Chapter 31 Agency Formation and Duties BUSINESS LAW: Text & Cases Legal, Ethical, International, and E-Commerce Environment 11 th Ed. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

2Introduction Agency=Principal and Agent. Agency=Principal and Agent. Agency is the most common and most important legal relationship. Agency is the most common and most important legal relationship. Understanding agency is crucial to understanding the legal environment of business. Understanding agency is crucial to understanding the legal environment of business.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 3Introduction Principals use agents to be able to conduct multiple business operations simultaneously in various locations. 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. The principal has the right to control the agent in matters entrusted to the agent.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 4 Agency is a fiduciary relationship based on trust and confidence. Agency is a fiduciary relationship based on trust and confidence. Distinguish Employee vs. Independent Contractor Relationships. Distinguish Employee vs. Independent Contractor Relationships. § 1: Agency Relationships Employer Employee Independent Contractor

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 5 Factors: Employee or Independent Contractor Status YesNo Is there a great degree of skill required? YesNo Is the worker paid at the end of the job? NoYes Has the worker been employed a long time? NoYes Does Employer provide the tools? NoYes Is the work usually done under Employers supervision? YesNo Is the worker engaged in an occupation or business distinct from Employer? NoYes Does the Employer exercise a great degree of control over the details of the work? I.C. Eee Eee Factors Courts Consider (p. 639):

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 6Liability Criteria used by the Courts..CASE 31.1 Alberty-Velez v. Corporacion de Puerto Rico (2004). Criteria used by the IRS.Criteria used by the IRS.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 7 Employer Liability Determining whether the worker is an employee or an independent contract affects liability of Principal/Employer. Determining whether the worker is an employee or an independent contract affects liability of Principal/Employer. –Tax Liability: Employer liable if employee. –Contract Liability: Employer not necessarily liable. –Tort Liability: Employer liable for torts of employee within scope of employment. Employee Status and Works for Hire. Employee Status and Works for Hire.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 8 §2: Formation of the Agency Relationship Consensual Agreement. Consensual Agreement. No consideration required. No consideration required. Principal needs contractual capacity, Agent does not. Principal needs contractual capacity, Agent does not. For any legal purpose. For any legal purpose.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 9 Types of Agencies Agency by Agreement. Agency by Agreement. Agency by Ratification. Agency by Ratification. Agency by Estoppel. Agency by Estoppel. Agency by Operation of Law. Agency by Operation of Law. –Necessaries for family. –Emergency.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 10 Agency By Agreement Formed through express consent (oral or written) or implied by conduct. Formed through express consent (oral or written) or implied by conduct.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 11 Agency by Ratification Principal either by act or by agreement ratifies conduct of a person who is not in fact an agent. Principal either by act or by agreement ratifies conduct of a person who is not in fact an agent.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 12 Agency by Estoppel Principal causes a third person to believe that another person is the Principals Agent, and the third person acts to her detriment in reasonable reliance on that belief. Principal causes a third person to believe that another person is the Principals Agent, and the third person acts to her detriment in reasonable reliance on that belief. CASE 31.2 Motorsport Marketing, Inc. v. Wiedmaier, Inc. (2006). CASE 31.2 Motorsport Marketing, Inc. v. Wiedmaier, Inc. (2006).

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 13 Agency by Operation of Law Agency based on social duty is formed in certain situations when the Agent is unable to contact the Principal. Agency based on social duty is formed in certain situations when the Agent is unable to contact the Principal. –Necessaries. –Emergencies.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 14 §3: Duties of Agents and Principals Agents Duties to the Principal: Agents Duties to the Principal: –Performance: reasonable diligence and skill (special skills). –Notification to P. –Loyalty (no conflict of interest). –Obedience. –Accounting. CASE 31.3 Gossels v. Fleet National Bank, Inc. (2007).CASE 31.3 Gossels v. Fleet National Bank, Inc. (2007).

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 15 Principals Duties to Agent Compensation (Express or Implied). Compensation (Express or Implied). Reimbursement and Indemnification. Reimbursement and Indemnification. Cooperation. Cooperation. Provide safe working conditions. Provide safe working conditions.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 16 Rights of Agents: Rights of Agents: –Right to compensation, reimbursement, indemnification and cooperation. –Agent can withhold performance and demand an accounting. –Agent can recover damages for past services and future damages. § 4: Rights and Remedies of Agents and Principals

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 17 Principals Rights and Remedies: Principals Rights and Remedies: –Contract remedies for breach of fiduciary duty and performance. –Can sue in tort: libel, slander, trespass, deceit, fraud. –Constructive Trust – money/ property agent steals from Principal. –Avoidance of contract if agent does not do as told. –Indemnification. Rights and Remedies of Agents and Principals