AGENCY RELATIONSHIPS
Agency: A fiduciary relationship that results when one person (the principal) manifests her consent that another person (the agent) will act on her behalf and subject to her control and the agent manifests his consent to so act.
Fiduciary: A person who undertakes to act on behalf of, and primarily for the benefit of, another.
Fiduciary Duty: A duty arising from the trust and confidence placed in a fiduciary by those on whose behalf and for whose benefit she acts.
Ch. 17: Agency - No. 1 Business Law Today: The Essentials (8th ed.) EMPLOYER-EMPLOYEE RELATIONSHIPS
Employee: A person
(1) who works for, and receives payment from, an employer,
(2) whose working conditions and methods the employer controls, and
(3) for whose acts and omissions occurring in the scope of employment the employer is liable.
Independent Contractor: A person
(1) who works for, and receives payment from, an employer,
(2) but whose working conditions and methods are not controlled by the employer, and
(3) for whose acts and omissions the employer is not liable.
“Works for Hire”: The Copyright Act of 1976 gives the employer the copyright in any work its employee creates (1) within the scope of her employment and (2) at the employer’s request.
Ch. 17: Agency - No. 2 Business Law Today: The Essentials (8th ed.) DETERMINING EMPLOYEE STATUS
To determine whether a worker is an employee or an independent contractor, courts consider the following:
(1) how much direction and control the employer exercises over the details of the person’s work,
(2) whether the person is engaged in an occupation or business distinct from that of the employer,
(3) whether the work the person performs is usually done under the employer’s direction or without employer supervision,
(4) who supplies tools used by the person,
(5) the duration of the person’s employment,
(6) how the person is paid for his work, and
(7) the degree of skill required of the worker.
By contrast, the IRS bases its determination whether a person is an employee using a single factor: the degree of control the business exercises over the worker.
Ch. 17: Agency - No. 3 Business Law Today: The Essentials (8th ed.) AGENCY FORMATION
Agency by Agreement: An agency relationship based on an express or implied agreement that the agent will act for the principal.
Agency by Ratification: A confirmation by the principal of an act or contract performed or entered into on her behalf by another, who assumed, without authority, to act as her agent.
Agency by Estoppel: If a principal holds out to a third party that another is authorized to act on the principal’s behalf, and the third party deals with the other person accordingly, the principal may not later deny that the other was the principal’s agent for purposes of dealing with that third party.
Agency by Operation of Law: Agencies recognized by courts – e.g., family relationships, emergency situations – in the absence of any formal agreement, confirmation, or act or omission by the principal that implied the agent’s authority.
Ch. 17: Agency - No. 4 Business Law Today: The Essentials (8th ed.) AGENT’S DUTIES TO THE PRINCIPAL
Performance: An agent implicitly agrees to use reasonable diligence and skill (except for a specialist, who is held to a higher degree of skill) in performing the task in its entirety.
Notification: An agent must notify the principal of all matters that come to the agent’s attention concerning the subject matter of the agency.
Loyalty: An agent must act solely for the benefit of his or her principal, and not in the interest of the agent or a third party. Moreover, any information or knowledge obtained in the course of the agency is confidential.
Obedience: An agent must follow all lawful and clearly stated instructions of the principal.
Accounting: Unless otherwise agreed, an agent must keep and make available to the principal an account of all property and money received and paid out on the principal’s behalf, including gifts received from third persons.
Ch. 17: Agency - No. 5 Business Law Today: The Essentials (8th ed.) PRINCIPAL’S DUTIES TO THE AGENT
Compensation: When a principal requests certain services from an agent, the principal must pay the agent, in a timely manner, for those services rendered.
Reimbursement: Whenever an agent disburses sums of money to fulfill the principal’s request or to pay for necessary expenses incurred in the reasonable performance of his or her duties, the principal must reimburse the agent.
Indemnification: Subject to the terms of the agency agreement, the principal must compensate, or indemnify, the agent for liabilities arising from the agent’s lawful and authorized acts on the principal’s behalf.
Cooperation: A principal must cooperate with the agent and assist the agent in performing his or her duties.
