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Rights and Remedies of Agents and Principals

In general, for every duty of the principal, the agent has a corresponding right and vice versa

formation of the agency relationship: agency relationships normally are ___. they come about by ___ and ___ between the parties.

consensual voluntary consent agreement (need not be in writing)

___ is not required in forming the agency relationship agreement

consideration

what are the three main actions available to the principal?

constructive trust avoidance indemnification

where do the remedies available arise out of?

contract and tort law

a person must have ___ to be a principal. the idea is that those who cannot legally enter into contracts directly should not be allowed to do so indirectly through an agent. Any person can be an agent, however, regardless of whether he or she has the ___. Therefore ____ can also be an agent

contractual capacity minors e.g.)Archer (as principal) contracts with Burke (as agent) to sell illegal narcotics. The agency relationship is unenforceable because selling illegal nar- cotics is a felony and is contrary to public policy. If Burke sells the narcotics and keeps the profits, Archer cannot sue to enforce the agency agreement. ■

cooperation: a principal has a duty to ___.

cooperate with the agent and to assist the agent in performing his or her duties

criteria used by the IRS: The Internal Revenue Service (IRS) has established its own criteria for deter- mining whether a worker is an independent contractor or an employee. the most important factor is the ___

degree of control the business exercises over the worker

agent can also withhold further performance and ___ . e.g.) a sales agent may demand an accounting if the agent and principal disagree on the amount of commissions the agent should have received for sales made during a specific period.

demand that the principal give an accounting

what if the 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

what can the agent still do when the principal-agent relationship is not contractual?

the agent can recover for past services and future damages

loyalty

the agent has the duty to act solely for the benefit of his or her principal and not in the interest of the agent or a third party

what about during emergency situations? such as when the principal cannot be consulted?

the agent may deviate from the instructions without violating this duty.

the amount of indemnification usually is specified in the agency contract, but if it is not, then ___ to determine the amount.

the courts will look to the nature of the business and the type of loss

when one party to the agency relationship violates his or her duty to the other party, ____.

the non breaching party is entitled to a remedy

an insurance broker (who represents the prospect, insured or client) is an agent of ___ and not of the ___

the person obtaining insurance insurance company

what is the principal entitled to do when the agent retains the property that belongs to the principal?

the principal can sue the agent and recover them

performance

An implied condition in every agency contract is the agent's agreement to use reasonable dili- gence and skill in performing the work.

what is a basic tenet of agency law regarding notification?

"notice to the agent is a notice to the principal" = the law assumes that the principal is aware 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.

e.g.) Exclusive Agency

An agency in which a principal grants an agent an exclusive territory and does not allow another agent to compete in that territory.

work for hire

An agreement specifying an employer's right to own any works of authorship produced by an employee during working hours.

fiduciary

a person having a duty created by his or her undertaking to act primarily for another's benefit in matters connected with the undertaking

agency by estoppel:

a principal cases a third party to believe that another person is the principal's agent, and the third person acts to hie or her detriment in reasonable reliance on that belief

Once a gratuitous agent has begun to act in an agency capacity, he or she has the duty to continue to perform in that capacity. A gratuitous agent must perform in an ___ and is ___ and duty to perform as other agents.

acceptable manner subject to the same standards of care

Principal's Rights and Remedies Against Agent: (in general) a principal has contract remedies for an ___. (tort remedies) when the agent ___

agent's breach of fiduciary duties engages in misrepresentation, negligence, deceit, libel, slander, or trespass

who is responsible for expenses incurred as a result of the agent's misconduct or negligence?

agents

exception: if the parties ____ and the work falls into one of nine specific categories, including ___

agree in writing that the work is a "work for hire" audiovisual works, collective works (such as magazines), motion pictures, textbooks, tests, and translations

duty of notification

an agent is required to notify the principal of all matters that come to her of his attention concerning the subject matter of the agency

what does justify the principal's termination of the agency?

any breach of a fiduciary duty by the agent

the duty of loyalty also means that ____.

any information or knowledge acquired through the agency relationship is confidential

employer-employe relationships: e.g.) salesperson any sale of goods made by the salesperson to a customer is ___ on the principal

binding

indemnification: In certain situations, when a principal is sued by a third party for an agent's negligent conduct, the principal ___ —that is, for ___. The same holds true if the agent violates the principal's instructions.

can sue the agent for indemnification an equal amount of damages

safe working conditions: ___ requires the principal to provide safe working premises, equipment, and conditions for all agents and employee.

