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Agency Law

8. Agency Law. The Agency Relationship Third-Party Relations of the Principal and the Agent. McGraw-Hill/Irwin Business Law, 13/e. © 2007 The McGraw-Hill Companies, Inc. All rights reserved. The Agency Relationship. 35. C. H. E. A. P. T. R.

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Agency Law

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  1. 8 Agency Law The Agency Relationship Third-Party Relations of the Principal and the Agent McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

  2. The Agency Relationship 35 C H E A P T R “I’ve got an ego and all that, but I know I need help. So I go and hire the very best people.” H. Ross Perot, EDS founder, Inc. (Jan. 1989)

  3. Learning Objectives • Creation of an agency relationship • Agency concepts, definitions, and types • Duties of agent to principal • Duties of principal to agent • Termination of an agency 35 - 4

  4. Overview • Agency is a two-party relationship in which one party (agent) is authorized to act on behalf of, and under control of, another party (principal) • Anybody may be an agent or principal, but the agreement is voidable by minors and the mentally incapacitated • All employees are agents, but not all agents are employees 35 - 5

  5. Agency Authority • Actual authority for an agent’s acts is: • Express – created by principal’s written or oral wordsto agent about agent’s duties • Implied – principal’s acts and surrounding circumstances give rise to reasonable belief about scope of agent’s duties • Apparent authority arises when principal’s conduct leads third party to believe an agent with no actual authority is authorized to act 35 - 6

  6. Employee v. Independent Contractor • If dispute arises, resolution may depend on whether a person who works for a principal is an employee or independent contractor • Factors that aid in determination include: • Right to control physical details of work, skill required, source of tools, location, schedule control, payment method, benefits, tax treatment of hired party • See Eisenberg v. Advance Relocation & Storage, Inc., 35 - 7

  7. Duties of Agent to Principal • Agency is a fiduciary relationship, so agent has a duty of loyalty to principal • Agent must (1) avoid conflicts of interest with the principal, (2) maintain confidentiality of information received from the principal • Duty of confidentiality survives agency • See ABKCO Music Inc. v. Harrisongs Music, Ltd. 35 - 8

  8. Other Agent & Principal Duties • Agents must obey principal’s reasonable instructions for agency business, exercise the degree of care and skill standard for the job, communicate to principal relevant matters • No duty to obey illegal or unethical orders • Principal’s duties are to: compensate agent, reimburse agent for expenses, and indemnify agent for losses suffered in conducting principal’s business 35 - 9

  9. Termination of Agency • Termination of agency may be by the act of the parties or operation of law • Exception: limited right of termination if agent’s power coupled with an interest • After agency terminates, agent’s express and implied authority ends • Ex-agents may retain apparent authority that could bind former principal 35 - 10

  10. Test Your Knowledge • True=A, False = B • Agency is a contract in which an agent is authorized to act on behalf of, and under the control of, a principal. • All employees are agents, and all agents are employees. • Agents may bind a principal on the basis of apparent authority. • Agency may be created unintentionally. 35 - 11

  11. Test Your Knowledge • True=A, False = B • All duties are delegable. • An agent’s duty of confidentiality continues after the agency ends. • To be considered actual authority, the authority must be expressed in words orally or in writing. • Agency is a fiduciary relationship. 35 - 12

  12. Test Your Knowledge • Multiple Choice • Principals have the following duties to agent: • (a) Duty to compensate • (b) Duty to reimburse for reasonable expenses for doing agency business • (c) Duty to indemnify the agent for losses suffered due to agency’s business • (d) Both A and B • (e) All of the above 35 - 13

  13. Test Your Knowledge • Multiple Choice • Manuel asked his friend Sunil, a good salesman, to sell his car and Sunil agreed. Does an agency relationship exist? • (a) Yes, Sunil is an agent for Manuel • (b) Yes, but only if there is a written contract describing the agency’s purpose • (c) No, since friends cannot engage in an agency relationship • (d) No, unless Sunil sells Manuel’s car 35 - 14

  14. Thought Questions • Have you been an agent or a principal? • Do you think the agency rules of liability are fair? • What are the ethical issues involved in an agency relationship? 35 - 15

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