1. Chapter 25 Agency Relationships
PowerPoint Slides to Accompany CONTEMPORARY BUSINESS AND ONLINE COMMERCE LAW 6th Edition by Henry R. Cheeseman
Chapter 25
Agency Relationships
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2. Agency
Agency relationships are formed by the mutual consent of a principal and an agent.
Agency is the fiduciary relationship “which results from the manifestation of consent by one person to another that the other shall act in his behalf and subject to his control, and consent by the other so to act.”
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3. Agency: Key Terms
Agency Law – the large body of common law that governs agency.
A mixture of contract law and tort law
Principal – the party who employs another person to act on his or her behalf.
Agent – the party who agrees to act on behalf of another.
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4. The Principal-Agent Relationship
Principal’s obligation to perform the contract
Agency Contract
Agent
Third Party
Contract with third party on behalf of principal
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5. Persons Who Can Initiate an Agency Relationship (1 of 2)
Any person who has the capacity to contract can appoint an agent to act on his or her behalf.
Persons who lack contractual capacity cannot appoint an agent.
i.e., insane persons and minors
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6. Persons Who Can Initiate an Agency Relationship (2 of 2)
An agency can be created only to accomplish a lawful purpose.
Agency contracts that are created for illegal purposes or are against public policy are void and unenforceable.
Some agency relationships are prohibited by law.
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7. Principal-Agent Relationship
An employer hires an employee and gives that employee authority to act and enter into contracts on his or her behalf.
The extent of this authority is governed by any express agreement between the parties and implied from the circumstances of the agency.
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8. Employer-Employee Relationship
A relationship that results when an employer hires an employee to perform some form of physical service
An employee is not an agent unless he or she is specifically empowered to enter into contracts on the principal employer’s behalf.
Employees may only enter into contracts that are within the scope of their employment.
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9. Summary: 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.
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10. Formation of an Agency Relationship
An agency and the resulting authority of an agent can arise in any of these four ways:
1. Express agency
2. Implied agency
3. Apparent agency
4. Agency by ratification
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11. Express Agency
An agency that occurs when a principal and an agent expressly agree to enter into an agency agreement with each other.
Exclusive agency contract
Power of attorney
Express agency contracts can be either oral or written unless the Statute of Frauds stipulates that they must be written.
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12. Implied Agency
An agency that occurs when a principal and an agent do not expressly create an agency
The agency is implied from the conduct of the parties.
The extent of the agent’s authority is determined from the particular facts and circumstances of the particular situation.
Incidental authority
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13. Apparent Agency
Agency that arises when a principal creates the appearance of an agency that in actuality does not exist
When an apparent agency is established, the principal is estopped from denying the agency relationship.
It is the principal’s actions that create an apparent agency.
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14. Agency by Ratification
An agency that occurs when:
A person misrepresents himself or herself as another’s agent when in fact he or she is not, and
The purported principal ratifies (accepts) the unauthorized act
In such cases, the principal is bound to perform and the agent is relieved of any liability for misrepresentation.
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15. Summary: Formation of Agency Relationships (1 of 2)
Type of Agency
Definition
Enforcement of the Contract
Express
Authority is expressly given to the agent by the principal.
Principal and third party are bound to the contract.
Implied
Authority is implied from the conduct of the parties, custom and usage of trade, or act incidental to carrying out the agent’s duties.
Principal and third party acts are bound to the contract.
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16. Summary: Formation of Agency Relationships (2 of 2)
Type of Agency
Definition
Enforcement of the Contract
Apparent
Authority created when the principal leads a third party into believing that the agent has authority.
Principal and third party are bound to the contract.
By Ratification
Acts of the agent committed outside the scope of his authority.
Principal and third party are not bound to the contract unless the principal ratifies the contract.
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17. Principal’s Duties (1 of 2)
Duty to compensate
A duty that a principal owes to pay an agreed-upon amount to the agent either upon the completion of the agency or at some other mutually agreeable time.
Duty to reimburse
A duty that a principal owes to repay money to an agent if the agent spent his or her own money during the agency on the principal’s behalf.
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18. Principal’s Duties (2 of 2)
Duty to indemnify
A duty that a principal owes to protect the agent for losses the agent suffered during the agency because of the principal’s misconduct.
Duty to cooperate
A duty that a principal owes to cooperate with and assist the agent in the performance of the agent’s duties and accomplishment of the agency.
