 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. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 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. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3

 Agency is a “fiduciary” relationship based on trust and confidence.  Employer-Employer Relationships.  Generally, all employees who deal with third parties are agents. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 4

 Employer -Independent Contractor Relationships.  Employers have ‘no control’ over the details of their work performance.  Determination of Employee Status. Key is control.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 5

YesNoIs there a great degree of skill required? YesNoIs the worker paid at the end of the job? NoYesHas the worker been employed a long time? NoYesDoes Employer provide the tools? NoYesIs the work usually done under Employer’s supervision? YesNoIs the worker engaged in an occupation or business distinct from Employer? NoYesDoes the Employer exercise a great degree of control over the details of the work? I.C. E’ee A “Yes” Tends to Show Employee Status © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 6

 Criteria Used by the IRS.  Employee Status and “Works for Hire”: any copyrighted work created during scope of employment is owned by employer. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 7

 Generally, agency relationships:  Are consensual.  Require no consideration.  Require principal to have contractual capacity (agent does not).  Can be created for any legal purpose. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8

 Agency by Agreement.   Agency by Ratification.   Agency by Estoppel.   Agency by Operation of Law.   Necessaries for family.  Emergency. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9

 Formed through express consent (oral or written) or implied by conduct.  CASE 20.1 Laurel Creek Health Care Center v. Bishop (2010). When was agency created between Bishop and his wife? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 10

 Principal either by act or by agreement ratifies conduct of a person who is not in fact an agent. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 11

 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. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 12

 Agency based on social duty is formed in certain situations when the Agent is unable to contact the Principal.  Necessaries.  Emergencies. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 13

 Agent’s Duties to the Principal:  Performance: implied condition to use reasonable diligence and skill. If agent fails, possible breach of contract. Gratuitous Agent: only liable for torts.  Notification: to principal of all matters concerning subject matter of agency. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 14

 Agent’s Duties (cont’d):  Loyalty: fundamental duty as fiduciary (no conflict of interest).  CASE 20.2 Taser International, Inc. v. Ward (2010). How did Ward breach his duty of loyalty to his employer?  Obedience.  Accounting. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 15

 Compensation (Express or Implied).  Reimbursement and Indemnification.  Cooperation.  Safe Working Conditions. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 16

 Agent’s Rights and Remedies: right to be compensated, reimbursed, and indemnified and to work in a safe environment.  Torts and Contract Remedies.  Demand for an Accounting  No Right to Specific Performance. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 17

 Principal’s Rights and Remedies: remedies for breach of fiduciary duty, and agent’s torts.  Constructive Trust.  Avoidance: principal has right to avoid contract if agent does not do as told.  Indemnification: principal can sue agent. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 18

 Principal is liable for acts entered into by Agent when she gives Agent either actual or apparent authority:  Actual Authority: express or implied.  Apparent Authority: estoppel, emergency and ratification. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 19

 Can be oral or written.  Equal Dignity Rule: if law requires written contract, agent’s authority must be in writing, or contract voidable.  Exceptions: Executive Officer acting for Corporation, OR Agent acts in Principal’s presence. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20

 Power of Attorney gives agent express authority.  POA is a written document and usually notarized.  Special: specified acts only.  General: all business for principal.  Terminates on principal’s death or incapacity. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 21

 Agent has implied power to do what is reasonably necessary to carry out express authority.  Inferred or conferred by custom, or agent’s position  Test is whether agent reasonably believed she had authority to do the act. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 22

 Arises based on what principal causes a THIRD party (not agent) to believe.  Agent has apparent authority when principal, by either word or act, causes 3rd party to reasonably believe that Agent has authority to act for Principal.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 23

 Pattern of Conduct.  Apparent authority usually comes into existence through a principal’s pattern of conduct over a period of time.  CASE 20.3 Azur v. Chase Bank, USA (2010). What were Azur’s ‘negligent omissions’? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 24

 Apparent Authority and Estoppel.  If 3rd party changes legal position by relying on principal’s representations, principal is estopped (prevented) from denying agent had authority to contract. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 25

 Arises when:  Agent should protect Principal.  Agent cannot communicate with Principal. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 26

