Chapter 18

Contractual Liability to Third Parties Disclosed Partially

-If the agent has actual or apparent authority, the principal generally will be held liable on contracts that the agent entered into with a third party. -Whether the principal is disclosed, partially disclosed, or undisclosed determines the principal's and agent's contractual liability. Disclosed principal. If the third party knows the agent is acting for a principal and the identity of the principal, an agent who acts within actual or apparent authority ordinarily is not liable to the third party. Partially disclosed principal. The third party knows the agent is acting for a principal but does not know the identity of the principal.

Additonal fica rules

-Must hold fica from employee pay check -Contribtuions made by the employee are not tax deductible -Self employed people must report there income and pay fica

Agency by Estoppel

1.This condition may arise if -A person presents himself or herself as an agent, -The alleged principal knows (or should know) of the representation and fails to make an effective denial, and -A third party detrimentally relies on the existence of this presumed agency. 2.The principal is prevented from asserting the nonexistence of an agency after a third party has taken some action in reasonable reliance on its existence.

Agent's Tort Liability to Third Parties

A person is liable for his or her torts (e.g., negligence) even when acting as an agent of another.

Criminal Liability

A principal is liable for his or her own criminal conduct. A principal is generally not liable for a crime committed by the agent but may be held criminally liable for a crime of the agent if -The principal approves or directs the crime, -The principal participates or assists in the crime, or -Violation of a regulatory statute constituted the crime.

Actual Authority

Actual authority is conveyed to the agent by the principal's words or conduct. The agent receives the right and power to bind the principal to third parties. 1-Express actual authority results when the agent has been expressly told either by written or spoken words that (s)he may act on behalf of the principal. 2-Implied actual authority is incidental authority the agent has inferred from words or conduct by the principal. -It may be inferred from custom and usage of the business or by virtue of the agent's position relative to the purposes of the agency. -Express authority to achieve a result necessarily implies the authority to use reasonable means to accomplish the expressly authorized action.

Agency Coupled with an Interest

An agency coupled with an interest may be terminated 1.According to the terms of the agreement, 2.By surrender of the authority by the agent, or 3.Upon destruction of the subject matter of the agency. An agency coupled with an interest generally is not terminated by 1.Revocation by the principal, 2.Death of the principal, or 3.Loss of legal capacity of the principal.

Termination by the Parties

An agency is based on the mutual consent of the parties. -Thus, it may be terminated at will by either party or both even if the termination breaches a contract between principal and agent. -A principal may revoke a grant of authority at any time. -Revocation may be implicit or explicit. -An agent may renounce the grant of authority by giving notice to the principal. -If termination breaches a contract, the nonbreaching party has remedies provided by contract law. -An agency for a specific period terminates when the period ends.

Agent

An agent must agree to act on the principal's behalf as a fiduciary. An agency must have a legal purpose. Agencies formed for an illegal purpose are terminated by operation of law.

Direct Liability

Direct liability results from the principal's negligent or reckless action or failure to act in conducting business through agents. Examples include Negligently selecting an agent, Failing to give proper orders or make proper regulations, Failing to employ the proper person or machinery given risk of harm, Failing to supervise the agent, or Allowing wrongful conduct.

Futa Percentage

Futa = 6 precent of the first 7000 paid to each employee 1. Employee does not pay any Futa 2. Employer Pay futa tax Credit is given against futa for those who pay state unemployment taxes -Cant exceed 5.4 percent of first 7000

Premium costs

The cost of the employee's premium contribution should not exceed 9.56% of his or her household income. The affordability requirement, however, is also met if the monthly premium contribution is not greater than 9.56% of any of the following: -The annual federal poverty level for a single person, divided by 12 -The employee's monthly income based on rate of pay and monthly hours worked -The annual income reported in Form W-2, Box 1, divided by 12

Essential care

The insurance must cover the following medical services: Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance use disorder services, including behavioral health treatment Prescription drugs Rehabilitative and habilitative services and devices Laboratory services Preventive and wellness services and chronic disease management Pediatric services, including oral and vision care

Agent's Duties to the Principal

Types of Duties The principal and agent often enter into a contract stating the terms of their relationship, including specific duties. The agency relationship itself, however, is independent of any contract between the parties. This relationship is subject to the following five duties and obligations set forth under agency law: -Loyalty -Care -Notification -Obedience -Accounting

secound restatement Third restatment

Under the Second Restatement, an undisclosed principal cannot ratify. Under the Third Restatement, an undisclosed principal may ratify if the unauthorized act was done on that person's behalf. -An actual principal-agent relationship is not necessary. -The person who performed the unauthorized act need not have purported to be an agent of another person.

