CH 20

Agency Relationship

The association between one party and an agent who acts on behalf of that party. Agency relationships are consensual relationships formed by informal oral agreements or formal written contracts. However, an agency relationship exists only when the principal takes action to ask another individual to act on behalf of the principal.

Ind. Contractor vs Employee Status affects the following:

Tort liability Workers compensation Workplace safety Unemployment status Employer tax contributions Employment discrimination

Fiduciary

a person who has a duty to act primarily for another person's benefit. A lawyer, for example, is a fiduciary for his or her client.

Three types of business relationships to which agency laws are relevant:

the principal-agent relationship, the employer-employee relationship, and the employer-independent contractor relationship.

Requirements for ratification

there are two requirements for agency by ratification: 1. An individual must misrepresent himself or herself as an agent for another party. 2. The principal accepts or ratifies the unauthorized act. For ratification to be effective, two additional requirements must be met: 1. The principal must have complete knowledge of all material facts regarding the contract. 2. The principal must ratify the entirety of the agent's act. (The principal cannot accept certain parts and reject other parts of the agent's act.)

durable power of attorney

A document that specifies that an agent's authority is intended to continue beyond the principal's incapacitation.

Accounting

Accounting: keep an accurate account of the money and property received on behalf of the principal.

Implied Agency

Formed by implication through the conduct of the parties

Expressed Agency

Formed by making a written or oral agreement. Also called "agency by agreement"

Loyalty

Loyalty: Act in the best interest of the principal; avoid conflicts of interest.

Notification (disclosure)

Notification (disclosure): communicate any information that may be important to the principal.

Restatement of Agency

The Restatement of Agency defines agency as "the fiduciary relation that results from the manifestation of consent by one person to another that the other shall act in his behalf and subject to his control, and consent by the other so to act."

Principal-Agent Relationship

The principal-agent relationship typically exists when an employer hires an employee to enter into contracts on behalf of the employer. This relationship is the most basic type of agency relationship.

Termination of the agency

Two general forms: Actual notice of termination: given when third parties are directly informed, orally or in writing, that an agency agreement has terminated. Constructive Notice: Parties not directly related to an agency agreement may receive constructive notice, which is how notice of the termination of an agency agreement is generally announced. Constructive notice is most frequently delivered through publication in a generally circulating newspaper for the area where the agency agreement existed.

Agent's Tortious Conduct - Principal liable if:

Vicarious liability / respondeat superior applies. (Employer liable for actions of employees) (this is liability without fault); or Direct liability applies, such as where the principal is responsible for negligent hiring or fails to provide proper instruments, tools, or adequate instructions.

Employer-Employee Relationship

Whenever an employer hires an employee to perform some sort of physical service, the parties have created an employer-employee relationship. The employee is subject to the control of the employer

Employee or Independent Contractor?

Does worker engage in distinct occupation/independently established business? Is work done under employer's supervision, or or does specialist without supervision complete the work? Does employer supply the tools? What skill is required for the occupation? What is the length of time for which worker employed? Is worker a regular part of the employer's business? How is worker paid?

Agency by Ratification

Exists when an individual misrepresents himself or herself as an agent for another party and the principal accepts or ratifies the unauthorized act

Rules of an agency relationship:

First, an agency relationship can be created only for a lawful purpose in the same way that a contract cannot have an illegal purpose. Second, almost anyone can act as an agent. A contract made by an agent is viewed as a contract between the principal and a third party. Therefore, a person can serve as an agent regardless of age or competency. However, if an individual does not have contractual capacity, he or she could Page not hire an agent to make contracts on his or her behalf. For example, because a contract entered into by a minor is voidable, most states do not allow minors to hire agents.

Agency by estoppel

Formed when a principal leads a third party to believe that another individual serves as his or her agent but the principal had made no agreement with the so-called agent

Requirements for an Act to be considered in "course and scope" of employment: (must meet all of these requirements, otherwise is a "frolic")

It was of the kind that the employee was employed to perform, It occurs substantially within the authorized time period of the employee's work responsibilities, It occurs substantially within the location authorized by the employer, and It was motivated, at least in party, by the purpose of serving the employer. *Substantial departure relieves this liability - often called a "frolic"

Obedience

Obedience: follow the lawful instruction and direction of the principal.