 Occurs when principal accepts responsibility for an agent’s unauthorized act (express or implied). Requirements: 1. Agent must act on behalf of Principal. 2. Principal must affirm entire deal.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 27

 Requirements (cont’d): 3.Principal must affirm before 3rd party withdraws from transaction. 4.Principal and 3rd party must have legal capacity to contract when Agent made the deal. 5.Principals must know all the material facts involved in the transaction. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 28

 Principals are classified as:  Disclosed: identity known to 3 rd party.  Partially Disclosed: 3 rd party knows he is dealing with an agent, but doesn’t know principal’s identity.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 29

 Principals are classified as (cont’d):  Undisclosed: 3 rd party does not know he is dealing with an agent (or agent is the principal), and therefore the principal’s identity is totally unknown. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 30

 Disclosed or Unidentified Principal: liable to 3 rd party if agent acts within scope of authority.  Agent has no liability to 3 rd party for disclosed principal’s non- performance. Agent may be liable if principal is partially disclosed. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 31

 Undisclosed Principal: no liability unless:  Principal expressly excluded.  Contract is a negotiable instrument.  Agent’s performance is personal.  3rd party would have contracted if he knew the principal’s identity. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 32

 Unauthorized acts are outside the agent’s express, implied, or apparent authority.  If agent has no authority, principal is not liable, but agent is personally liable. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 33

 An “e-agent” is a semi- autonomous computer program capable of executing specific tasks on behalf of a principal.  E-commerce uses e-agents to create contracts every day. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 34

 Principal’s Tortious Conduct.  Principal liable for harm resulting from P’s own negligence or recklessness.  Principal’s Authorization of Agent’s Tortious Conduct.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 35

 Liability for Agent’s Misrepresentation.  Apparent Implied Authority.  Innocent Misrepresentation.  Liability for Agent’s Negligence.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 36

 Doctrine of Respondeat Superior: employer is vicariously liable for employee’s negligent torts committed within the agent’s “course and scope of employment.” © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 37

Employer NOT Liable No Did the act involved a serious crime? NoYes Did Employer have reason to know Employee would do the act? NoYes Did Employer furnish instrumentality (tools)? NoYes Did act advance Employer’s interests? ?? The Time place and purpose of act (factually based) NoYes Was Employee’s act authorized by Employer? Employer Liable Factors Courts Consider NoYes Was act commonly performed by Employees? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 38

 Distinction Between “Detour” and “Frolic ”: if detour, principal is liable, if frolic principal is not liable.  Employee Travel Time: to or from meals is outside scope of employment.  Notice of Dangerous Conditions.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 39

 Borrowed Servants: liability depends on which employer had the primary right of control at the time of injury. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 40

 Principal is liable for intentional torts committed within the scope of employment.  Employer is also liable for employee’s acts, which employer knew or should have known the Employee had a propensity to commit. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 41

 General Rule: Employer is not liable for acts of independent contractors because employer has no right to control.  Must determine whether worker is employee or independent contractor.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 42

 General Rule: Employer is generally not liable for torts (continued).  Exceptions: Strict liability for unusually hazardous activities, transportation of highly volatile chemicals, or use of poisonous gases. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 43

 Agent is liable for her own crimes.  Principal is not liable, even if the crime was committed within the scope of employment, unless:  Principal participated in the crime.  Some states, principals may be liable for agent violation of regulations. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 44

Worker P Generally Not Liable (unless strict liability) Outside CSE-P Not Liable Within CSE -P Liable “ Course and Scope of Employment” p. 466 Independent Contractor Employee Factors p.451 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 45

 Agency can be terminated by:  An Act of the Parties;   By Operation of Law.   Once agency terminated Agent has no actual authority to bind the Principal, but may have apparent authority to bind Principal. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 46

 Lapse of Time.  Purpose Achieved.  Occurrence of a Specific Event.  Mutual Agreement.  Termination by One Party.  Notice of Termination. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 47

 Death or Insanity of either Principal or Agent: automatic.  Impossibility.  Changed Circumstances.  Bankruptcy.  War. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 48