Employee

Weather an agent is an employee depends on -The parties' agreement about the degree of control by the principal; -The extent of supervision by the principal; -Whether the agent provides services exclusively for the principal; -The relationship of the nature of the business and the work of the agent; -The skills and specialization required for the task; -How the agent is paid, whether at the end of all work or periodically per unit of time; -Which party provides the agent's place of work, tools, and supplies; and -The duration of the relationship.

Subagents Powers if authorized

agent does not have the power to delegate authority or to appoint a subagent unless the principal intends to grant it. -But delegation that is not expressly authorized may be appropriate in an emergency. Evidence that the principal intends that the agent be permitted to delegate authority may include -An express authorization, -The character of the business, -Usage or trade, or -Prior conduct of the principal and agent.

Employer Mandate

employer with at least 50 FTEs must pay a penalty if it does not provide affordable essential coverage. If any employee receives a tax credit to buy coverage, the annual penalty for choosing not to provide coverage is determined as follows: 2320 x (total FTE- first 30 FTE) An employer that offers coverage to FTEs still may be penalized. If the coverage (a) is unaffordable or (b) does not provide the minimum essential care or have the minimum actuarial value, the annual penalty is the lesser of the following: 2320 x (total FTE- first 30 FTE) 3,480 x (FTE who recieved Tax Credit) -. An IRS rule makes tax credits under the ACA available through a federal exchange in a state that has declined to establish a state exchange.

Net investment tax

3.8 percent tax imposed on Lesser of 1. NII or 2. The excess of modified agi over the applicable thresh hold

Emergency Authority

A court may grant emergency authority when prompt action is needed. An agent's delegated authority may be extended if the public interest is served.

Grandfathered plans

If an employer plan was in effect when the ACA was enacted on March 23, 2010, many of its elements may continue if, for example, the employer does not 1.Reduce benefits, 2.Change insurers, or 3.Materially increase co-payments or deductibles.

Agent's Contractual Liability to Third Parties

The agent may assume liability on any contract by Making the contract in his or her name, Being a party to the contract with the principal, or Guaranteeing the principal's performance. The agent is liable if the principal is undisclosed or partially disclosed.

Certain conditions terminate the power of ratification.

The third party's withdrawal, death, or loss of capacity; Changes in circumstances; or Failure to ratify within a reasonable time.

Wages

-All forms of considerations paid to employees Ecludes 1. Payments for moving expenses to the extnt that its is reasonable to believe a corresponding deduction is allowed 2. Medicare reimbursment under a self insured plan 3. Investment income is not subject to FICa tax except for NII

Termination of Apparent Authority

-Apparent authority of the agent continues to exist until the third party receives notice of the termination if the termination is by an act of the parties. 1.Actual notice (an effective notification) to the third party is required if the third party has already dealt with the agent. 2.Constructive notice generally suffices for other third parties. -The requirement is satisfied by a message posted in a trade journal or in a paper of general circulation where the agent operated.

Benefits

-Are on a state by state basis To collect ordinarily must 1. Have been employed and laid off with out fault 2. Have fled a claim for the benefit and 3. Be able, available, and willing to work

Independent contractor

1-The principal generally is not liable for the torts of the independent contractor. 2-However, tort liability may result from a principal's own negligence, e.g., in the selection of the contractor. 3-The principal also may be subject to strict liability. -This liability of a principal is generally not vicarious. -Some duties cannot be delegated as a matter of law or public policy, for example, an employer's duty to provide employees with a safe workplace. -Persons engaging in ultrahazardous activity have strict liability. Contracting out ultrahazardous activities is not a shield against liability. The principal is liable for representations made on behalf of the principal by the independent contractor that are actually or apparently authorized or ratified by the principal.

