AGENCY The Agency Relationship

Creation of Agency An Agreement of two parties that on party (the agent) will act for the benefit of the other (the principal) under the principal’s direction. An Agreement of two parties that on party (the agent) will act for the benefit of the other (the principal) under the principal’s direction.

Creation of Agency Consideration is not necessary. Consideration is not necessary. An agency contract may be oral unless state law provides otherwise. An agency contract may be oral unless state law provides otherwise. –Statute of Frauds Contracts which cannot be performed within one year must be in writing Contracts which cannot be performed within one year must be in writing –Equal Dignity Rule Requires agent’s authority to be in writing if agent is entering into a contract which must be in writing Requires agent’s authority to be in writing if agent is entering into a contract which must be in writing

Creation of Agency Agency through ratification by principal Agency through ratification by principal –Occurs when agent represents that he has authority he really does not have, and principal accepts the results of the agent’s act. agent represents that he has authority he really does not have, and principal accepts the results of the agent’s act. –Conditions necessary for effective ratification: Principal must have full knowledge of the agent’s action. Principal must have full knowledge of the agent’s action. Existence of principal must be clear to third party at time of agent’s act. Existence of principal must be clear to third party at time of agent’s act.

Creation of Agency Agency by estoppel, (apparent agency) –Actions of principal lead third person to believe that a certain person is her agent. –Third party relies on principal’s conduct.

Employee or Independent Contractor Employee or Independent Contractor Determines liability to pay and withhold Federal income tax, social security and Medicare taxes, and Federal unemployment tax, as well as Medical Benefits, Retirement, etc. Above paid for employee but not for Independent Contractor

Employee or Independent Contractor Facts to consider in deciding whether a worker is an independent contractor or an employee.  Behavioral Control  Financial Control  Type of Relationship

Employee or Independent Contractor Behavioral Control 1.when, where, and how to work 2.what tools or equipment to use 3.what workers to hire or to assist with the work 4.where to purchase supplies and services 5.what work must be performed by a specified individual individual 6.what order or sequence to follow

Employee or Independent Contractor Financial Control ich are not reimbursed The extent to which the worker has expenses which are not reimbursed The extent of the worker’s investment The extent to which the worker makes services available to the relevant market How the business pays the worker The extent to which the worker can realize a profit or loss

Employee or Independent Contractor Type of Relationship Written contracts describing the relationship the parties intended to create Whether the worker is provided with employee-type benefits The permanency of the relationship How integral the services are to the principal activity

Agents Duties to Principal –Duty of loyalty (Fiduciary Duty) –Duty of obedience –Duty of accounting –Duty of performance –Duty of Notification

Duty of Loyalty / Fiduciary Duty Fiduciary duty is one of utmost loyalty and good faith. Requires: Fiduciary duty is one of utmost loyalty and good faith. Requires: a. Agent must act solely in the interest of his principal. b. Cannot compete with principal or act on behalf of a competitor. c. May not use of disclose confidential information

Agents Duties to Principal Duty to Account : Agent must maintain and provide true and complete accounting of money and property received or expended on behalf of the principal. Duty to Account : Agent must maintain and provide true and complete accounting of money and property received or expended on behalf of the principal. Duty of Obedience: Agent must act only as authorized and directed by the principal and obey reasonable instructions of the principal. Duty of Obedience: Agent must act only as authorized and directed by the principal and obey reasonable instructions of the principal.

Agents Duties to Principal Duty of Due Diligence: Agent must act with reasonable care and skill in performing agency responsibilities. Duty of Due Diligence: Agent must act with reasonable care and skill in performing agency responsibilities. Duty to Inform: Agent must provide principal with information relevant to the affairs entrusted to agent. Duty to Inform: Agent must provide principal with information relevant to the affairs entrusted to agent. (Notice to agent is notice to principal) (Notice to agent is notice to principal)

Duties of Principal to Agent Principal’s duties to agent Principal’s duties to agent –Duty of compensation –Duty of reimbursement and indemnification –Duty of cooperation –Duty to provide safe working conditions

Termination of the Principal- Agent Relationship Termination by agreement Termination by agreement –Either party may decide to terminate the agency. (However, party may not have right to terminate) –Notice should be given to third parties. Actual notice to those who dealt with the agent. Constructive notice by newspaper to others. Termination by law:(Terminates actual authority) Termination by law:(Terminates actual authority) Death of one of the parties. Incapacity of one of the parties. Bankruptcy of the principal. Outbreak of war. Intervening Illegality Destruction of subject matter Destruction of subject matter

Termination Exception: Exception: Agency coupled with an interest may not be terminated by the principal Agency coupled with an interest may not be terminated by the principal

Notice To terminate apparent authority third party needs to be aware that agency relationship has terminated. Generally accomplished by notice. Actual notice to those who have dealt with agent. Constructive notice to all others

Notice Apparent authority is terminated and no notice is required if agency terminates as a result of: Death of principal Incapacity of principal Bankruptcy of principal