chapter 29 agency: creation and termination davidson, knowles & forsythe business law: cases and...

CHAPTER 29CHAPTER 29AGENCY: CREATION AND AGENCY: CREATION AND

TERMINATIONTERMINATION

CHAPTER 29CHAPTER 29AGENCY: CREATION AND AGENCY: CREATION AND

TERMINATIONTERMINATION

DAVIDSON, KNOWLES & FORSYTHE DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles Business Law: Cases and Principles

in the Legal Environmentin the Legal Environment (8 (8thth Ed.) Ed.)

2© 2004 West Legal Studies in Business© 2004 West Legal Studies in BusinessA Division of Thomson LearningA Division of Thomson Learning

BUSINESS LAW: BUSINESS LAW: Cases & PrinciplesCases & PrinciplesDavidson Davidson • Knowles • Forsythe 8• Knowles • Forsythe 8 thth Ed. Ed.

AGENCY LAW AND AGENCY AGENCY LAW AND AGENCY RELATIONSHIPSRELATIONSHIPS


Agency law concerns relationships between Agency law concerns relationships between employees and employers.employees and employers.

Agency law involves duties/responsibilities Agency law involves duties/responsibilities to each other, and the public at large.to each other, and the public at large.

Agency law places significance reliance on Agency law places significance reliance on state law and precedent.state law and precedent.





Restatement explains key terms:Restatement explains key terms:– Agency is a fiduciary relationship resulting Agency is a fiduciary relationship resulting

from consent of one person to another that the from consent of one person to another that the other shall act on his/her behalf.other shall act on his/her behalf.

– Principal one whom action is taken for.Principal one whom action is taken for.– Agent one who is to act.Agent one who is to act.




Agency relationship is consensual in nature.Agency relationship is consensual in nature.Based on concept that parties mutually Based on concept that parties mutually

agree:agree:– Agent will act on behalf of principal.Agent will act on behalf of principal.– Agent will be subject to principal’s direction Agent will be subject to principal’s direction

and control.and control.

Agreement can be expressed or implied.Agreement can be expressed or implied.




Analysis of Agency Relationships:Analysis of Agency Relationships:– Was dispute between principal and agent?Was dispute between principal and agent?– Agency formed voluntarily by principal and Agency formed voluntarily by principal and

agent, or is there other relationship?agent, or is there other relationship?– Did parties have capacity to perform roles as Did parties have capacity to perform roles as

principal and agent?principal and agent?– What authority did principal vest on agent?What authority did principal vest on agent?– Did agent enter into contract or commit a tort?Did agent enter into contract or commit a tort?



RESTRICTIONS ON CREATING RESTRICTIONS ON CREATING AN AGENCY RELATIONSHIPAN AGENCY RELATIONSHIP


Agency law affects broad range of Agency law affects broad range of situations.situations.

Few restrictions on who can form agency Few restrictions on who can form agency relationship.relationship.

One restriction is agency agreement require One restriction is agency agreement require agent to perform legal acts.agent to perform legal acts.



Capacity to Be a Principal.Capacity to Be a Principal.– With exception of minors and incompetents, With exception of minors and incompetents,

any person can appoint an agent.any person can appoint an agent.– Generally any person having capacity to Generally any person having capacity to

contract can employ servant or nonservant contract can employ servant or nonservant agent.agent.

Capacity to Be an Agent.Capacity to Be an Agent.– Anyone can be an agent.Anyone can be an agent.– It is capacity of the principal that controls.It is capacity of the principal that controls.





Duties an Agent Can Perform.Duties an Agent Can Perform.– Agents authorized to do almost any legal task.Agents authorized to do almost any legal task.– There are some non-delegable duties:There are some non-delegable duties:

Employer’s duty to provide safe working conditions.Employer’s duty to provide safe working conditions. Person’s duty under certain contracts.Person’s duty under certain contracts. Landlord duties to tenants.Landlord duties to tenants. Common carrier’s duty to passengers.Common carrier’s duty to passengers. Duty of person engaged in inherently dangerous Duty of person engaged in inherently dangerous

work to take precautions.work to take precautions.

– Non-delegable duties defined by state statutes.Non-delegable duties defined by state statutes.





TYPES OF AGENCY TYPES OF AGENCY RELATIONSHIPSRELATIONSHIPS


General and Special Agents.General and Special Agents.– Special agent: employed to complete one Special agent: employed to complete one

transaction or simple series of transactions, the transaction or simple series of transactions, the relationship covers limited period and is not relationship covers limited period and is not continuous.continuous.

– General agent: conduct series of transactions, General agent: conduct series of transactions, has more discretion to carry out employers’ has more discretion to carry out employers’ business. business.





General and Special Agents.General and Special Agents.– Factors that determine agent’s status:Factors that determine agent’s status:

Number of acts agent must complete to Number of acts agent must complete to obtain an authorized result.obtain an authorized result.

Number of people that must be dealt with.Number of people that must be dealt with.Length of time necessary to obtain the Length of time necessary to obtain the

desired result.desired result.




Gratuitous Agents.Gratuitous Agents.– Person volunteers services without an Person volunteers services without an

agreement or expectation of payment.agreement or expectation of payment.– Requirements:Requirements:

Person volunteered to help another.Person volunteered to help another. Person being helped accepted this assistance.Person being helped accepted this assistance.



SERVANTS AND INDEPENDENT SERVANTS AND INDEPENDENT CONTRACTORSCONTRACTORS


Most workers are servants or independent Most workers are servants or independent contractors.contractors.