Apparent Authority

1.Apparent authority results from the principal's words, conduct, or other facts and circumstances that would induce a reasonable person justifiably to conclude that the agent has actual authority. -Apparent authority gives the agent the power, but not necessarily the right, to bind the principal to third parties. -A third party's rights against the principal are not affected by secret limits placed on the agent's actual authority by the principal. -The agent is liable to the principal for exceeding actual authority but not to the third party. 2.Apparent authority is not based on the words or actions of the agent, and it cannot exist if the principal is undisclosed (the third party is unaware of any agency). -It is based on justifiable reliance on the conduct of the principal. -The agent has no apparent authority if the third party knows the agent lacks actual authority. 3.Apparent authority may continue after termination of the agency until the third party receives notice. -Under the Second Restatement, apparent authority ends when the agency is automatically terminated by operation of law. -Under the Third Restatement, apparent authority ends if it is unreasonable for third parties who deal with the agent to believe that (s)he has actual authority.

Agent's Breach of Duty and Liability to Principal

1.The agent is liable to the principal for losses resulting from the agent's breach of a duty. 2.Transactions between the principal and the agent may be voidable by the principal. 3.A constructive trust in favor of the principal is imposed on profits obtained by the agent as a result of breaching the fiduciary duty. -The agent, in effect, holds the profits in trust for the benefit of the principal. -The principal recovers the profits by suing the agent. 4.If the principal is sued for the agent's negligence or the agent ignores the principal's instructions, the principal has a right to indemnification from the agent.

Tort Liability

A principal may be liable in tort because of a personal act or the agent's wrongful act that results in harm to a third party. The principal's liability is greater when the agent is an employee rather than an independent contractor.

Legal Capacity

A principal must have legal capacity to perform an act assigned to the agent. Legal incapacity applies to individuals the law considers incapable of incurring any binding contractual obligations. A contract entered into with a third party by an agent on behalf of an incompetent principal is voidable by the principal. An incompetent agent, such as a minor, can bind a competent principal because the agent's act is deemed to be the act of the principal.

Affordability

Affordability is based on the following factors: 1.The lowest applicable wage paid by the employer 2.The employer's lowest-cost eligible plan 3.Employee-only coverage (excluding family or any other tier of coverage) 4.The employee's premium contribution

Overview

Agency describes an express or implied consensual relationship whereby two parties mutually agree that one party (the "agent") will act on behalf of the other party (the "principal") in dealing with third parties. -The agent has authority to act on behalf of the principal and is subject to the principal's control. -The principal must intend for the agent to act on the principal's behalf. -Courts apply an objective standard, the "reasonable person standard," in determining whether parties have consented to an agency relationship.

Agents liability

An agent has no liability to the third party after ratification. -The rights, duties, and remedies of the parties are the same as if the agent had actual authority. -If a principal does not ratify, the agent also is liable to the third party for breach of the implied warranty of authority.

Types of Agents General Universal Special Del Crede

General agents are authorized to perform all acts relevant to the purpose for which they are engaged. Universal agents are authorized to conduct all of the principal's business that the principal may legally delegate. Special agents are engaged for a particular transaction and are authorized to perform specific activities subject to specific instructions. A del credere agent acts not only as a salesperson or broker for the principal, but also as a guarantor of credit extended to the buyer. The del credere agent guarantees a third party's obligation to the principal. -Because the primary purpose of the agent's guarantee is for the agent's benefit (to close the deal), it is not subject to the statute of frauds and, unlike other suretyship promises, it need not be in writing.

Duty of Accounting

The agent must -Account for money or property received or expended on behalf of the principal and -Not commingle his or her money or property with that of the principal.

Duty of Obedience

The agent must follow lawful, explicit instructions of the principal within the bounds of authority conferred. If the instructions are not clear, the agent must act in good faith and in a reasonable manner considering the circumstances. If an emergency arises and the agent cannot reach the principal, the agent may deviate from instructions to the extent that is appropriate.

Forming an Agency

The general rule is that conduct, by itself, is sufficient to form an agency relationship. An agency relationship can be formed by actions even if the parties do not verbally or in writing express their consent. However, an agency must be in writing to comply with the statute of frauds if performance under the contract cannot be fulfilled within 1 year of contract formation. Some states require the agency to be in writing if the contract involves a sale of land. Some states apply the equal-dignities rule, which requires that the agency relationship be in writing if the agent is entering contractual transactions with third parties that must be in writing to be enforceable under the statute of frauds.

