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

AGENCY LAW AND AGENCY RELATIONSHIPS Agency law concerns relationships between employees and employers. 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 AND AGENCY RELATIONSHIPS 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.

AGENCY LAW AND AGENCY RELATIONSHIPS Agency relationship is consensual in nature. 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.

AGENCY LAW AND 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?

RESTRICTIONS ON CREATING AN AGENCY RELATIONSHIP Agency law affects broad range of situations. Few restrictions on who can form agency relationship. One restriction is agency agreement require agent to perform legal acts.

RESTRICTIONS ON CREATING AN AGENCY RELATIONSHIP 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. Anyone can be an agent. It is capacity of the principal that controls.

RESTRICTIONS ON CREATING AN AGENCY RELATIONSHIP 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. Person’s duty under certain contracts. Landlord duties to tenants. Common carrier’s duty to passengers. Duty of person engaged in inherently dangerous work to take precautions. Non-delegable duties defined by state statutes.

TYPES OF AGENCY RELATIONSHIPS 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.

TYPES OF AGENCY RELATIONSHIPS General and Special Agents. Factors that determine agent’s status: Number of acts agent must complete to obtain an authorized result. Number of people that must be dealt with. Length of time necessary to obtain the desired result.

TYPES OF AGENCY RELATIONSHIPS Gratuitous Agents. Person volunteers services without an agreement or expectation of payment. Requirements: Person volunteered to help another. Person being helped accepted this assistance.

SERVANTS AND INDEPENDENT CONTRACTORS Most workers are servants or independent contractors. Servants and employees are synonymous. Servants (Employees): Physically work for Master; and Master (employer) has right to control how task accomplished.

SERVANTS AND INDEPENDENT CONTRACTORS Distinction between servant and independent contractor in determining liability for employee’s conduct. Employer liable for physical acts of servant.

SERVANTS AND 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 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 Responsibility for Independent Contractors. Employer not liable for physical acts of independent contractors unless hiring party: Reserves right to supervise/control work. Directs independent contractor to do something wrong. Knew about activity and did nothing to stop it. Does not supervise independent contractor. Careless in selecting independent contractor. Independent contractor hired to commit crime and engage in ultrahazardous activities.

DUTIES OF THE AGENT TO THE PRINCIPAL Agent must protect interests of principal. 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 .

DUTIES OF THE PRINCIPAL TO THE AGENT Principal duties may be specified in the contract between principal and 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.

TERMINATION OF THE AGENCY RELATIONSHIP Agreement of Parties. Contract between principal and agent state when it will end. Agency at Will. Terminable at any time by either party after notice. Fulfillment of the Agency Purpose. Completion of work terminates.

TERMINATION OF THE AGENCY RELATIONSHIP Revocation. Principals revoke authority of agents to act on their behalf. Renunciation. Agent notifies principal they quit.

TERMINATION OF THE AGENCY RELATIONSHIP Operation of Law. Termination occurs automatically: Upon death of agent or principal. Either party becomes insane. Principal becomes bankrupt. Agent becomes bankrupts, if bankruptcy affects the agency. Agency cannot be performed. Unforeseen events destroy the agency relationship. Change in law makes agency illegal.

TERMINATION OF THE AGENCY RELATIONSHIP 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. If principal wrongfully revokes agent’s authority, agent can sue for breach of express or implied contract.