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19. Agent’s Duties (1 of 3) Duty of performance
An agent’s duty to a principal that includes:
Performing the lawful duties expressed in the contract; and
Meeting the standards of reasonable care, skill, and diligence implicit in all contracts
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20. Agent’s Duties (2 of 3) Duty of notification
An agent’s duty to notify the principal of information he or she learns from a third party or other source that is important to the principal.
Imputed Knowledge – most information learned by an agent in the course of the agency is imputed to the principal.
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21. Agent’s Duties (3 of 3) Duty of accountability Duty of loyalty
A duty that an agent owes to maintain an accurate accounting of all transactions undertaken on the principal’s behalf.
Duty of loyalty
An agent owes a fiduciary duty not to act adversely to the interests of the principal.
If this duty is breached, the agent is liable to the principal.
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22. Breaches of Loyalty Self-dealing Usurping an opportunity
Competing with the principal
Misuse of confidential information
Dual agency
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23. Contract Liability of Principals and Agents to Third Parties (1 of 2)
Fully Disclosed Agency
The principal is liable to the third party
The agent is not liable
An agent is liable on the contract if he or she guarantees that the principal will perform the contract
Partially Disclosed Agency
Both the principal and the agent are liable to the third party if the principal fails to perform the contract
This is because the third party must rely on the agent’s reputation, integrity, and credit because the principal is unidentified
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24. Contract Liability of Principals and Agents to Third Parties (2 of 2)
Undisclosed Agency
The third party is unaware of either the existence of an agency or the principal’s identity
Both the principal and the agent are liable to the third party if the principal fails to perform the contract
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25. Agent Exceeding the Scope of Authority
An agent who enters into a contract on behalf of another party impliedly warrants that he or she has the authority to do so.
If the agent exceeds the scope of his or her authority, the principal is not liable on the contract unless the principal ratifies it.
The agent is liable to the third party for breaching the implied warranty of authority.
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26. Tort Liability to Third Parties
The principal and the agent are each personally responsible for their own tortious conduct.
The principal is liable for the tortious conduct of an agent who is acting within the scope of his or her authority
The agent is liable for the tortious conduct of the principal if he or she directly or indirectly participates in or aids and abets the principal’s conduct.
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27. Sources of Tort Liability for Principals and Agents
Misrepresentation
Intentional misrepresentation
Innocent misrepresentation
Negligence
Respondent superior
Frolic and detour
“Coming and going” rule
Dual-purpose mission
Intentional Torts
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28. Intentional Tort Motivation Test – promoting principal’s business
Work-Related Test – work-related time and space
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29. Termination of an Agency
An agency contract is similar to other contracts in that it can be terminated by:
Acts of the parties, or
Operation of law
Once an agency relationship is terminated, the agent can no longer represent the principal or bind the principal to contracts.
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30. Termination by Acts of the Parties
An agency may be terminated by the following acts of the parties:
Mutual agreement
Lapse of time
Purpose achieved
Occurrence of a specified event
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31. Termination by Operation of Law
An agency is terminated by operation of law, including:
Death of the principal or agent
Insanity of the principal or agent
Bankruptcy of the principal
Impossibility of performance
Changed circumstances
War between the principal’s and agent’s countries
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32. Termination by Impossibility
Loss or destruction of the subject matter
Loss of required qualification
Change in the law
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33. Irrevocable Agency An agency coupled with an interest:
Special type of agency relationship
This type of agency is irrevocable by the principal
Not terminated by the death or incapacity of either the principal or the agent
Terminates only when the agent’s obligations are performed
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34. Wrongful Termination of an Agency or Employment Contract
The termination of an agency contract in violation of the terms of the agency contract
The nonbreaching party may recover damages from the breaching party.
The distinction between the power and the right to terminate an agency is critical.
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35. Independent Contractor
Persons and businesses often employ independent contractors to perform certain tasks on their behalf
The party that employs an independent contractor is called a principal
PRINCIPAL – INDEPENDENT CONTRACTOR RELATIONSHIP
Principal
Contract
Independent Contractor
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36. Determining Independent Contractor Status
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.
Substantial control indicates an employer – employee relationship.
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37. Liability for Independent Contractor’s Torts
Principal employs a person who is not an employee of the principal.
The independent contractor has authority only to enter into contracts authorized by the principal.
Generally, principals are not liable for the tortious conduct of independent contractors.
Independent contractors are personally liable for their own torts.
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