Termination by Operation of Law Secound restatment

Under the Second Restatement, termination by operation of law terminates actual or apparent authority in the following cases: 1.Death or incapacity of either the principal or the agent. 2.The illegality of duties to be performed by an agent. 3.The principal's filing of a petition in bankruptcy. 4.Destruction of the subject matter of the agency that makes fulfilling the purpose of the agency impossible. 5.A change in circumstances (a change in business conditions or the value of a property) so significant that a reasonable person would infer that actual authority is terminated. -The agency might be revived upon a return to the initial circumstances. -If the agent knows that the principal is aware of the change and the principal does not give new directions, the agency may not terminate. -If the agent has reasonable doubts as to how or whether the principal wants the agent to act, the agent may act reasonably. That is, the agency is not terminated.

Employee Vs Independent contractor

An agent is either an employee or an independent contractor. -A principal employer controls or has the right to control the manner and means of an employee's work. -An employer does not control or have the right to control the manner and means of an independent contractor's work. NOTE: The Third Restatement does not use the term "independent contractor."

Coverage

An employer offering coverage to full-time employees must include all employees who are regularly scheduled to work an average of 30 or more hours per week. The plan's waiting period for coverage cannot exceed 90 days. The employer also must determine the number of FTEs for Current employees who work variable hours and New employees whose hours are variable or have not yet been specified.

Fica

Employers must contribute based on the employees pay Must file quarterly returns and deposit appropriate amounts on a monthly or semi weekly basis with an authorized depository institution Failure to depose may result in penalties Penalties are also imposed if you file a return with out the tax payer id number

General power of Attorney Special power of attorney Durable power of attorney

-A power of attorney is a formal written appointment of an agent signed by the principal. -But it need not be for a definite period or signed by the agent. A general power of attorney authorizes the agent to do anything that may be necessary to transact the principal's legal affairs. A special power of attorney grants authority for only specific transactions. General and special powers of attorney ordinarily terminate upon incapacity of the principal. But any power of attorney may be exercised in good faith and with no knowledge of the principal's incapacity. A durable power of attorney is effective during a period of incapacity of the principal. -This power of attorney must be expressly conferred in writing before the principal becomes incapacitated. All powers of attorney ordinarily terminate upon the death of the principal. But any power of attorney may be exercised in good faith and with no knowledge of the principal's death.

Ratification

-Ratification is a voluntary election to treat as authorized an unauthorized act or contract purportedly done or entered into on the principal's behalf. -Notice to a third party is not needed for ratification. -Ratification is unnecessary if the agent's act is authorized. -The principal must be aware of all material facts when assenting to the agent's act. -The agent need not have performed his or her fiduciary duty or duty of due care. -Ratification may be either express or implied. It may be inferred from the principal's words or conduct that reasonably indicates intent to ratify. -Ratification is all-or-nothing. The principal may not ratify part of a transaction. -Ratification is irrevocable. -Ratification relates back to the time of the act. The act is treated as if it had been authorized at the time it was performed

Duties to the Agent -- Occupational

-The principal has a duty not to impair the agent's performance. -The principal owes a general duty of care to the agent because a principal-agent relationship exists. -The principal has a duty to disclose known risks involved in the task for which the agent is engaged and of which the agent is unaware. -The principal has a duty to provide an agent who is an employee with reasonably safe working conditions. -The principal does not owe a fiduciary duty to the agent.

FUTA

-financial support for unemployed workers -Futa is imposed on employers who 1. Employ the person for some portion of a day in each of the 20 weeks in the current or proceeding calander year 2. Pay actually or constructively 1,500 or more in wages in any calander quater of the current or proceeding tax year

Employer

-pay 6.2 of first 128400 -1.45 percent of all wages -Employer generally withholds the same amounts -Employer holds an additonal .9 percent on wages over 250000 or 125000 MFS

may refuse benefit too

1. Have valuntarily quit work with out good cause 2. Have been discharged for good cause 3. Refuse to actively seek or accept work

