Business Law and the Regulation of Business Chapter 29: Relationship of Principal and Agent

1. Business Law and the Regulation of BusinessChapter 29: Relationship of Principal and Agent By Richard A. Mann & Barry S. Roberts

2. Topics Covered in this Chapter A. Nature of Agency B. Creation of Agency C. Duties of Agent to Principal D. Duties of Principal to Agent E. Termination of Agency

3. Nature of Agency • Definition of Agency– relationship authorizing one party (the agent) to act for and on behalf of the other party (the principal). • Scope of Agency Purposes– generally, whatever business activity a person may accomplish personally he may do through an agent.

4. Other Legal Relationships • Employment Relationship– one in which the employer has the right to control the physical conduct of the employee. • Independent Contractor– a person who contracts with another to do a particular job and who is not subject to the control of the other.

5. Creation of Agency • Formalities– though agency is a consensual relationship that may be formed by contract or agreement between the principal and agent, agency may exist without consideration. • Requirements– no particular formality usually is required in a contract of agency, although appointments of agents for a period of more than one year must be in writing.

6. Duties of Agent to Principal • Duty of Obedience–agent must act in the principal's affairs only as authorized by the principal and must obey all reasonable instructions and directions. • Duty of Diligence–agent must act with reasonable care and skill in performing the work for which he is employed. • Duty to Inform–agent must use reasonable efforts to give the principal information relevant to the affairs entrusted to her.

7. Duties of Agent to Principal • Duty to Account–agent must maintain and provide the principal with a true and complete account of money or other property that the agent has received or expended on behalf of the principal. • Fiduciary Duty–agent owes a duty of utmost loyalty and good faith to the principal.

8. Duties of Principal to Agent • Compensation– a principal must compensate the agent as specified in the contract, or for the reasonable value of the services provided, if no amount is specified. • Reimbursement– the principal must pay back to the agent authorized payments the agent has made on the principal's behalf.

9. Duties of Principal to Agent • Indemnification– the principal must pay the agent for losses the agent incurred while acting as directed by the principal. • Tort Duties– include the duty to provide an employee with reasonably safe conditions of employment and to warn the employee of any unreasonable risk involved in the employment.

10. Duties of Principal and Agent Duties of P to A Compensation Reimbursement Indemnification authorizes agent to act P A agrees to act Duties of A to P ObedienceDiligence Loyalty

11. Termination of Agency • Lapse of Time • Fulfillment of Purpose • Mutual Agreement of the Parties • Revocation of Authority • Renunciation by the Agent • Operation of Law • Death– of either the principal or the agent • Incapacity– of either the principal or the agent • Change in Circumstances • Loss or Destruction of the Subject Matter • Change in Law

12. Termination of Agency • Bankruptcy – bankruptcy of a principal usually terminates all of his agency relationships; if the credit of the agent is important to the agency relationship, the relationship will be terminated by the bankruptcy of the agent. • Disloyalty of Agent • Outbreak of War • Irrevocable Agencies – an agency coupled with an interest is irrevocable and occurs where the agent has a security interest in the subject matter of the agency.