common law

unless the agency relationship is ___ and the agent does not act in exchange for payment, the principal must ___

gratuitous pay the agreed-on value for the agent's series

what if the gratuitous agent fails to perform? what is she/he subject to?

he/she cannot be held liable for breach of contract because there is not contract he or she is subject only to tort liability (such as negligence)

the principal also has a duty to pay that compensation ___

in a timely manner

compensation: in general, when a principal requests certain services from an agent, the agent reasonably expects ____. For instance, when an accountant or an attorney is asked to act as an agent, an agreement to compensate the agent for this service is ___.

payment implied

what if the principal breaches his/her duty? e.g.) the principal contracts with an agent to sell her house and the give 6% of the selling price, but instead the principal sells the house to another buyer directly without paying anything to the agent.

the agent can terminate the agency relationship and sue the principal to recover the 6% commission she should have earned on the sale of the house

what can the agent NOT do when the principal-agent relationship is not contractural?

the agent has no right to specific performance = cannot force the principal to allow him or her to continue acting as the principal's agent

what if no amount has been expressly agreed on?

the principal owes the agent the customary compensation for such services

fiduciary relationship

the relationship involves trust and confidence e.g.) employer/employee employer/independent contractors

why do workers sometimes benefit from having employee status?

- employers are required to pay certain taxes for employee - federal statutes governing employment discrimination apply only in employer-employee relationships.

an agency relationship can arise in four ways: by ___, ___, ___ and ____.

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

criteria used by the court in determining whether a worker is an employee or an independent contractor (7)

1. how much control does 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 so, this is an independent-contractor 3. is the work usually done under the employer's direction or by a specialist without supervision? -->if the work usually done under the employer's direction, then employee 4. does the employer supply the tools at the place of work? --> if so, employee 5. for how long is the person employed? --> if its a long period of time, employee 6. what is the best method of payment? by time period or at the completion of the job? --> by time period, employee 7. what degree of skill is required of the worker? -->If a great degree of skill is required, this may indicate that the person is an independent contractor hired for a specialized job and not an employee.

constructive trust

= anything that an agent obtains by virtue of the employment or agency relationship belongs to the principal ■ Example 32.13 Lee, a purchasing agent for Metcalf, receives cash rebates from a customer. If Lee keeps the rebates for himself, he violates his fiduciary duty to his principal, Metcalf. On finding out about the cash rebates, Metcalf can sue Lee and recover them. ■

agency by operation of law:

Agency based on social duty is formed in certain situations when the agent is unable to contact the principal: Necessaries, Emergencies. e.g.)in family relationships, such as when one spouse purchases certain basic necessaries and charges them to the other spouse's account. The courts often rule that a spouse is liable for payment for the necessaries because of either a social policy or a legal duty to supply necessaries to family members. e.g.)If an agent cannot contact the principal and failure to act would cause the principal substantial loss, the agent may take steps beyond the scope of her or his authority. For instance, a railroad engineer may con- tract on behalf of his or her employer for medical care for an injured motorist hit by the train.

agency relationship

Fiduciary relationship (relationship of trust) in which agent acts on behalf of principal

independent contractors

Self-employed individuals hired on a contract basis for specialized services. he/her may or may not an agent e.g.) building contractors and subcontractors, truck drivers who own their vehicles and hire futon a per-job basis

obedience:

When acting on behalf of the 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.

avoidance:

When an agent breaches the agency agreement or agency duties under a contract, the principal has a right to avoid any contract entered into with the agent. This right of avoidance is at the election of the principal.

agency law is based on ___, whereas much employment law is ___

common law statutory law

Agent's Rights and Remedies Against Principal: in addition to the agent's right to be ___, to be ___ and ___, and to___, an agent also has the right to ___.

compensated reimbursed indemnifies have a safe working environment perform agency duties without interference by the principal

the acts or declarations of a purported agent in and of themselves of not create an agency by estoppel. Rather, it is the ___ or ___ that create an agency relationship by estoppel.

deeds statements of the principal

The agent has a duty to maintain a separate account for the principal's funds and must not intermingle (mix) these funds with the agent's personal funds. If a licensed professional (such as an attorney) violates this duty, he or she may be subject to ___ (such as the state bar association). Of course, the professional will also be liable to ___ (the principal) for failure to account.