Duties to the Agent -- Financial

1.If a contract exists between the agent and the principal, the principal has a duty to comply with the contractual terms. -For example, if the duty to compensate is not expressly excluded, the principal should compensate the agent for services. This duty includes keeping accurate records of payments made to the agent. -If compensation is not stated expressly, the reasonable value of the agent's services is implied. -But if the agent agrees to act gratuitously, (s)he is not owed a duty of compensation. 2. Whether the agency is gratuitous or contractual, the principal has a duty to reimburse the agent for authorized payments made or expenses incurred by the agent on behalf of the principal. 3.Regardless of whether the agency is gratuitous or contractual, the principal has a duty to indemnify the agent. The indemnity is for losses suffered or expenses incurred while the agent acted -As instructed in a legal transaction or -In a transaction that the agent did not know to be wrongful. The principal does not owe a fiduciary duty to the agent.

Duty of Loyalty

1.The agency is a fiduciary relationship that imposes a duty of loyalty on the agent to act solely in the principal's interest with utmost loyalty and in good faith. 2.The agent's duty of loyalty encompasses specific duties of selflessness that serve to protect the principal's economic interest. 3.The agent is obligated to refrain from Competing with the principal; -Purchasing goods from the agent for the principal without the principal's knowledge or permission; -Accepting secret profits or transactions entered into on behalf of the principal; -Representing the principal, if doing so creates a conflict of interest between parties; -Misappropriating the principal's property; and -Disclosing the principal's confidential information for the agent's own benefit or for the benefit of third parties.

Implied laws

An agency may be implied in law without intent to form the relationship. A person may be held liable as a principal for the act of another person regardless of whether the principal intended to grant any authority. For example, a court may determine that an agent acted properly outside of a delegated authority in an emergency when the principal was unavailable.

Agency Relationship

An agency relationship itself is not a contract. The doctrine of consideration belongs exclusively to contracts. Agents who act without receiving consideration are gratuitous agents. The rights and powers of gratuitous agents are the same as the rights and powers of agents who do receive consideration. If an agency relationship is formed through a contractual transaction, then the principal must provide consideration.

Authority

An agent has the authority to act on behalf of the principal under the principal's direction and control. The most important legal consequence of the agency relationship is the agent's power to bind the principal to third parties. In order to hold a principal liable for the acts of an agent, the agent must have actual or apparent authority to act on the principal's behalf.

Group term life insurance

Payments to retirees are treated as income to the extent they constitute gross income and are periods for which the retirees no longer have employment status

Means of Increasing Health Insurance Coverage

The Patient Protection and Affordable Care Act of 2010 (ACA) is intended to increase health insurance coverage by the following means: -Expanding Medicaid -However, the U.S. Supreme Court ruled that states cannot be compelled to participate in the Medicaid expansion. -Requiring employers with at least 50 full-time or full-time-equivalent employees (FTEs) to offer affordable essential health insurance coverage or pay a penalty -Providing insurance premium subsidies for certain low- and middle-income individuals -Requiring individuals without health insurance (e.g., employer coverage or Medicare) to purchase health insurance or pay a penalty -Creating insurance exchanges (markets in which individuals can buy health insurance) -If a state does not set up an exchange, a federal exchange is established. -Outlawing lifetime limits on or arbitrary cancellations of health insurance coverage -Allowing a parent's policy to cover his or her nondependent children until age 26 -Requiring employers to disclose to employees The employer's coverage (or absence of coverage), -Information about the use of exchanges, A summary of benefits and coverage (not a summary plan description) that facilitates comparison of health insurance plans, and The cost of coverage on W-2 forms (mandatory for employers that filed at least 250 W-2 forms the previous year). Grandfathered Plans

Termanation of operation law Third restatement

The Third Restatement provides a broad rule. -It states that an agent has actual authority when, at the time of performing an act that results in legal consequences for the principal, the agent reasonably believes that the principal wants the agent to perform the act. -This belief should be based on the principal's manifestations to the agent. 1.Accordingly, when changes have occurred so that the act on behalf of the principal is unreasonable, the agent has no actual authority. 2.Actual authority is deemed to continue until the agent receives notice. Thus, the Third Restatement produces a different result in cases in which the Second Restatement automatically terminates actual authority, e.g., death, incapacity, or bankruptcy of the principal. 3.The Third Restatement also provides that termination of actual authority does not end apparent authority.