Safe Working Conditions: A principal must
(1) provide its agents and employees with safe working premises, equipment, and conditions, and
(2) inspect working conditions and warn agents and employees of unsafe areas.
Ch. 17: Agency - No. 6 Business Law Today: The Essentials (8th ed.) ACTUAL AUTHORITY
Express Authority: Authority declared in clear, direct, and definite terms, orally or in writing.
Equal Dignity Rule: If a contract being executed by an agent on the principal’s behalf is written, most states require that the agent’s authority must also be evidenced by a writing; otherwise, the contract executed by the agent is voidable at the principal’s option.
The equal dignity rule does not apply when the agent acts in the principal’s presence or when the agent’s act is merely perfunctory.
Power of Attorney: A written document, usually notarized, authorizing an agent to act for a principal.
Implied Authority: Authority that is
inferred as being reasonably necessary to exercise the agent’s express authority,
conferred by custom, or
inferred from the position the agent occupies.
Ch. 17: Agency - No. 7 Business Law Today: The Essentials (8th ed.) APPARENT AUTHORITY
Apparent Authority: Authority that arises when a principal, by either words or actions, causes a third party to believe that an agent has authority to act, even though the agent has no express or implied authority to act with regard to the particular matter at hand.
If the third party changes his or her position in reliance on the principal’s representations regarding the agent’s authority, the principal may be estopped from denying that the agent had authority to act.
Apparent authority may arise due to
the principal’s course of conduct over time, or
the agent’s possession and apparent ownership or control of the principal’s property.
Ch. 17: Agency - No. 8 Business Law Today: The Essentials (8th ed.) RATIFICATION
Ratification: A principal’s express or implied affirmation of a previously unauthorized act by a purported agent. In summary:
(1) the agent must have acted on behalf of the principal who subsequently ratified the action;
(2) the principal must know all material facts;
If the principal ratifies without full knowledge, she can rescind her ratification, but must reimburse the third party for any costs incurred as a result of reasonably relying on the apparent contract.
(3) the principal must affirm the agent’s act in its entirety;
(4) the principal must have the legal capacity to affirm the transaction both (a) when the agent acts, and (b) when the principal ratifies;
(5) the principal must affirm before the third party withdraws from the transaction; and
Ch. 17: Agency - No. 9 Business Law Today: The Essentials (8th ed.) (6) the principal must observe the same formalities when ratifying an agent’s act as it would have used to authorize the act in the first place.
Ch. 17: Agency - No. 10 Business Law Today: The Essentials (8th ed.) AUTHORIZED CONTRACTS
A disclosed or partially disclosed principal is liable to a third party for a contract made by an agent who is acting within the scope of his or her authority.
Disclosed Principal: A principal whose identity is known to the third party at the time the agent makes a contract for the principal with the third party.
Partially Disclosed Principal: A principal whose identity is not known to the third party, but the third party does know that the agent is representing some principal at the time the agent makes a contract with the third party. In many states, the agent is also liable on a contract with a partially disclosed principal.
Undisclosed Principal: When neither the fact of her agency nor the identity of the principal is disclosed by an agent to the third party at the time a contract is made, the agent is presumed to be acting on her own behalf, and will be liable as a party to the contract.
If the agent was authorized to act on behalf of the undisclosed principal, then the principal will generally also be liable to the third party and will owe the agent indemnity.
Ch. 17: Agency - No. 11 Business Law Today: The Essentials (8th ed.) UNAUTHORIZED CONTRACTS
If an unauthorized agent contracts with a third party, the principal cannot be held liable on the contract, regardless of whether the principal was disclosed, partially disclosed, or undisclosed. Rather, the agent will be solely liable.
However, if the third party knows or should know at the time of the contract that the agent lacks authority – or may lack authority – to contract on behalf of the principal, the agent will not be liable to the third party.
Ch. 17: Agency - No. 12 Business Law Today: The Essentials (8th ed.) E-AGENTS
E-Agent: A computer program that, by electronic or other automated means, can independently initiate an action or respond to electronic messages or data without a human being’s review.
The Uniform Electronic Transactions Act (“UETA”) provides, in part, that
(1) e-agents may enter into binding agreements on behalf of their principals; and
(2) if the e-agent does not provide the third party with an opportunity to prevent errors at the time of the transaction, the third party may avoid the transaction without liability.