disciplinary action by the licensing authority his or her client

The IRS closely scrutinizes a firm's classification of its workers to avoid ___. if the firm has classified a worker as an independent contractor and the IRS decides that an employee is misclassified, the employer will be responsible for ___

employers from unlawfully avoiding certain tax liabilities by hiring independent contractors paying any applicable Social Security, withholding, and unemployment taxes die for that employee

when this occurs, the principal is "___" the agency relationship. The principal's actions have created the ___ of an agency that does not in fact exist, creating an agency by estoppel

estopped to deny (prevented from denying) appearance

agency by agreement : most agency relationships are based on an ___ or ___ agreement that the agency 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 ___ contract or be created by ___ agreement

express, implied express written oral e.g.) when a person hires a neighbor to mow his lawn on a regular basis

In addition to the common law requirement, ___ and ___ statutes often require the employer to meet certain safety standards

federal state

when an employer hires an independent contractor, such as a freelance artist, writer or computer programmer, ___ owns the copyright

independent contractor

employment laws apply only to the employer-employee relationship (governing Social Security, withholding taxes, workers' compensation, unemployment compensation, workplace safety, and employment discrimination) and do not apply to ___

independent contractors

the principal has a duty to ___ and ___.

inspect working areas warn agents and employees about any unsafe situations

accounting: unless the agent and principal agree otherwise, the agent must ___

keep and make available to the principal an account of all property and funds received and paid out on the principal's behalf e.g.) gift received by an agent belongs to a principal

indemnification: (compensation): the principal has the duty to indemnify an agent for ____.

liabilities incurred because of authorized and lawful acts and transactions. e.g) if the agent, on the principal's behalf, forms a contract with a third party, and the PRINCIPAL fails to perform the contract, the third party may sue the agent for damages. In this situation, the principal is obligated to compensate the agent for any costs incurred by the agent as a result of the principal's failure to perform the contract.

what if the agent fails to perform his or her duties?

liability for breach of contract may result

agent's duties to the principal: what are the five duties the agent owes the principal?

loyalty, obedience, performance, notification, and accounting

the relationship between a principal and an independent contractor ____ an agency relationship.

may/may not involve

these remedies include ___, ___, ___ and ___.

monetary damages termination of the agency relationship injunction required accountings

independent contractors are/ are not employees

not; über drivers (short-term independent workers)

duties of agents and principals

once the principal-agent relationship has been created, both parties have duties that governs their conduct

besides the performance, the agent is required to perform ___. If an agent has represented herself or himself as possessing special skills, the agent is expected to exercise the ___

ordinary care degree of skill claimed

agency relationships can exist ___, so agency law has a broader reach than ___

outside an employer-employee relationship employment law

in agency relationship by estoppel, the third party must ___. Facts and circumstances must show that an ordinary, prudent person familiar with business practice and custom would have been justified in concluding that the ___

prove that he or she reasonably believed that an agency relationship existed agent had authority.

reimbursement and indemnification: whenever an agent disburses (pays out) funds at the request of the principal, the principal has a duty to ___. the principal must also ___.

reimburse the agent reimburse the agent for any necessary expenses incurred in the course of the reasonable performance of her or his agency

an agent cannot ___ unless ___.

represent two principals in the same transaction both know of the dual capacity and consent to it

principal's duties to the agent: what are the four duties that the principals owe to the agents?

safe working conditions, compensation, reimbursement and indemnification, and cooperation

when the agent is an EMPLOYEE, the employer's liability is frequently covered by ___

state workers' compensation insurance

the agent's actions must be ___ and ___.

strictly for the benefit of the principal must not result in any secret profit for the agent

agency by ratification:

the agency relationship created when the principal approved of an agents ( or a person who is not an agent at the time of his/her action) unauthorized action after the action occurred.

what if the principal creates and exclusive agency by granting the agent a territory within which only the agent may sell his/her products and the principal starts to sell the products herself within the agent's territory or permits another agent to do so?

the principal has failed to cooperate with the agent and she can be held liable for the agent's lost sales or profits

what are the typical examples of confidential information?

trade secrets and customer lists complied by the principal

the principal must also indemnify the agent for the ___.

value of benefits that the agent confers(talk, speak on the principal

when does a breach of loyalty arise?

when an agent discloses such information either during the agency relationship or after its termination.

gratuitous agent is one who acts gratuitously, that is ___. = without ___

without payment contract

ordinary, a person who creates a copyrights work is the owner of it unless it is a "___"

work for hire

does this rule apply to the acts by gratuitous agents?

yes

must the principal reimburse those expenses even if the agent is a gratuitous?

yes