Agency

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Agency

• Formation and Termination

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FOCUS

• Do you need an agent?
• List situations that you would want an agent to
  deal for you.

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Qui facit per alium facit per se.

• He who acts through another, acts himself.

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• Agency relationships are fiduciary relationships
  formed by mutual agreement between the principal
  and an agent.

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The Principal -Agent Relationship
Principals obligation to perform the contract
Principal
Agency Contract
Third Party
Agent
Contract with third party on behalf of principal
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AGENCY RELATIONSHIPS
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Formation of the Agency Relationship
Express Agency
Implied Agency
Apparent Agency
Agency by Ratification
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Summary Formation of Agency Relationships (1 of
2)
Type of Agency Definition Enforcement of the Contract
Express Authority is expressly given to the agent by the principal. Principal and third party are bound to the contract.
Implied Authority is implied from the conduct of the parties, custom and usage of trade, or act incidental to carrying out the agents duties. Principal and third party acts are bound to the contract.
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Summary Formation of Agency Relationships (2 of
2)
Type of Agency Definition Enforcement of the Contract
Apparent Authority created when the principal leads a third party into believing that the agent has authority. Principal and third party are bound to the contract.
By Ratification Acts of the agent committed outside the scope of his authority. Principal and third party are not bound to the contract unless the principal ratifies the contract.
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Persons 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.
• Persons who lack contractual capacity cannot
  appoint an agent.
• e.g., insane persons and minors

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Persons Who Can Initiate an Agency Relationship
(continued)

• An agency can be created only to accomplish a
  lawful purpose.
• Agency contracts that are created for illegal
  purposes or are against public policy are void
  and unenforceable.
• Voting
• Serving a criminal sentence.

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Kinds of Employment Relationships
Employer-Employee Relationship
Principal-Agent Relationship
Principal-Independent Contractor Relationship
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Employer - Employee Relationship

• A relationship that results when an employer
  hires an employee to perform some form of
  physical service.
• An employee is not an agent unless he or she is
  specifically empowered to enter into contracts on
  the principal employers behalf.

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Principal-Agent Relationship

• An employer hires an employee and gives that
  employee authority to act and enter into
  contracts on his or her behalf.
• The extent of this authority is governed by any
  express agreement between the parties and implied
  from the circumstances of the agency.

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Principal - Independent Contractor Relationship

• Principals employ persons or businesses who are
  not employees to perform certain tasks on their
  behalf.
• These persons and businesses are called
  independent contractors.

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Principal-Independent Contractor Relationship
(continued)

• A principal can authorize an independent
  contractor to enter into contracts.
• Principals are bound by the authorized contracts
  of their independent contractors.
• The crucial factor in determining whether a
  person is an employee or an independent
  contractor is the degree of control that the
  principal has over that person.

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FOCUS

• Refer to the list of times you would want agents
  to deal for you.
• Make a list of the duties that you would have
  expected these agents to fulfill.

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Agents Duties to the Principal
Notification
Performance
Loyalty
Accountability
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WHAT ARE AN AGENTS DUTIES?

• Duties owed the principal
• Loyalty and obedience
• Reasonable care and skill
• Confidentiality
• Accounting
• Duties owed to third parties
• Exceeding the scope of authority
• Principals lack of capacity
• Liability due to an undisclosed principal

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Agents Duties

• An agent who enters into a contract with a
  principal has two distinct obligations.
• Collectively, these are referred to as the
  agents duty of performance.
• Performing the lawful duties expressed in the
  contract
• Meeting the standards of reasonable care, skill,
  and diligence implicit in all contracts.

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Agents Duties (continued)

• Duty of notification
• The agents has a duty to notify the principal of
  any information that is important,
• Imputed knowledge
• Duty of accountability
• Agent has duty to maintain accurate accounting of
  all transactions undertaken on the principals
  behalf.

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Tort Liability of Principals and Agents to Third
Parties (1 of 2)
Agents Conduct Agent Liable Principal Liable
Misrepre- sentation Yes The principal is liable for the intentional and innocent misrepresentations made by an agent acting within the scope of his or her authority.
Negligence Yes The principal is liable under the doctrine of respondeat superior if the agents negligent act was committed within his scope of employment.
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Tort Liability of Principals and Agents to Third
Parties (2 of 2)
Agents Conduct Agent Liable Principal Liable
Intentional Tort Yes Motivation Test The principal is liable if the agents motivation in committing the intentional tort was to promote the principals business.
Intentional Tort Yes Work-Related Test The principal is liable if the agent committed the intentional tort within work-related time and space.
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WHAT ARE THE PRINCIPALS DUTIES?

• Duties owed the agent
• Duties owed third parties

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Principals Duties

• The principal has a duty to compensate an agent
  for services provided within a mutually agreeable
  time.
• If the agent spends his or her own money, on the
  principals behalf, the principal owes a duty to
  reimburse the agent for all such expenses if they
  were
• Authorized by the principal.
• Within the scope of the agency.
• Necessary to discharge the agents duties in
  carrying out the agency.

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Principals Duties (continued)

• A principal owes a duty to indemnify the agent
  for any losses the agent suffers because of the
  principal. Such duty arises when the agent is
  held liable for the principals misconduct.
• The principal owes a duty to cooperate with and
  assist the agent in the performance of the
  agents duties and accomplishments of the agency.

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HOW IS AN AGENCY TERMINATED?

• By unilateral action of a party
• By agreement
• By operation of law

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Independent Contractor

• Principals often employ outsiders (persons or
  businesses who are not employees) to perform
  certain tasks on their behalf.

Principal
Contract
Independent Contractor
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Liability for Independent Contractors Torts

• A principal is generally not liable for the
  tortious conduct of independent contractors it
  hires.
• Independent contractors are personally liable for
  their own torts.
• The rationale behind this rule is that principals
  do not control the means by which the results are
  accomplished.

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Liability for Independent Contractors Torts
(continued)

• A principal is, however, liable for the tortious
  conduct of an independent contractor involving
• Inherently dangerous activities.
• The negligent selection of the independent
  contractor
• Crucial factor is degree of control

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Termination of an Agency

• An agency contract is similar to other contracts
  in that it can be terminated by
• Acts of the parties, or
• Operation of law
• Once an agency relationship is terminated, the
  agent can no longer represent the principal or
  bind the principal to contracts.

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Termination by Acts of the Parties

• An agency may be terminated by the following
  acts of the parties
• Mutual agreement
• Lapse of time
• Purpose achieved
• Occurrence of a specified event

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Notification Required

• The principal is responsible to give certain
  third parties notification of the agency
  termination.
• Parties who dealt with the agent must be given
  direct notice
• Parties who have knowledge of the agency must be
  given direct or constructive notice
• Parties who have no knowledge of the agency are
  owed no notice

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Termination by Operation of Law

• An agency is terminated by operation of law,
  including
• Death of the principal or agent
• Insanity of the principal or agent
• Bankruptcy of the principal
• Impossibility of performance
• Changed circumstances
• War between the principals and agents countries

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Wrongful Termination of an Agency or Employment
Contract

• The termination of an agency contract in
  violation of the terms of the agency contract.
• The nonbreaching party may recover damages from
  the breaching party.
• The distinction between the power and the right
  to terminate an agency is critical.
• Revocation of authority
• Renunciation of authority