Ch. 17: Agency - No. 13 Business Law Today: The Essentials (8th ed.) LIABILITY FOR AGENT’S TORTS
An agent is liable for her own torts. In addition, a principal may be liable for its agent’s torts if the agent’s tort resulted from:
(1) the principal’s own tortious conduct,
(2) a tortious act authorized by the principal, or
(3) the agent’s unauthorized tort committed within the scope of the agency.
Misrepresentations by an Agent: Principals are liable to third parties who are injured by an agent’s misrepresentation.
Ch. 17: Agency - No. 14 Business Law Today: The Essentials (8th ed.) RESPONDEAT SUPERIOR - PT. I
Respondeat Superior: A principal is liable, along with the agent, for any tort committed by the agent while acting within the scope of their agency.
To determine whether a tort was within the scope of the agency, courts look at the following:
(1) whether the principal authorized the act;
(2) the time, place, and purpose of the act;
(3) whether the act was one commonly performed by agents on behalf of their principals;
(4) whether the act advanced the principal’s interest;
(5) whether the agent’s interests were involved;
(6) whether the principal furnished the means or instrumentality by which the injury was inflicted;
(7) whether the principal had reason to know the agent would act as she did; and
Ch. 17: Agency - No. 15 Business Law Today: The Essentials (8th ed.) (8) whether the act involved a serious crime.
Ch. 17: Agency - No. 16 Business Law Today: The Essentials (8th ed.) RESPONDEAT SUPERIOR - PT. II
“Frolics”: A principal is not liable for the acts of an agent who substantially departs from the principal’s business.
Dangerous Conditions: A principal is charged with knowledge of any dangerous conditions discovered by an agent and pertinent to the agency regardless of whether the agent actually informs the principal of the condition.
Intentional Torts: Principals are liable only for those intentional torts that are committed within the course and scope of the agent’s actions on behalf of the principal.
Crimes: As a general rule, a principal is not liable for an agent’s crime – even if committed while otherwise acting in the course and scope of the agency – unless the agent committed the crime at the principal’s direction, or with the principal’s knowledge and consent.
Ch. 17: Agency - No. 17 Business Law Today: The Essentials (8th ed.) LIABILITY FOR AN INDEPENDENT CONTRACTOR’S TORTS
As a general rule, an employer who has no legal power to control the details of the independent contractor’s performance is not liable for any torts committed by the independent contractor, even if committed while performing the contract.
Exception: Unusually Hazardous Activities – An employer is strictly liable for injuries caused by those performing unusually hazardous activities (e.g., blasting, using poison) on the employer’s behalf, regardless of whether the person causing the injury is an employee or an independent contractor.
Ch. 17: Agency - No. 18 Business Law Today: The Essentials (8th ed.) TERMINATION BY THE PARTIES
An agency may be terminated by
(1) lapse of time,
(2) accomplishing the particular purpose for agency,
(3) the occurrence of a specific event,
(4) mutual agreement of the agent and principal, or
(5) renunciation (by the agent) or revocation (by the principal) of the agent’s authority.
Notice of Termination: If an agency terminates by any of the above, the principal must give notice of that fact to (i) any third party who knows of the agency and (ii) the agent.
No particular form of notification is required, and the principal’s notice to the agent (but not to third parties with knowledge) may be either constructive or actual.
Exception: If the agent derives her authority from a written agreement, the principal must revoke the agency in writing and show the written revocation to
Ch. 17: Agency - No. 19 Business Law Today: The Essentials (8th ed.) all third parties who saw the written agency agreement.
Ch. 17: Agency - No. 20 Business Law Today: The Essentials (8th ed.) TERMINATION BY OPERATION OF LAW
An agency may also terminate as a matter of law due to
(1) death or incompetence of the agent or principal,
(2) impossibility of performance,
(3) materially changed circumstances,
(4) bankruptcy of the principal or agent, or
(5) the outbreak of war between the principal’s country and the agent’s country.
Ch. 17: Agency - No. 21 Business Law Today: The Essentials (8th ed.)