1 MAN-3 Erlan Bakiev, Ph. D. Agency Formation and Duties MAN-3 Erlan Bakiev, Ph. D. Agency Formation and Duties

2 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. 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.

3 Introduction [2] 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. 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.

4 Agency is a “ fiduciary ” relationship based on trust and confidence. Distinguish Employee vs. Independent Contractor Relationships. Agency is a “ fiduciary ” relationship based on trust and confidence. Distinguish Employee vs. Independent Contractor Relationships. § 1: Agency Relationships Employer Employee Independent Contractor Independent Contractor

Creating an Agency Relationship 5 Agency is a relationship in which the agent agrees to perform a task for, and under the control of, the principal. To create an agency, there must be:  A principal,  An agent,  Who mutually consent that the agent will act on behalf of the principal, and  Be subject to the principal ’ s control,  Thereby creating a fiduciary relationship. Agency is a relationship in which the agent agrees to perform a task for, and under the control of, the principal. To create an agency, there must be:  A principal,  An agent,  Who mutually consent that the agent will act on behalf of the principal, and  Be subject to the principal ’ s control,  Thereby creating a fiduciary relationship.

Copyright © 2004 by Prentice-Hall. All rights reserved. Formation of the Agency Relationship Express Agency Implied Agency Apparent Agency Agency by Ratification

Principal-Independent Contractor Relationship degree of control The crucial factor in determining whether a person is an employee or an independent contractor is the degree of control that the principal has over that person. 7

8 Kinds of Employment Relationships Type of Relationship Description Employer-Employee The employer has the right to control the physical conduct of the employee. Principal-Agent The agent has the 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. Principal-Independent Contractor The principal has no control over the details of the independent contractor ’ s conduct. An independent contractor is usually not an agent of the principal.

9 Employer Liability 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.  Works for Hire. Case 31.1: Graham v. James (1998). 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.  Works for Hire. Case 31.1: Graham v. James (1998).

10 §2: Formation of the Agency Relationship Consensual Agreement. No consideration required. Principal needs contractual capacity, Agent does not. For any legal purpose. Consensual Agreement. No consideration required. Principal needs contractual capacity, Agent does not. For any legal purpose.

11 Types of Agencies Agency by Agreement. Agency by Ratification. Agency by Estoppel. Agency by Operation of Law.  Necessaries for family.  Emergency. Agency by Agreement. Agency by Ratification. Agency by Estoppel. Agency by Operation of Law.  Necessaries for family.  Emergency.

12 Agency By Agreement Formed through express consent (oral or written) or implied by conduct.

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

14 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.

15 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. Agency based on social duty is formed in certain situations when the Agent is unable to contact the Principal.  Necessaries.  Emergencies.

16 Agent ’ s Duties to Principal Performance: reasonable diligence and skill (special skills). Notification to P. Loyalty (no conflict of interest). Obedience. Accounting. Performance: reasonable diligence and skill (special skills). Notification to P. Loyalty (no conflict of interest). Obedience. Accounting.

17 Principal ’ s Duties to Agent Compensation (Express or Implied). Reimbursement and Indemnification. Cooperation. Provide safe working conditions. Compensation (Express or Implied). Reimbursement and Indemnification. Cooperation. Provide safe working conditions.

18 § 4: Rights and Remedies of Agents and Principals 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. 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.

19 Principal ’ s 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 Principal ’ s 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

20 “ Once again, the subject is tradeoffs. You can accomplish more if other people do things for you. On the other hand, you may face liability for their actions. ”