Performance (care)

Performance (care): use same skill and care of reasonable person in the same situation.

Vicarious Liability / Respondeat Superior:

Principal/employer liable for torts of agent: (must prove two things) Who is an employee; and Who commits the tort while acting within the "scope of his or her employment"

Employer-Independent Contractor Relationship

Employers often hire independent contractors, persons who are not employees, to conduct certain tasks. For example, building contractors, doctors, stockbrokers, and lawyers are independent contractors. Furthermore, building contractors, doctors, stockbrokers, and lawyers are agents but not employees. However, not all independent contractors are agents. Independent contractors cannot enter into contracts on behalf of the principal unless authorized to do so by the principal.

Termination by Operations of Law

Death: If either the principal or the agent dies, the agency relationship is automatically terminated. Even if one party is unaware of the other party's death, the agency relationship no longer exists. Insanity: If a principal or agent becomes insane, the agency relationship is finished. Some states have modified this law so that unless the person has been adjudicated insane, the agency contract still exists. Bankruptcy: If the principal or agent files a bankruptcy petition, the agency relationship is generally no longer in existence. Changed Circumstances: If an unusual change in circumstances leads the agent to believe that the principal's instructions do not apply, the agency relationship terminates. Change in Law: When a new law is passed subsequent to the formation of an agency agreement that makes the commission of the agency agreement illegal, the agency agreement is terminated. Impossibility: the agent cannot possibly accomplish the task. Disloyalty of Agent: An agency agreement is terminated whenever the agent, unknown to the principal, acquires an interest against the principal's interest. War: A principal has an agent in Iran authorized to conduct business dealings on the principal's behalf.

Principal's Duties to the Agent

Duty of Compensation: The principal has a duty to compensate the agent for services provided unless the parties have agreed that the agent will act gratuitously. Duty of Reimbursement and Indemnification: The principal has a duty of reimbursement and indemnification to the agent. Similarly, the principal has the duty to indemnify or reimburse the agent for any losses the agent incurs while working within the scope of authority on the principal's behalf. Duty of Cooperation: principal must assist the agent in the performance of his or her duties. Furthermore, the principal can do nothing to interfere with the reasonable conduct of an agent. Duty to Provide Safe Working Conditions: The principal has a duty to provide safe working conditions for the agent.

Agent's Duties to the Principal

Duty of Loyalty: Courts suggest that the duty of loyalty is perhaps the most important duty an agent owes to a principal. Because the agency relationship is a fiduciary relationship (i.e., a relationship of trust), the agent has a responsibility to act in the interest of the principal Duty of Notification: he agent must also communicate any information the agent thinks could be important to the principal. Duty of Performance: First, the agent must perform the duties as specified in the agency agreement. Second, the agent must perform the specified duties with reasonable skill and care. Duty of Obedience: ; Under the duty of obedience, the agent must follow the lawful instruction and direction of the principal Duty of Accounting: the agent must keep an accurate account of the transactions of money and property made on behalf of the principal.

Termination by Acts of Parties

Lapse of Time: If an agency agreement specifies that the agency relationship will exist for a certain amount of time, the relationship will end when the amount of time expires. Fulfillment of Purpose: once the agent fulfills their purpose. Occurrence of a Specific Event: For example, John chooses Claire as an agent to move his bed to another location. Once the move has been made, the agency relationship would terminate. Mutual Agreement by the Parties: Remember, agency is a consensual agreement between two parties. Consequently, if the two parties mutually decide they do not wish to continue in the agency relationship, they can cancel the agreement and therefore terminate the agency relationship. Revocation of Authority: At any time, a principal can revoke an agent's authority Renunciation by the Agent: In the same way that a principal terminates an agency relationship by revoking authority, the agent can terminate the agency relationship by renouncing the authority given to the agent. Agency Coupled with an Interest: An agency coupled with an interest is a special kind of agency relationship. Unlike regular agency agreements, an agency coupled with an interest is created for the agent's benefit, not for the principal's. the agency relationship is terminated when an event occurs that discharges the principal's obligation.