal and that the principal agrees to have the agent so act. An agency agreement can take the form of an express written contract or be created by an oral agreement, such as when a person hires a neighbor to mow his lawn on a regular basis. An agency agreement can also be implied by conduct. Spotlight Case: Gilbert Bishop was admitted to Laurel Creek Health Care Center suffering from various physical ailments. During an examination, Bishop told Laurel Creek staff that he could not use his hands well enough to write or hold a pencil, but he was otherwise found to be mentally competent. Bishop's sister offered to sign the admissions forms, but it was Laurel Creek's policy to have the patient's spouse sign the admissions papers if the patient was unable to do so. Bishop's sister then brought his wife, Anna, to the hospital to sign the paperwork, which included a mandatory arbitration clause. Later, when the family filed a lawsuit against Laurel Creek, the nursing home sought to enforce the arbitration clause. Ultimately, a state appellate court held that Bishop was bound by the contract and the arbitration clause his wife had signed. Bishop's conduct had indicated that he was giving his wife authority to act as his agent in signing the admissions papers.
Agency Law (2 of 3) (Employer-Employee Relationships)
Normally, all employees who deal with third parties are deemed to be agents. Because employees who deal with third parties are generally deemed to be agents of their employers, agency law and employment law overlap considerably. Agency relationships, however, can exist outside an employer-employee relationship, so agency law has a broader reach than employment law. Additionally, agency law is based on the common law, whereas much employment law is statutory law. Note that employment laws (state and federal) apply only to the employer-employee relationship. Statutes governing Social Security, withholding taxes, workers' compensation, unemployment compensation, workplace safety, and employment discrimination usually are applicable only if employer-employee status exists.
Agent's Duties to the Principal (2 of 3)
Notification: An agent is required to notify the principal of all matters that come to the agent's attention concerning the subject matter of the agency. This is the duty of notification, or the duty to inform. Generally, the law assumes that the principal knows of any information acquired by the agent that is relevant to the agency—regardless of whether the agent actually passes on this information to the principal. It is a basic tenet of agency law that notice to the agent is notice to the principal. Loyalty: is one of the most fundamental duties in a fiduciary relationship. Basically, 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. For instance, an agent cannot represent two principals in the same transaction unless both know of the dual capacity and consent to it. An agent's disclosure of confidential information could constitute the business tort of misappropriation of trade secrets. The duty of loyalty also means that any information or knowledge acquired through the agency relationship is considered confidential. It would be a breach of loyalty to disclose such information either during the agency relationship or after its termination. Typical examples of confidential information are trade secrets and customer lists compiled by the principal. In short, the agent's loyalty must be undivided. The agent's actions must be strictly for the benefit of the principal and must not result in any secret profit for the agent.
Agent's Duties to the Principal (3 of 3)
Obedience: When acting on behalf of a principal, an agent has a duty to follow all lawful and clearly stated instructions of the principal. Any deviation from such instructions is a violation of this duty. During emergency situations, however, when the principal cannot 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. Accounting: Unless an agent and a principal agree otherwise, 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. This includes gifts from third parties in connection with the agency. The agent has a duty to maintain separate accounts for the principal's funds and for the agent's personal funds, and the agent must not intermingle these accounts.
Case Example 16.2 Estate of Kauffman v. Rochester Institute of Technology 2019 Example of Employee Status and "Works for Hire"
Over the course of fifty-five years, Stanley Kauffman contributed numerous film reviews and other articles to The New Republic (TNR) magazine. At no time was Kauffman an employee of TNR. After Kauffman died in 2014, forty-four of his articles written for TNR in 1999 appeared without permission in an anthology. Kauffman's estate sued for copyright infringement. The publisher of the anthology produced a letter, signed in 2004 by Kauffman and TNR's literary editor, stating that "all articles [Kauffman has] written for The New Republic have been 'works for hire'" and therefore belonged to TNR. A federal appellate court ruled that Kauffman, as an independent contractor, retained ownership of the forty-four articles. The legislative intent behind the "work for hire" writing requirement was to make this area of the law more predictable by requiring tangible evidence of the parties' objectives at the time of the agreement. This intent would be frustrated, ruled the court, if parties could enter into a work-for-hire agreement years after the work in question was created.
Agent's Authority (4 of 4) Apparent Authority Actual authority (express or implied) arises from what the principal manifests to the agent. An agent has apparent authority when the principal, by either words or actions, causes a third party to reasonably believe that an agent has authority to act, even though the agent has no express or implied authority.
Pattern of Conduct Apparent authority usually comes into existence through a principal's pattern of conduct over time. Apparent Authority and Estoppel A court can apply the doctrine of agency by estoppel, introduced earlier in the chapter, when a principal has given a third party reason to believe that an agent has authority to act. If the third party honestly relies on the principal's representations to the third party's detriment, the principal may be estopped (prevented) from denying that the agent had apparent authority.
Duties of Agents and Principals: Once the principal-agent relationship has been created, both parties have duties that govern their conduct. Because an agency relationship is fiduciary (one of trust), each party owes the other the duty to act with the utmost good faith. In general, for every duty of the principal, the agent has a corresponding right, and vice versa. Agent's Duties to the Principal (1 of 3)
Performance: An implied condition in every agency contract is the agent's agreement to use reasonable diligence and skill in performing the work. When an agent fails to do so, liability for breach of contract may result. The degree of skill or care required of an agent is usually that expected of a reasonable person under similar circumstances. Generally, this is interpreted to mean ordinary care. If an agent has claimed to possess special skill, however, failure to exercise that degree of skill constitutes a breach of the agent's duty. Not all agency relationships are based on contract. In some situations, an agent acts gratuitously—that is, not for monetary compensation. A gratuitous agent cannot be liable for breach of contract, because there is no contract, but it can be subject to tort liability. Once a gratuitous agent has begun to act in an agency capacity, the agent has the duty to continue to perform in that capacity. In addition, a gratuitous agent must perform in an acceptable manner and is subject to the same standards of care and duty to perform as other agents.
