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CHAPTER 29 AGENCY: CREATION AND TERMINATION DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles in the Legal Environment (8 th Ed.)

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Presentation on theme: "CHAPTER 29 AGENCY: CREATION AND TERMINATION DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles in the Legal Environment (8 th Ed.)"— Presentation transcript:

1 CHAPTER 29 AGENCY: CREATION AND TERMINATION DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles in the Legal Environment (8 th Ed.)

2 © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 2 AGENCY LAW AND AGENCY RELATIONSHIPS Agency law concerns relationships between employees and employers. Agency law concerns relationships between employees and employers. Agency law involves duties/responsibilities to each other, and the public at large. Agency law involves duties/responsibilities to each other, and the public at large. Agency law places significance reliance on state law and precedent. Agency law places significance reliance on state law and precedent.

3 © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 3 AGENCY LAW AND AGENCY RELATIONSHIPS Restatement explains key terms: Restatement explains key terms: – Agency is a fiduciary relationship resulting from consent of one person to another that the other shall act on his/her behalf. – Principal one whom action is taken for. – Agent one who is to act.

4 © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 4 AGENCY LAW AND AGENCY RELATIONSHIPS Agency relationship is consensual in nature. Agency relationship is consensual in nature. Based on concept that parties mutually agree: Based on concept that parties mutually agree: – Agent will act on behalf of principal. – Agent will be subject to principal’s direction and control. Agreement can be expressed or implied. Agreement can be expressed or implied.

5 © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 5 AGENCY LAW AND AGENCY RELATIONSHIPS Analysis of Agency Relationships: Analysis of Agency Relationships: – Was dispute between principal and agent? – Agency formed voluntarily by principal and agent, or is there other relationship? – Did parties have capacity to perform roles as principal and agent? – What authority did principal vest on agent? – Did agent enter into contract or commit a tort?

6 © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 6 RESTRICTIONS ON CREATING AN AGENCY RELATIONSHIP Agency law affects broad range of situations. Agency law affects broad range of situations. Few restrictions on who can form agency relationship. Few restrictions on who can form agency relationship. One restriction is agency agreement require agent to perform legal acts. One restriction is agency agreement require agent to perform legal acts.

7 © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 7 Capacity to Be a Principal. Capacity to Be a Principal. – With exception of minors and incompetents, any person can appoint an agent. – Generally any person having capacity to contract can employ servant or nonservant agent. Capacity to Be an Agent. Capacity to Be an Agent. – Anyone can be an agent. – It is capacity of the principal that controls. RESTRICTIONS ON CREATING AN AGENCY RELATIONSHIP

8 © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 8 Duties an Agent Can Perform. Duties an Agent Can Perform. – Agents authorized to do almost any legal task. – 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 work to take precautions. Duty of person engaged in inherently dangerous work to take precautions. – Non-delegable duties defined by state statutes. RESTRICTIONS ON CREATING AN AGENCY RELATIONSHIP

9 © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 9 TYPES OF AGENCY RELATIONSHIPS General and Special Agents. General and Special Agents. – Special agent: employed to complete one transaction or simple series of transactions, the relationship covers limited period and is not continuous. – General agent: conduct series of transactions, has more discretion to carry out employers’ business.

10 © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 10 TYPES OF AGENCY RELATIONSHIPS General and Special Agents. General and Special Agents. – Factors that determine agent’s status: Number of acts agent must complete to obtain an authorized result. Number of acts agent must complete to 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 desired result. Length of time necessary to obtain the desired result.

11 © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 11 TYPES OF AGENCY RELATIONSHIPS Gratuitous Agents. Gratuitous Agents. – Person volunteers services without an agreement or expectation of payment. – Requirements: Person volunteered to help another. Person volunteered to help another. Person being helped accepted this assistance. Person being helped accepted this assistance.

12 © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 12 SERVANTS AND INDEPENDENT CONTRACTORS Most workers are servants or independent contractors. Most workers are servants or independent contractors. Servants and employees are synonymous. Servants and employees are synonymous. Servants (Employees): Servants (Employees): – Physically work for Master; and – Master (employer) has right to control how task accomplished.

13 © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 13 Servants: Servants: – Distinction between servant and independent contractor in determining liability for employee’s conduct. – Employer liable for physical acts of servant. SERVANTS AND INDEPENDENT CONTRACTORS

14 © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 14 Independent Contractors: Independent Contractors: – Hired by employer to accomplish a task for someone else. – Hiring party does not control or subject to control physical acts of independent contractor. – Independent contractors who are agents have fiduciary duties and can bind their principals of contracts. SERVANTS AND INDEPENDENT CONTRACTORS

15 © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 15 Responsibility for Independent Contractors. Responsibility for Independent Contractors. – Contract Liability: principals who engage independent contractors as agents will be liable on contract if contract was authorized. – Tort Liability: independent contractor who is injured while working generally can’t recover from hiring party. Employees of independent contractors have been permitted to recover from independent contractor. SERVANTS AND INDEPENDENT CONTRACTORS

16 © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 16 Responsibility for Independent Contractors. Responsibility for Independent Contractors. – Employer not liable for physical acts of independent contractors unless hiring party: Reserves right to supervise/control work. Reserves right to supervise/control work. Directs independent contractor to do something wrong. Directs independent contractor to do something 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 engage in ultrahazardous activities. Independent contractor hired to commit crime and engage in ultrahazardous activities. SERVANTS AND INDEPENDENT CONTRACTORS

17 © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 17 DUTIES OF THE AGENT TO THE PRINCIPAL 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 Loyalty. – Duty to Obey All Lawful Instructions. – Duty to Act with Reasonable Care. – Duty to Segregate Funds. – Duty to Account for Funds. – Duty to Give Notice.

18 © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 18 DUTIES OF THE PRINCIPAL TO THE AGENT Principal duties may be specified in the contract between principal and agent. Principal duties may be specified in the contract between principal and agent. In general, principal has following obligations to the agent: In general, principal has following obligations to the agent: – Pay agent per the agreement. – Maintain proper accounts so compensation and reimbursement will be correct. – Provide agent with means to do the job. – Continue employment for time period specified.

19 © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 19 TERMINATION OF THE AGENCY RELATIONSHIP Agreement of Parties. Agreement of Parties. – Contract between principal and agent state when it will end. Agency at Will. Agency at Will. – Terminable at any time by either party after notice. Fulfillment of the Agency Purpose. Fulfillment of the Agency Purpose. – Completion of work terminates.

20 © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 20 TERMINATION OF THE AGENCY RELATIONSHIP Revocation. Revocation. – Principals revoke authority of agents to act on their behalf. Renunciation. Renunciation. – Agent notifies principal they quit.

21 © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 21 TERMINATION OF THE AGENCY RELATIONSHIP Operation of Law. Operation of Law. – 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 agency. Agent becomes bankrupts, if bankruptcy affects the 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.

22 © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 22 TERMINATION OF THE AGENCY RELATIONSHIP Importance of Notice. Importance of Notice. – Early termination by either party, except by operation of law, requires notice. – Actual or constructive notice may be acceptable. Breach of Agency Agreement. Breach of Agency Agreement. – If principal wrongfully revokes agent’s authority, agent can sue for breach of express or implied contract.


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