Duty Of Care

The agent must use the care and skill of a reasonable person in like circumstances and with his or her special skills or knowledge in performing agency duties. The agent must act prudently and cautiously to avoid injury to the interests of the principal.

Agent's Remedies against Principal

The agent's remedies for a principal's breach of a duty include 1.Withholding performance or terminating the agency relationship, 2. Counterclaiming if the principal sues, 3.Demanding an accounting, and 4.Filing a civil action seeking tort and contract remedies. -But certain contract remedies, e.g., specific performance, may not be available if the agency is not based on a contract.

Third Restatement

Under the Third Restatement, a power given as security confers the ability to affect the legal relations of its creator. -The power itself does not establish an agency or confer actual authority. However, it is created in the form of a manifestation of actual authority held for the benefit of the holder or a third party. 1.For example, Debtor (the creator) and Creditor (the holder) agree in writing that, if Debtor defaults, Creditor will have Debtor's authority to transfer ownership of specified property to Creditor. 2.The broad definition of a power given as security includes the traditional agency coupled with an interest. In this form of agency, the agent has a specific, current, beneficial interest in the subject matter of the agency. -The principal does not have the right or power of termination. -The agent's interest in the subject matter is not exercised for the benefit of the principal. An example is an agent-creditor's power to sell collateral if the debt is not paid.

Partially disclosed

Undisclosed principal. The third party is unaware of any agency and believes that (s)he is dealing directly with a principal, not an agent. 1-The third party has no legal right to disclosure. 2-Actual authority is unaffected. By definition, however, apparent authority does not exist. 3-To enforce the contract, the third party may sue the agent of an undisclosed principal. -The third party intended to deal only with the agent, and the agent is a party to the contract. 4.The undisclosed principal generally may sue or be sued on the contract except when it would be unfair or unjust to the other party. But the undisclosed principal may not be able to enforce a contract that -Requires that credit be extended by the third party, -Involves unique personal services of the agent, -Involves nondelegable duties, or -Is a negotiable instrument signed by the agent with no indication of his or her status. 5. Under traditional rules, if the undisclosed principal is discovered, the third party must elect whether to hold the principal or the agent liable for performance. But the third party has no right to void an otherwise valid contract. 6. If the agent does not have actual authority, the undisclosed principal generally is not liable to the third party. 7.Whether the principal is disclosed does not affect the duties of the principal and agent to each other.

Vicarious Liability

Vicarious liability results from the actions of the agent for which the principal, whether or not disclosed, is liable. -Thus, both the principal and the agent are liable. This type of liability is based upon the doctrine of respondeat superior (Latin for "let the master reply"). Vicarious liability holds employers liable for the tortious conduct of their employees. An employer may be held vicariously liable for the employee's conduct when the employee 1.Commits a tort, whether negligently or intentionally; 2.Was not authorized by the principal to perform the act; or 3.Performs the act within the scope of employment. -An act is within the scope of employment when it is work assigned by the employer or a course of conduct subject to the employer's control. -An act is not within the scope of employment when it is within an independent course of conduct not intended by the employee to serve a purpose of the employer. 4.A principal may be vicariously liable for an agent's material misrepresentation regardless of whether the agent is an employee or an independent contractor. This misrepresentation must be within the scope of actual or apparent authority. It may be Fraudulent; Negligent; Innocent, but with all the elements of fraud except wrongful intent (scienter); or Defamatory. Any agreement between a principal and agent limiting the principal's liability has no effect on the liability of the principal to third parties.

Duty of Notification (Duty of Disclosure)

When an agent possesses information relating to the business that the principal may need or desire to know, the agent has a duty to notify the principal of all material facts. The agent must make reasonable efforts to provide information to the principal that Is relevant to the subject matter of the agency, and The agent knows or should know will be imputed to the principal. An example is an agent's knowledge of dangerous conditions. The principal may be held liable to an injured third party to the same extent as if (s)he had actual knowledge of the dangerous condition. A person receives notice by actual knowledge of a fact, having reason to know of its existence, or receiving formal notice. Thus, notice to an agent authorized to receive it is notice to the principal. Moreover, an agent's knowledge is assumed to be known by the principal if it is important to an authorized transacti