Understanding Agency Relationships in Business

1. Chapter 19 Agency to Employment BUS 105 PowerPoints by Rick Manzano is licensed under CC-BY 4.0

2. Introduction • 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.

3. Introduction • 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.

4. Employer Employee Independent Contractor § 1: Agency Relationships • Agency is a “fiduciary” relationship based on trust and confidence. • Distinguish Employee vs. Independent Contractor Relationships.

5. Factors: Employee or Independent Contractor Status

6. Employer Liability • Determining whether the worker is an employee or an independent contract affects liability of Principal/Employer. • Tax Liability: Employer liable if employee. • Contract Liability: Employer not necessarily liable. • Tort Liability: Employer liable for torts of employee within scope of employment.

7. §2: Formation of the Agency Relationship • Consensual Agreement. • No consideration required. • Principal needs contractual capacity, Agent does not. • For any legal purpose.

8. Types of Agencies • Agency by Agreement. • Agency by Ratification. • Agency by Estoppel. • Agency by Operation of Law. • Necessaries for family. • Emergency.

9. Agent’s Duties to Principal • Performance: reasonable diligence and skill (special skills). • Notification to P. • Loyalty (no conflict of interest). • Obedience. • Accounting.

10. Principal’s Duties to Agent • Compensation (Express or Implied). • Reimbursement and Indemnification. • Cooperation. • Provide safe working conditions.

11. § 4: Rights and Remedies of Agents and Principals • Rights of Agents: • Right to compensation, reimbursement, indemnification and cooperation. • Agent can withhold performance and demand an accounting. • Agent can recover damages for past services and future damages.

12. Rights and Remedies of Agents and Principals • Principal’s Rights and Remedies: • Contract remedies for breach of fiduciary duty and performance. • Can sue in tort: libel, slander, trespass, deceit, fraud. • Constructive Trust – money/ property agent steals from Principal. • Avoidance of contract if agent does not do as told. • Indemnification

13. § 5: Scope of Agent’s Authority • 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.

14. Apparent Authority and Estoppel • Principal, by either word or act, causes 3rd party to reasonably believe that Agent has authority to act for Principal. • If 3rd party changes legal position by relying on Principal’s representations, Principal is estopped from denying Agent had authority to contract.

15. Emergency Powers • Arises when: • Agent should protect Principal. • Agent cannot communicate with Principal.

16. Ratification 1. Agent must act on behalf of Principal. 2. Principal must affirm entire deal. 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.

17. §6: Liability for Contracts • Principals are classified as: • Disclosed: identity known to 3rd P. • Partially Disclosed: 3rd P knows he is dealing with Agent, but doesn’t know Principal’s identity. • Undisclosed: 3rd party does not know he is dealing with an Agent, and Principal’s identity is totally unknown.

18. Authorized Acts • Disclosed or partially disclosed Principal is liable to 3rd party if Agent acts within scope of authority. • Agent has no liability to 3rd P for disclosed Principal’s non-performance. (Agent may be liable if Principal is partially disclosed).

19. Liability: Authorized Acts Undisclosed Principal • Principal expressly excluded. • 3rd party would not have contracted if he knew the Principal’s identity. (fraud) • Contract is a negotiable instrument. • Based on agent’s credit? • Agent’s performance is personal. • Agent liable • Generally a personal service contract is not assignable.

20. Liability: Unauthorized Acts • Unauthorized acts outside of Agent’s express, implied or apparent authority. • If Agent has no authority, Principal is not liable, but Agent is liable.

21. Actions by E-Agents • 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.

22. § 7: Liability For Agent’s Torts • Agent is liable to 3rd party for his own torts. • Principal may be liable for Agent’s torts if they result from: • Principal’s own tort. • Principal’s authorization of tort. • Agent’s unauthorized but fraudulent conduct made within scope of agency.

23. Liability for Agent’s Negligence • Applies only to Employer-Employee relationships. • Doctrine of Respondeat Superior: Employer is vicariously liable for Employee’s negligent torts committed within the Agent’s “course and scope of employment.”

24. “Course and Scope of Employment”

25. P Generally Not Liable(unless strict liability) Independent Contractor Outside CSE-P Not Liable Within CSE -P Liable Employee Factors “Course and Scope of Employment” Liability? Worker

26. § 9: Liability for Agent’s Crimes • General Rule: Agent is liable, Principal is not, unless: • Principal authorized or participated in crime. • Some jurisdictions hold Principal liable for violating statutes.

27. Termination of An Agency • Agency can be terminated by: • An Act of the Parties; or • By Operation of Law. • Once agency terminated Agent has no actual authority to bind the Principal, but may have apparent authority to bind Principal.

28. Termination By Act of the Parties • Lapse of Time. • Purpose Achieved. • Occurrence of a Specific Event. • Mutual Agreement. • Termination by One Party. • Notice of Termination.

29. Termination By Operation of Law • Death or Insanity of either Principal or Agent: automatic. • Impossibility. • Changed Circumstances. • Bankruptcy. • War.