CHAPTER 29 AGENCY CREATION AND TERMINATION DAVIDSON KNOWLES

CHAPTER 29 AGENCY: CREATION AND TERMINATION DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles in the Legal Environment (8 th Ed. )

BUSINESS LAW: Cases & Principles Davidson • Knowles • Forsythe 8 th Ed. AGENCY LAW AND AGENCY RELATIONSHIPS l Agency law concerns relationships between employees and employers. l Agency law involves duties/responsibilities to each other, and the public at large. l Agency law places significance reliance on state law and precedent. © 2004 West Legal Studies in Business A Division of Thomson Learning 2

BUSINESS LAW: Cases & Principles Davidson • Knowles • Forsythe 8 th Ed. AGENCY LAW AND AGENCY RELATIONSHIPS l Restatement explains key terms: – Agency is a fiduciary relationship resulting – – from consent of one person to another that the other shall act on his/her behalf. Principal one whom action is taken for. Agent one who is to act. © 2004 West Legal Studies in Business A Division of Thomson Learning 3

BUSINESS LAW: Cases & Principles Davidson • Knowles • Forsythe 8 th Ed. AGENCY LAW AND AGENCY RELATIONSHIPS l Agency relationship is consensual in nature. l Based on concept that parties mutually agree: – Agent will act on behalf of principal. – Agent will be subject to principal’s direction and control. l Agreement can be expressed or implied. © 2004 West Legal Studies in Business A Division of Thomson Learning 4

BUSINESS LAW: Cases & Principles Davidson • Knowles • Forsythe 8 th Ed. AGENCY LAW AND AGENCY RELATIONSHIPS l Analysis of Agency Relationships: – Was dispute between principal and agent? – Agency formed voluntarily by principal and – – – agent, or is there other relationship? Did parties have capacity to perform roles as principal and agent? What authority did principal vest on agent? Did agent enter into contract or commit a tort? © 2004 West Legal Studies in Business A Division of Thomson Learning 5

BUSINESS LAW: Cases & Principles Davidson • Knowles • Forsythe 8 th Ed. RESTRICTIONS ON CREATING AN AGENCY RELATIONSHIP l Agency law affects broad range of situations. l Few restrictions on who can form agency relationship. l One restriction is agency agreement require agent to perform legal acts. © 2004 West Legal Studies in Business A Division of Thomson Learning 6

BUSINESS LAW: Cases & Principles Davidson • Knowles • Forsythe 8 th Ed. RESTRICTIONS ON CREATING AN AGENCY RELATIONSHIP l Capacity to Be a Principal. – With exception of minors and incompetents, any person can appoint an agent. – Generally any person having capacity to contract can employ servant or nonservant agent. l Capacity to Be an Agent. – Anyone can be an agent. – It is capacity of the principal that controls. © 2004 West Legal Studies in Business A Division of Thomson Learning 7

BUSINESS LAW: Cases & Principles Davidson • Knowles • Forsythe 8 th Ed. RESTRICTIONS ON CREATING AN AGENCY RELATIONSHIP l Duties an Agent Can Perform. – Agents authorized to do almost any legal task. – There are some non-delegable duties: Employer’s duty to provide safe working conditions. l Person’s duty under certain contracts. l Landlord duties to tenants. l Common carrier’s duty to passengers. l Duty of person engaged in inherently dangerous work to take precautions. l – Non-delegable duties defined by state statutes. © 2004 West Legal Studies in Business A Division of Thomson Learning 8

BUSINESS LAW: Cases & Principles Davidson • Knowles • Forsythe 8 th Ed. TYPES OF AGENCY RELATIONSHIPS l General and Special Agents. – Special agent: employed to complete one transaction or simple series of transactions, the relationship covers limited period and is not continuous. – General agent: conduct series of transactions, has more discretion to carry out employers’ business. © 2004 West Legal Studies in Business A Division of Thomson Learning 9

BUSINESS LAW: Cases & Principles Davidson • Knowles • Forsythe 8 th Ed. TYPES OF AGENCY RELATIONSHIPS l General and Special Agents. – Factors that determine agent’s status: l Number of acts agent must complete to obtain an authorized result. l Number of people that must be dealt with. l Length of time necessary to obtain the desired result. © 2004 West Legal Studies in Business A Division of Thomson Learning 10

BUSINESS LAW: Cases & Principles Davidson • Knowles • Forsythe 8 th Ed. TYPES OF AGENCY RELATIONSHIPS l Gratuitous Agents. – Person volunteers services without an agreement or expectation of payment. – Requirements: Person volunteered to help another. l Person being helped accepted this assistance. l © 2004 West Legal Studies in Business A Division of Thomson Learning 11

BUSINESS LAW: Cases & Principles Davidson • Knowles • Forsythe 8 th Ed. SERVANTS AND INDEPENDENT CONTRACTORS l Most workers are servants or independent contractors. l Servants and employees are synonymous. l Servants (Employees): – Physically work for Master; and – Master (employer) has right to control how task accomplished. © 2004 West Legal Studies in Business A Division of Thomson Learning 12

