Chapter 33 Agency Formation and Duties Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

Introduction to Agency Law Agency: Relationship between principal and agent Agency: Relationship between principal and agent Agent: One authorized to act for/on behalf of principal Agent: One authorized to act for/on behalf of principal Principal: One who hires agent to represent him/her Principal: One who hires agent to represent him/her Fiduciary: One with duty to act primarily for another person’s benefit Fiduciary: One with duty to act primarily for another person’s benefit 33-2

Creation of Agency Relationship Expressed Agency: Agency formed by making written/oral agreement Expressed Agency: Agency formed by making written/oral agreement Power of Attorney: Document giving agent authority to sign legal documents on behalf of principal Power of Attorney: Document giving agent authority to sign legal documents on behalf of principal Durable Power of Attorney: Power of attorney intended to continue to be effective/take effect after principal incapacitated Durable Power of Attorney: Power of attorney intended to continue to be effective/take effect after principal incapacitated Agency By Implied Authority: Agency formed by implication, through conduct of parties Agency By Implied Authority: Agency formed by implication, through conduct of parties Agency By Estoppel: Agency formed when principal leads third party to believe that another individual serves as his/her agent (although principal had actually made no agreement with purported agent) Agency By Estoppel: Agency formed when principal leads third party to believe that another individual serves as his/her agent (although principal had actually made no agreement with purported agent) Agency By Ratification: Agency that exists when individual misrepresents himself/herself as agent for another party, and principal accepts/ratifies unauthorized act Agency By Ratification: Agency that exists when individual misrepresents himself/herself as agent for another party, and principal accepts/ratifies unauthorized act 33-3

Requirements for “Agency By Ratification” Individual must misrepresent himself/herself as agent for another party Individual must misrepresent himself/herself as agent for another party Principal accepts/ratifies unauthorized act Principal accepts/ratifies unauthorized act Principal has complete knowledge of all material facts regarding contract Principal has complete knowledge of all material facts regarding contract Principal must ratify entirety of agent’s act Principal must ratify entirety of agent’s act 33-4

Agency Relationships Agency Relationship: Fiduciary relationship (relationship of trust) in which agent acts on behalf of principal Agency Relationship: Fiduciary relationship (relationship of trust) in which agent acts on behalf of principal Principal-Agent Relationship: Employer hires employee to enter into contracts on behalf of employer; parties have agreed that agent will have power to bind principal in contract Principal-Agent Relationship: Employer hires employee to enter into contracts on behalf of employer; parties have agreed that agent will have power to bind principal in contract Employer-Employee Relationship: Employer hires employee to perform certain tasks; employer has right to control conduct of employees Employer-Employee Relationship: Employer hires employee to perform certain tasks; employer has right to control conduct of employees Employer-Independent Contractor Relationship: Employer hires persons (other than employee) to conduct some sort of task; employer has no control over details of conduct of independent contractor Employer-Independent Contractor Relationship: Employer hires persons (other than employee) to conduct some sort of task; employer has no control over details of conduct of independent contractor 33-5

Exhibit 33-3: Independent Contractor or Employee? Does worker engage in distinct occupation/independently established business? Does worker engage in distinct occupation/independently established business? Is work done under employer’s supervision, or does specialist without supervision complete the work? Is work done under employer’s supervision, or does specialist without supervision complete the work? Does employer supply the tools? Does employer supply the tools? What skill is required for the occupation? What skill is required for the occupation? What is the length of time for which worker employed? What is the length of time for which worker employed? Is worker a regular part of the employer’s business? Is worker a regular part of the employer’s business? How is worker paid? How is worker paid? 33-6

Principal’s Duties To Agent Compensation Compensation Reimbursement and Indemnification Reimbursement and Indemnification Cooperation Cooperation Safe Working Conditions Safe Working Conditions 33-7

Agent’s Duties To Principal Loyalty Loyalty Notification Notification Performance Performance Obedience Obedience Accounting Accounting 33-8

Principal’s Rights and Remedies Against Agent Constructive Trust Constructive Trust Avoidance Avoidance Indemnification Indemnification 33-9

Agent’s Rights and Remedies Against Principal Tort and Contract Remedies Tort and Contract Remedies Demand For An Accounting Demand For An Accounting Specific Performance Specific Performance 33-10