Business Law Agency Formation and Termination

Termination by impossibility of performance

- terminates if a situation arises that makes its fulfillment impossible. -the following circumstances can lead to termination by impossibility of performance: -the loss or destruction of the subject matter of the agency -the loss of a required qualification -a change in the law

Duty to reimburse

-An agent may spend his or her own money on the principals's behalf. -Unless otherwise agreed, the principal owes a duty to reimburse the agent for all expenses if they were 1) authorized by the principal, 2) within the scope of the agency, and 3) necessary to discharge the agent's duties in carrying out the agency

Express agency

-Contract for Power of Attorney -the most common form of agency -the agent may also possess certain implied or apparent authority to act on the principal's behalf -Occurs when a principal and an agent expressly agree to enter into an agency agreement with each other -can be oral or written UNLESS the Statue of Frauds stipulates that they must be written.

Agency

-Describes a relationship between persons. - The principle-agent relationship; the fiduciary relationship "which 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."

To avoid the notice of termination liability, the principal needs to provide the following notices:

-Direct notice -Constructive notice

Duty of an agent to principal

-Duty to perform Agency -Duty to obey instructions -Duty to exercise care and skill -Duty to communicate information -Duty to account for funds and property -Duty of loyalty - a fiduciary. Complete honesty

Who cannot appoint agents?

-Persons who lack contractual capacity such as insane persons and minors. -However, the court can appoint guardians or other representatives to handle the affairs of insane persons, minors, and others who lack capacity to contract. -One lacking capacity, though, CAN be an agent

Independent Contractors

-Some agents are independent contractors. -They are outside contractors -a person or business that is not an employee but is employed by a principal to perform a certain task on behalf of the principal

wrongful termination

-Termination of an agency contract in violation of the terms of the agency contract -The termination of an agency extinguishes the power of the agent to act on behalf of the principal. -If the principal's or agent's termination of an agency contract breaches the contract, the other party can sue to recover damages for wrongful termination.

Duty to cooperate

-Unless otherwise agreed, the principal owes a duty to cooperate with and assist the agent in the performance of the agent's duties and the accomplishment of the agency.

Duty to Account

-a duty that an agent owes to maintain an accurate accounting of all transactions undertaken on the principal's behalf. -this duty includes keeping records of all property and money received and expended during the course of the agency -this duty also requires the agent to 1) maintain a separate account for the principal and 2) use the principal's property in an authorized manner -any property, money, or other benefit received by the agent in the course of an agency belongs to the principal.

Duty to Indemnify

-a principal also owes a duty to indemnify the agent for any losses the agent suffers because of the principals conduct. -this duty usually arises where an agent is held liable for the principal's misconduct.

Duty to compensate an agency

-a principal owes a duty to compensate an agent for services provided -usually the agency contract specifies the compensation to be paid -the principal must pay this amount either upon the completion of the agency or at some other mutually agreeable time. -if there is no agreement as to the amount of compensation, the law implies a promise that a principal will pay the agent the customary fee paid in the industry.

Employer-employee relationship

-a relationship that results when an employer hires an employee to perform some task or service but the employee has not been authorized to enter into contracts on behalf of his employer. -performs only physical services

Terminated by operation of law

-an agency contract is terminated by operation of law in the following circumstances: -the death of either the principal or agent -the insanity of either the principal or the agent -the bankruptcy of the principal -the outbreak of a war between the principal's country and the agent's country if an agency terminates by operation of law, there is no duty to notify third parties about the termination.

Agency by ratification

-an agency that occurs when 1) a person misrepresents him or himself as another's agent when in fact he or she is not and 2) the purported principal accepts the unauthorized act. -the principal is bound to perform, and the agent is relieved of any liability for misrepresentation

Duty to Notify

-an agent owes a duty to notify the principal of important information concerning the agency. -information may come from third parties or other sources -the agent is liable to the principal for any injuries resulting from a breach of this duty

Implied Agency

-arises out of the facts and circumstances of a particular situation -an agency that occurs when a principal and an agent do not expressly create an agency, but it is implied from the conduct of the parties -Implied authority cannot conflict with express authority or with stated limitations on express authority

Apparent Agency (or agency by estoppel)

-arises when a principal creates the appearance of an agency that does not exist -when an apparent agency is established, the principal is estopped (stopped) from denying the agency relationship and is bound to contracts entered into by the apparent agent while acting within the scope of the apparent agency. -Note: the principals actions-not the agents- create an apparent agency

A Principal

-can authorize an independent contractor to enter into contracts. -principals are bound by the authorized contracts of their independent contractors.

Principals often:

-employ outsiders-persons and businesses that are not employees-to perform certain tasks on their behalf. -These persons and businesses are called independent contractors. -Independent contractors operate their own business or profession.

Formation of Agency: An agency and the resulting authority of an agent can arise in 4 ways:

-express agency -implied agency -apparent agency -agency by ratification

Terminated by an act of the parties

4 methods of termination of agency relationship by acts of parties: mutual agreement, lapse of time, purpose achieved, occurrence of specified event and agency at will

Terminated by operation of law:

5 methods of terminating agency contracts by law: death/insanity, bankruptcy if it affects agency, object of agency becomes impossible, object of agency destroyed, and war.

The principal-agent relationship:

A relationship formed when an employer hires an employee and gives that employee authority to act and enter into contracts on his or her behalf. is referred to as an agency

Unusual change in circumstances

An agency terminates when there is an unusual change in circumstances that would lead the agent to believe that the principal's original instructions should no longer be valid

Who can initiate an agency relationship?

Any person who has the capacity to contract can appoint an agent to act on his or her behalf.

Duties of a principal to agent

Duty to compensate Duty to reimburse and indemnify Duty to keep accounts Duty to cooperate Duty to provide safe working condition

Notice of termination

If the principal fails to give the proper notice of termination to a third party, the agent still has apparent authority to bind the principal to contracts with these third parties.

Constructive notice:

Publish in paper. Effective to those who know about the agency but with whom the agent has not dealt and those with no knowledge of the agency

Agency Law

The large body of common law that governs agency; a mixture of contract law and tort law.

Agent

a party who agrees to act on behalf of another

Principal

a party who employs another person to act on his or her behalf

Principal-agent relationship

a relationship formed when an employer hires an employee and gives that employee authority to act and enter into contracts on his or her behalf.

The use of agents (or agency)

allows one person to act on behalf of another

An agency contract can be terminated by:

an act or will of the parties, by changed circumstances, by impossibility of performance, and by operation of law

Duty to Perform

an agent who enters into a contract with a principal has two obligations 1) to perform the lawful duties expressed in the contract and 2) to meet the standards of reasonable care, skill, and diligence implicit in all contracts.

How are agency relationships formed

by the mutual consent of a principal and an agent

Direct notice:

termination to all persons with whom the agent dealt. The notice may be oral or written unless required to be in writing

Principal-independent contractor relationship

the relationship between a principal and an independent contract who is not an employee of the principal but that has been employed by the principal to perform a certain task on behalf of the principal.