BUSINESS LAW: Cases & Principles Davidson • Knowles • Forsythe 8 th Ed. SERVANTS AND INDEPENDENT CONTRACTORS l Servants: – Distinction between servant and independent contractor in determining liability for employee’s conduct. – Employer liable for physical acts of servant. © 2004 West Legal Studies in Business A Division of Thomson Learning 13

BUSINESS LAW: Cases & Principles Davidson • Knowles • Forsythe 8 th Ed. SERVANTS AND INDEPENDENT CONTRACTORS l Independent Contractors: – Hired by employer to accomplish a task for someone else. – Hiring party does not control or subject to control physical acts of independent contractor. – Independent contractors who are agents have fiduciary duties and can bind their principals of contracts. © 2004 West Legal Studies in Business A Division of Thomson Learning 14

BUSINESS LAW: Cases & Principles Davidson • Knowles • Forsythe 8 th Ed. SERVANTS AND INDEPENDENT CONTRACTORS l Responsibility for Independent Contractors. – Contract Liability: principals who engage independent contractors as agents will be liable on contract if contract was authorized. – Tort Liability: independent contractor who is injured while working generally can’t recover from hiring party. Employees of independent contractors have been permitted to recover from independent contractor. © 2004 West Legal Studies in Business A Division of Thomson Learning 15

BUSINESS LAW: Cases & Principles Davidson • Knowles • Forsythe 8 th Ed. SERVANTS AND INDEPENDENT CONTRACTORS l Responsibility for Independent Contractors. – Employer not liable for physical acts of independent contractors unless hiring party: Reserves right to supervise/control work. l Directs independent contractor to do something wrong. l Knew about activity and did nothing to stop it. l Does not supervise independent contractor. l Careless in selecting independent contractor. l Independent contractor hired to commit crime and engage in ultrahazardous activities. l © 2004 West Legal Studies in Business A Division of Thomson Learning 16

BUSINESS LAW: Cases & Principles Davidson • Knowles • Forsythe 8 th Ed. DUTIES OF THE AGENT TO THE PRINCIPAL Agent must protect interests of principal. l Requires agent to perform certain duties: l – Duty of Good Faith (a fiduciary duty). – Duty of Loyalty. – Duty to Obey All Lawful Instructions. – Duty to Act with Reasonable Care. – Duty to Segregate Funds. – Duty to Account for Funds. – Duty to Give Notice. © 2004 West Legal Studies in Business A Division of Thomson Learning 17

BUSINESS LAW: Cases & Principles Davidson • Knowles • Forsythe 8 th Ed. DUTIES OF THE PRINCIPAL TO THE AGENT l Principal duties may be specified in the contract between principal and agent. l In general, principal has following obligations to the agent: – Pay agent per the agreement. – Maintain proper accounts so compensation and reimbursement will be correct. – Provide agent with means to do the job. – Continue employment for time period specified. © 2004 West Legal Studies in Business A Division of Thomson Learning 18

BUSINESS LAW: Cases & Principles Davidson • Knowles • Forsythe 8 th Ed. TERMINATION OF THE AGENCY RELATIONSHIP l Agreement of Parties. – Contract between principal and agent state when it will end. l Agency at Will. – Terminable at any time by either party after notice. l Fulfillment of the Agency Purpose. – Completion of work terminates. © 2004 West Legal Studies in Business A Division of Thomson Learning 19

BUSINESS LAW: Cases & Principles Davidson • Knowles • Forsythe 8 th Ed. TERMINATION OF THE AGENCY RELATIONSHIP l Revocation. – Principals revoke authority of agents to act on their behalf. l Renunciation. – Agent notifies principal they quit. © 2004 West Legal Studies in Business A Division of Thomson Learning 20

BUSINESS LAW: Cases & Principles Davidson • Knowles • Forsythe 8 th Ed. TERMINATION OF THE AGENCY RELATIONSHIP l Operation of Law. – Termination occurs automatically: Upon death of agent or principal. l Either party becomes insane. l Principal becomes bankrupt. l Agent becomes bankrupts, if bankruptcy affects the agency. l Agency cannot be performed. l Unforeseen events destroy the agency relationship. l Change in law makes agency illegal. l © 2004 West Legal Studies in Business A Division of Thomson Learning 21

BUSINESS LAW: Cases & Principles Davidson • Knowles • Forsythe 8 th Ed. TERMINATION OF THE AGENCY RELATIONSHIP l Importance of Notice. – Early termination by either party, except by operation of law, requires notice. – Actual or constructive notice may be acceptable. l Breach of Agency Agreement. – If principal wrongfully revokes agent’s authority, agent can sue for breach of express or implied contract. © 2004 West Legal Studies in Business A Division of Thomson Learning 22