Agent's Authority (2 of 4): An agent's authority to act can be either actual (express or implied) or apparent. If an agent contracts outside the scope of the agent's authority, the principal may still become liable by ratifying the contract. Express Authority (2 of 2) Express authority is actual authority declared in clear, direct, and definite terms. Express authority can be given orally or in writing.
Power Of Attorney (Final): A power of attorney can be special (permitting the agent to do specified acts only), or it can be general (permitting the agent to transact all business for the principal). Because a general power of attorney grants extensive authority to an agent to act on behalf of the principal in many ways, it should be used with great caution. Ordinarily, a power of attorney terminates on the incapacity or death of the person giving the power. A durable power of attorney, however, continues to be effective despite the principal's incapacity. An elderly person, for example, might grant a durable power of attorney to provide for the handling of property and investments or specific health care needs should the elderly person become incompetent.
Principal's Duties to the Agent (3 of 4) Spotlight on Taser International: Case 16.1: Taser International, Inc. v. Ward 2010 (example on compensation) (2 of 2)
Reason: An agent has a duty to act with good faith and loyalty for the furtherance of the interests of his principal in all matters concerning or affecting the subject of his agency. One aspect of this broad principle is that employees are precluded from actively competing with their employers during the period of employment. Although an employee may not actively compete prior to termination, the court noted that an employee can take certain actions to prepare for later competition that are not otherwise wrongful. Ward argued that his pre-termination activities did not constitute active competition but were merely lawful preparation for a future business venture. The appellate court concluded that this dispute was one that needed to be resolved by a trial.
Principal's Duties to the Agent (4 of 4)
Reimbursement & Indemnification: Whenever an agent disburses funds at the request of the principal, the principal has the duty to reimburse the agent. The principal must also reimburse the agent for any necessary expenses the agent incurs in the reasonable performance of agency duties. Agents cannot recover for expenses incurred through their own misconduct or negligence, however. Subject to the terms of the agency agreement, the principal has the duty to compensate, or indemnify, an agent for liabilities incurred because of authorized acts and transactions. For instance, if the principal fails to perform a contract formed by the agent with a third party and the third party then sues the agent, the principal must compensate the agent for any costs incurred in defending against the lawsuit. Additionally, the principal must indemnify the agent for the value of benefits that the agent confers on the principal. The amount of indemnification is usually specified in the agency contract. If it is not, the courts will look to the nature of the benefits and the type of expenses to determine the amount. Note that this rule applies to acts by gratuitous agents as well. Suppose that a person finds a dog that becomes sick, takes the dog to a veterinarian, and pays for the veterinarian's services. The finder is a gratuitous agent and is entitled to be reimbursed by the dog's owner for those costs.
Agency Law (1 of 3) (The Restatement (Third) of Agency is an authoritative summary of the law of agency and is often referred to by judges and other legal professionals.)
Section 1(1) of the Restatement (Third) of Agency defines agency as "the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act in his [or her] behalf and subject to his [or her] control, and consent by the other so to act." In other words, 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. Heart of agency law is fiduciary. Examples of agency relationships: employer & employee. Employers & independent contractors. 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, who's hired to perform special tasks or services.
Formation of an Agency (4 of 4): 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 family relationships, such as when one spouse purchases certain necessaries and charges them to the other spouse's account. The courts will often rule that a spouse is liable for necessaries purchased by the other spouse because of either a social policy or a legal duty to supply necessaries to family members. Agency by operation of law may also occur in emergency situations. If the agent is unable to contact the principal and failure to act would cause the principal substantial loss, the agent may take steps beyond the scope of agency authority. For instance, a railroad engineer may contract on behalf of the railroad for medical care for an injured motorist hit by the train.
Chapt 16 Vocab (1 of 2) Terms 1-7
agency-A relationship between two parties in which one party (the agent) agrees to represent or act for the other (the principal). agency coupled with an interest-An agency, created for the benefit of the agent, in which the agent has some legal right (interest) in the property that is the subject of the agency. apparent authority-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 the agent does not. disclosed principal-A principal whose identity is known to a third party at the time the agent makes a contract with the third party. equal dignity rule-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. fiduciary-As a noun, a person who, having undertaken a certain enterprise on behalf of another person, has a duty to act for the other person's benefit in all matters related to that enterprise. As an adjective, a relationship founded on trust and confidence. 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.
Chapt 16 Vocab (2 of 2) Terms 7-14
notary public-A public official authorized to attest to the authenticity of signatures. partially disclosed principal-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. power of attorney-Authorization for another to act as one's agent or attorney either in specified circumstances (special) or in all situations (general). ratification-The acceptance or confirmation of an act or agreement that gives legal force to an obligation that previously was not enforceable. 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 agency or employment. undisclosed principal-A principal whose identity is unknown by a third party, and the third party has no knowledge that the agent is acting for a principal at the time the agent and the third party form a contract. vicarious liability-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.
