ACCT 324 - Chapter 33: Agency Formation and Duties

tort and contract remedies

standard ones

Agency law is primarily _____ law.

state

Agent's rights and remedies against the principal

tort and contract remedies, demand for an accounting

power of attorney

A document that establishes an agency by agreement that gives an agent authority to sign legal documents on behalf of the principal. Can be general or specific, limiting the authority of the agent. Often given for business and health care purposes.

When an agent breaches his or her duties to the principal, the principal can terminate the agency relationship and seek remedies.

Constructive trust, avoidance, indemnification.

gratuitous agent

an agent who acts without consideration (not paid for his or her services)

Performance (Agent duty)

The agent must perform the duties as specified in the agency agreement with reasonable skill, care, and professionalism.

indemnification

A third party who believes that an agent is acting with actual or apparent authority may sue the principal for any breach of contract. However, if the breach was caused by the agent's negligence, the principal has a right to indemnification; that is, when sued by a third party, a principal may sue his agent to recover the amount assessed to the third party. A principal can also recover if an agent fails to follow the principal's instructions.

agency relationship

The association between one party and an agent who acts on behalf of that party (principal). Consensual relationship formed by informal oral agreements or formal written contracts.

Duty to compensate

A principal's obligation to pay an agent for his or her services. Effective unless the parties have agreed the agent will act gratuitously. The agency contract will usually specify the type & amount of compensation as well as the time at which it will be paid. If there is no agreement on the amount, the courts suggest compensation should be calculated according to the customary fee in the situation.

Accounting (Agent duty)

The agent must keep an accurate account of the transactions made on behalf of the principal and provide the accounting information to the principal on request. The agent must also keep separate accounts for the principal's funds and the agent's funds and not allow them to mix.

Agency by implied authority cannot conflict with any any express authority.

True

expressed agency

An agency created in a written or oral agreement. Also called "agency by agreement". Most common.

Principal-agent relationship

Parties have agreed that agent will have power to bind principal in contract. Significant for contract law issues. Typically exists when an employer hires an employee to enter into contracts on its behalf. Most basic type of agency relationship.

Notification (Agent duty)

The agent must notify the principal of any relevant information in a timely manner.

Compensation (Principal duty)

The principal has a duty to compensate the agent for services provided unless the parties have agreed that the agent will act gratuitously.

Safe working conditions (Principal duty)

The principal has a duty to ensure safe working conditions and to warn the agent if the principal is aware of any potential danger.

Reimbursement and indemnification (Principal duty)

The principal has a duty to reimburse or indemnify the agent for any authorized expenditures or any losses the agent incurs in the course of working on behalf of the principal.

Cooperation (Principal duty)

The principal must assist the agent in the performance of his or her duties and cannot interfere with the reasonable conduct of the agent.

Principal's duties to the agent

The principal owes specific duties to the agent. Failure to fulfill these duties provides the basis for a tort or contract action against the principal. Compensation, reimbursement and indemnification, cooperation, safe working conditions.

Durable power of attorney

a document that states either the power of the agent is to continue to be effective if the principal becomes incapacitated or the power of the agent is to take effect after the principal has become incapacitated.

fiduciary

a person who has a duty to act primarily for another person's benefit

Agency relationships cannot be created to conduct....

illegal activities

constructive trust

(1) An implied trust in which a party is named to hold the trust for its rightful owner. (2) An equitable trust imposed on someone who wrongfully obtains or holds legal right to property he or she should not possess.

Agency by ratification has two requirements:

1. An individual must misrepresent himself or herself as an agent for another party. 2. The principal must accept or ratify 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.

apparent agency (agency by estoppel)

An agency relationship created by operation of law when one party, by her actions, causes a third party to believe someone is her agent even though that person actually has no authority to act as her agent. Can be created only on the acts of the principal. If the principal attempts to deny that an agency relationship existed, the third party must demonstrate that he or she reasonably believed, on the basis of the principal's conduct, that an agency relationship existed. The court will consider the principal's conduct in determining whether an agency relationship existed. Suppose a salesman enters the office of a third party claiming he represents a company that wants to do business. If he is really not an agent for the company and provides no evidence of a link with it, the company will not be held responsible under apparent agency because the third party had no interaction with it.

demand for an accounting

An agent who feels she is not being properly compensated, especially when working on commission, may demand for an accounting and may withhold further performance of her duties until the principal supplies appropriate accounting data.

Employer-independent contractor relationship

Employer has no control over details of conduct of independent contractor. Significant for issues regarding tort law, tax law, wage law, discrimination law, copyright law. Examples of independent contractors: building contractors, doctors, stockbrokers, & lawyers. Independent contractors are agents but not employees. Not all independent contractors are agents. They cannot enter into contracts on behalf of the principal unless

Employer-employee relationship

Employer has right to control conduct of employees. Significant for issues regarding tort law, tax law, wage law, discrimination law, copyright law. Employees are agents of an employer.

Loyalty (Agent duty)

The agent has a responsibility to act in the best interest of the principal; this duty is important because the agency relationship is founded on trust. An agent cannot represent both the principal & a third party in an agreement, because there could be a conflict of interest. The agent also has a duty to notify the principal of any offers from third parties. Requires that the agent keep confidential any information about the principal, during the course of the agency as well as after the agency relationship has been terminated. Agent cannot disclose or misuse any information received during or after the agency relationship with the principal.

Obedience (Agent duty)

The agent must follow the lawful instruction and direction of the principal. An agent who makes an unauthorized agreement has failed to meet the duty of obedience. However, if the principal gives unlawful or unethical instructions, the agent is not required to behave in accordance with them.

agency

The fiduciary relationship that arises when one person consents to have another act on his behalf and subject to his control and the other consents to do so.

Agency relationships can exist as one of four types:

1. Expressed agency, in which parties form the agency relationship by making a written or oral agreement. 2. Agency by implied authority, in which the agency relationship is implied by the conduct of the parties. 3. Apparent agency, in which the principal falsely leads a third party to believe another individual serves as his or her agent. 4. Agency by ratification, in which an individual misrepresents himself as another party's agent and the principal accepts the unauthorized act.

Agency relationships can be formed if and only if:

1. They are being created for a lawful purpose. 2. The person who is to act as an agent has contractual capacity.

Independent contractor

Engages in a distinct occupation or an independently established business. A specialist without supervision completes the work. Great degree of skill is required for the occupation. Length of time for which the worker is employed varies. Worker is paid when the job is completed. IRS outlines criteria for independent contractor.

Specific performance

When a contract exists and a principal agrees to certain conditions but fails to perform, under contract remedies the agent may seek court assistance in forcing the principal to perform the contract as stipulated.

avoidance

When an agent breaches an agency contract or his fiduciary duties, the principal may use her right of avoidance to nullify at her discretion any contract the agent negotiated.

Copyright Act of 1976

When an employee completes work at the request of the employer, the product is considered a "work for hire" & the employer owns the copyright. An independent contractor normally maintains ownership of copyrights for his or her work product. Only by an agreement of both parties that a specific work is a work for hire may an employer gain copyright ownership of the work of an independent contractor.

Employee

Work is done under employer supervision. The employer supplies the tools. No specialized skill is required for the occupation. The worker is employed for a long time. Is a regular part of the business of the employer. Is paid with regular payments according to time.