Servants and employees are synonymous.Servants and employees are synonymous.Servants (Employees):Servants (Employees):

– Physically work for Master; andPhysically work for Master; and– Master (employer) has right to control how task Master (employer) has right to control how task

accomplished.accomplished.



Servants:Servants:– Distinction between servant and independent Distinction between servant and independent

contractor in determining liability for contractor in determining liability for employee’s conduct.employee’s conduct.

– Employer liable for physical acts of servant.Employer liable for physical acts of servant.





Independent Contractors:Independent Contractors:– Hired by employer to accomplish a task for Hired by employer to accomplish a task for

someone else.someone else.– Hiring party does not control or subject to Hiring party does not control or subject to

control physical acts of independent contractor.control physical acts of independent contractor.– Independent contractors who are agents have Independent contractors who are agents have

fiduciary duties and can bind their principals of fiduciary duties and can bind their principals of contracts.contracts.





Responsibility for Independent Contractors.Responsibility for Independent Contractors.– Contract Liability: principals who engage Contract Liability: principals who engage

independent contractors as agents will be liable independent contractors as agents will be liable on contract if contract was authorized.on contract if contract was authorized.

– Tort Liability: independent contractor who is Tort Liability: independent contractor who is injured while working generally can’t recover injured while working generally can’t recover from hiring party. Employees of independent from hiring party. Employees of independent contractors have been permitted to recover contractors have been permitted to recover from independent contractor. from independent contractor.





Responsibility for Independent Contractors.Responsibility for Independent Contractors.– Employer not liable for physical acts of Employer not liable for physical acts of

independent contractors unless hiring party:independent contractors unless hiring party: Reserves right to supervise/control work.Reserves right to supervise/control work. Directs independent contractor to do something Directs independent contractor to do something

wrong.wrong. Knew about activity and did nothing to stop it.Knew about activity and did nothing to stop it. Does not supervise independent contractor.Does not supervise independent contractor. Careless in selecting independent contractor.Careless in selecting independent contractor. Independent contractor hired to commit crime and Independent contractor hired to commit crime and

engage in ultrahazardous activities.engage in ultrahazardous activities.





DUTIES OF THE AGENT TO THE DUTIES OF THE AGENT TO THE PRINCIPALPRINCIPAL

DUTIES OF THE AGENT TO THE DUTIES OF THE AGENT TO THE PRINCIPALPRINCIPAL

Agent must protect interests of principal. Agent must protect interests of principal. Requires agent to perform certain duties:Requires agent to perform certain duties:

– Duty of Good Faith (a fiduciary duty).Duty of Good Faith (a fiduciary duty).– Duty of Loyalty.Duty of Loyalty.– Duty to Obey All Lawful Instructions. Duty to Obey All Lawful Instructions. – Duty to Act with Reasonable Care.Duty to Act with Reasonable Care.– Duty to Segregate Funds.Duty to Segregate Funds.– Duty to Account for Funds.Duty to Account for Funds.– Duty to Give Notice .Duty to Give Notice .



DUTIES OF THE PRINCIPAL TO DUTIES OF THE PRINCIPAL TO THE AGENTTHE AGENT

DUTIES OF THE PRINCIPAL TO DUTIES OF THE PRINCIPAL TO THE AGENTTHE AGENT

Principal duties may be specified in the Principal duties may be specified in the contract between principal and agent.contract between principal and agent.

In general, principal has following In general, principal has following obligations to the agent:obligations to the agent:– Pay agent per the agreement.Pay agent per the agreement.– Maintain proper accounts so compensation and Maintain proper accounts so compensation and

reimbursement will be correct. reimbursement will be correct. – Provide agent with means to do the job.Provide agent with means to do the job.– Continue employment for time period specified.Continue employment for time period specified.



TERMINATION OF THE AGENCY TERMINATION OF THE AGENCY RELATIONSHIPRELATIONSHIP


Agreement of Parties.Agreement of Parties.– Contract between principal and agent state Contract between principal and agent state

when it will end.when it will end.Agency at Will.Agency at Will.

– Terminable at any time by either party after Terminable at any time by either party after notice.notice.

Fulfillment of the Agency Purpose.Fulfillment of the Agency Purpose.– Completion of work terminates. Completion of work terminates.





Revocation.Revocation.– Principals revoke authority of agents to act on Principals revoke authority of agents to act on

their behalf. their behalf.

Renunciation.Renunciation.– Agent notifies principal they quit. Agent notifies principal they quit.




Operation of Law.Operation of Law.– Termination occurs automatically:Termination occurs automatically:

Upon death of agent or principal.Upon death of agent or principal. Either party becomes insane.Either party becomes insane. Principal becomes bankrupt.Principal becomes bankrupt. Agent becomes bankrupts, if bankruptcy affects the Agent becomes bankrupts, if bankruptcy affects the

agency.agency. Agency cannot be performed.Agency cannot be performed. Unforeseen events destroy the agency relationship.Unforeseen events destroy the agency relationship. Change in law makes agency illegal.Change in law makes agency illegal.





Importance of Notice.Importance of Notice.– Early termination by either party, except by Early termination by either party, except by

operation of law, requires notice.operation of law, requires notice.– Actual or constructive notice may be Actual or constructive notice may be

acceptable.acceptable.Breach of Agency Agreement.Breach of Agency Agreement.

– If principal wrongfully revokes agent’s If principal wrongfully revokes agent’s authority, agent can sue for breach of express or authority, agent can sue for breach of express or implied contract. implied contract.

chapter 29 agency: creation and termination davidson, knowles & forsythe business law: cases and...

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