Chapter 25: Agency Formation and Duties Miller Chapter 25: Agency Formation and Duties

Introduction Agency = Principal and Agent. Agency is the most common and most important legal relationship. Understanding agency is crucial to understanding the legal environment of business.

Introduction Principals use agents to be able to conduct multiple business operations simultaneously in various locations. The principal has the right to control the agent in matters entrusted to the agent.

§ 1: Agency Relationships Agency is a “fiduciary” relationship based on trust and confidence. Employer-Employer Relationships. Employees are agents. Employment law applies to employers-employees. 

Agency Relationships Employer-Independent Contract Relationships. Employers do not have “control” over details of IC’s work performance. Agency may – or may not – be involved depending on facts. 

Determination of Employee Status A “Yes” Tends to Show Employee Status E’ee I.C. No Yes Does the Employer exercise a great degree of control over the details of the work? Yes No Is the worker engaged in an occupation or business distinct from Employer? No Yes Is the work usually done under Employer’s supervision? No Yes Does Employer provide the tools? No Yes Has the worker been employed a long time? Yes No Is the worker paid at the end of the job? Yes No Is there a great degree of skill required?

Agency Relationships Determination of Employee Status. Disputes Involving Tort Liability. CASE 25.1 Coker v. Pershad (2013). Criteria Used by the IRS. 

Agency Relationships Determination of Employee Status. Employee Status and “Works for Hire”: any copyrighted work created during scope of employment is owned by employer.

§2: Formation of the Agency Relationship Generally, agency relationships : Are consensual. Require no consideration. Require principal to have contractual capacity (agent does not). Can be created for any legal purpose.

Formation of the Agency Relationship Agency by Agreement. Formed through express consent (oral or written) or implied by conduct. CASE 25.2 Laurel Creek Health Care Center v. Bishop (2010).

Formation of the Agency Relationship Agency by Ratification. Principal either by act or by agreement ratifies conduct of a person who is not in fact an agent.

Formation of the Agency Relationship Agency by Estoppel. Principal causes a third person to believe that another person is the Principal’s Agent, and the third person acts to her detriment in reasonable reliance on that belief.

Formation of the Agency Relationship Agency by Operation of Law. Agency based on social duty is formed in certain situations when the Agent is unable to contact the Principal. Necessaries. Emergencies.

§3: Duties of Agents and Principals Agent’s Duties to the Principal: Performance: implied condition to use reasonable diligence and skill. If agent fails, possible breach of contract. Standard of Care.  Gratuitous Agent: only liable for torts.

Duties of Agents and Principals Agent’s Duties to the Principal: Performance: Gratuitous Agent: only liable for torts. Notification: to principal of all matters concerning subject matter of agency.

Duties of Agents and Principals Agent’s Duties to the Principal: Loyalty: fundamental duty as fiduciary (no conflict of interest). Actions must benefit the principal. CASE 25.3 Taser International, Inc. v. Ward (2010).

Duties of Agents and Principals Agent’s Duties to the Principal: Obedience. Agent has duty to follow all lawful and clearly stated instructions. Accounting. Agent must not intermingle principal’s funds with his own.

Duties of Agents and Principals Principal’s Duties to Agent. Compensation (Express or Implied). Reimbursement and Indemnification. Cooperation. Safe Working Conditions.

§ 4: Rights and Remedies of Agents and Principals Agent’s Rights and Remedies: Right to be compensated, reimbursed, and indemnified and to work in a safe environment. Torts and Contract Remedies. Demand for an Accounting. No Right to Specific Performance.

Rights and Remedies of Agents and Principals Principal’s Rights and Remedies: Remedies for breach of fiduciary duty, and agent’s torts. Constructive Trust: anything that agent obtains during her employment or agency belongs to the principal. 

Rights and Remedies of Agents and Principals Principal’s Rights and Remedies: Avoidance: principal has right to avoid contract if agent does not do as told. Indemnification: principal can sue agent.