1. Chapter 29 Agency Formation and Termination

2. Introduction to Agency Formation and Termination
Use of agents — allows one person to act on behalf of another
Independent contractors — Outside contractors who are employed by a principal to conduct limited activities for the principal
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Agency
Principal–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”
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Agency
Agency law: The large body of common law that governs agency
A mixture of contract law and tort law
Principal: A party who employs another person to act on his or her behalf
Agent: A party who agrees to act on behalf of another
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5. Exhibit 29.1: Principal–Agent Relationship
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6. Who Can Initiate 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
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7. Kinds of Employment Relationships
Type of Relationship
Description
Principal–agent
The agent has authority to act on behalf of the principal, as authorized by the principal and implied from the agency.
An employee is often the agent of his employer.
Employer–employee
An employee is hired to perform a task or service.
An employee cannot enter into contracts
on behalf of the employer.
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8. Independent Contractor
Principal-independent contractor relationship: The relationship between a principal and an independent contractor
The contractor is not an employee of the principal but has been employed by the principal to perform a certain task on behalf of the principal
A principal can authorize an independent contractor to enter into contracts
Principals are bound by the contracts
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Case 29.1: Agency
Case
Bosse v. Brinker Restaurant Corporation, d.b.a. Chili’s Grill and Bar
Web 2005 Mass. Super. Lexis 372 (2005)
Superior Court of Massachusetts
Issue
Is the restaurant patron who engaged in the high- speed car chase an agent of Chili’s?
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Power of Attorney
An express agency agreement that is often used to give an agent the power to sign legal documents on behalf of the principal
General power of attorney: A principal confers broad powers on the agent to act in any matters on the principal’s behalf
Special power of attorney: A principal confers powers on an agent to act in specified matters on the principal’s behalf
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11. Case 29.2: Scope of Employment
Matthews v. Food Lion, LLC
695 S.E.2d 828, Web 2010 N.C. App. Lexis 1151 (2010)
North Carolina Court of Appeals
Issue
Was Hall acting within the scope of her employment at the time of the accident?
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12. Formation of Agency Relationships
Type of Agency
Formation
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 agent’s duties
By ratification
Principal and third party are not bound to the contract unless the principal ratifies the contract
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13. Formation of Agency Relationships
Type of Agency
Formation
Enforcement of the Contract
Apparent
Authority is created when the principal leads a third party to believe that the agent has authority
Principal and third party are bound to the contract
Incidental
Authority that is implied to act beyond express agency powers to take all actions reasonably necessary to protect the principal’s property and rights
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Principal’s Duties
Principal’s Duties
Duty to indemnify
Duty to reimburse
Duty to cooperate
Duty to compensate
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15. Principal’s Duty to Compensate
A duty that a principal owes to pay an agreed-upon amount to the agent
Either upon the completion of the agency or at some other mutually agreeable time
Agency contract specifies the compensation to be paid
No agreement as to the amount of compensation – principal will pay the agent the customary fee paid in the industry
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16. Principal’s Duty to Reimburse
The principal owes a duty to reimburse the agent for expenses incurred by the agent if the expenses were
Authorized by the principal
Within the scope of the agency
Necessary to discharge the agent’s duties in carrying out the agency
Unless otherwise agreed upon
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17. Principal’s Duty to Indemnify
A principal owes a duty to indemnify the agent for any losses the agent suffers because of the principal’s conduct
Duty to cooperate: 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
Unless otherwise agreed upon
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Agent’s Duties
Agent’s Duties
Duty to account
Duty to notify
Duty to perform
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19. Agent’s Duty to Perform
An agent’s duty to a principal that includes
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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Agent’s Duty to Notify
An agent owes a duty to notify the principal of important information concerning the agency
Imputed knowledge: Information that is learned by an agent that is attributed to the principal
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21. Agent’s Duty to Account
A duty that an agent owes to maintain an accurate accounting of all transactions undertaken on the principal’s behalf
Requires the agent to
Maintain a separate account for the principal
Use the principal’s property in an authorized manner
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22. Termination of Agency by Act of Parties
Agency can be terminated by the following acts
Mutual assent of the parties
If a stated time has lapsed
If a specified purpose is achieved
Occurrence of a stated event
Notice of Termination
Direct notice
Constructive notice
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23. Termination by an Unusual Change in Circumstances
Unusual change in circumstances – leads the agent to believe that the principal’s original instructions should no longer be valid
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
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24. Termination by Operation of Law
An agency contract is terminated 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
No duty to notify third parties about the termination
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Wrongful Termination
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
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