Chapter 29 Agency Formation and Termination Introduction to

Chapter 29 Agency Formation and Termination

Introduction to Agency Formation and Termination § Use of agents — allows one person to act on behalf of another § Independent contractors — Outside contractors who are employed by a principal to conduct limited activities for the principal Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -2

Agency § Principal–agent relationship § The fiduciary relationship “which results from the manifestation of consent by one person to another that the other shall act in his behalf and subject to his control, and consent by the other so to act” Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -3

Agency § Agency law: The large body of common law that governs agency § A mixture of contract law and tort law § Principal: A party who employs another person to act on his or her behalf § Agent: A party who agrees to act on behalf of another Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -4

Exhibit 29. 1: Principal–Agent Relationship Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -5

Who Can Initiate Agency Relationship § Any person who has the capacity to contract can appoint an agent to act on his or her behalf § Persons who lack contractual capacity cannot appoint an agent Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -6

Kinds of Employment Relationships Type of Relationship Description Principal–agent The agent has authority to act on behalf of the principal, as authorized by the principal and implied from the agency. An employee is often the agent of his employer. Employer–employee An employee is hired to perform a task or service. An employee cannot enter into contracts on behalf of the employer. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -7

Independent Contractor § Principal-independent contractor relationship: The relationship between a principal and an independent contractor § The contractor is not an employee of the principal but has been employed by the principal to perform a certain task on behalf of the principal § A principal can authorize an independent contractor to enter into contracts § Principals are bound by the contracts Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -8

Case 29. 1: Agency § Case § Bosse v. Brinker Restaurant Corporation, d. b. a. Chili’s Grill and Bar § Web 2005 Mass. Super. Lexis 372 (2005) § Superior Court of Massachusetts § Issue § Is the restaurant patron who engaged in the highspeed car chase an agent of Chili’s? Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -9

Power of Attorney § An express agency agreement that is often used to give an agent the power to sign legal documents on behalf of the principal § General power of attorney: A principal confers broad powers on the agent to act in any matters on the principal’s behalf § Special power of attorney: A principal confers powers on an agent to act in specified matters on the principal’s behalf Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -10

Case 29. 2: Scope of Employment § Case § Matthews v. Food Lion, LLC § 695 S. E. 2 d 828, Web 2010 N. C. App. Lexis 1151 (2010) § North Carolina Court of Appeals § Issue § Was Hall acting within the scope of her employment at the time of the accident? Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -11

Formation of Agency Relationships Type of Agency Formation Enforcement of the Contract Express Authority is expressly given to the agent by the principal Principal and third party are bound to the contract Implied Authority is implied from the conduct of the parties, custom and usage of trade, or act incidental to carrying out the agent’s duties Principal and third party are bound to the contract By ratification Principal and third party are bound to the contract Principal and third party are not bound to the contract unless the principal ratifies the contract Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -12

Formation of Agency Relationships Type of Agency Formation Enforcement of the Contract Apparent Authority is created when the principal leads a third party to believe that the agent has authority Principal and third party are bound to the contract Incidental Authority that is implied to act beyond Principal and third party are express agency powers to take all bound to the contract actions reasonably necessary to protect the principal’s property and rights Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -13

Principal’s Duties Duty to indemnify Duty to reimburse Principal’s Duties Duty to compensate Duty to cooperate Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -14

Principal’s Duty to Compensate § A duty that a principal owes to pay an agreed-upon amount to the agent § Either upon the completion of the agency or at some other mutually agreeable time § Agency contract specifies the compensation to be paid § No agreement as to the amount of compensation – principal will pay the agent the customary fee paid in the industry Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -15

Principal’s Duty to Reimburse § The principal owes a duty to reimburse the agent for expenses incurred by the agent if the expenses were § Authorized by the principal § Within the scope of the agency § Necessary to discharge the agent’s duties in carrying out the agency § Unless otherwise agreed upon Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -16

Principal’s Duty to Indemnify § A principal owes a duty to indemnify the agent for any losses the agent suffers because of the principal’s conduct § Duty to cooperate: The principal owes a duty to cooperate with and assist the agent in the performance of the agent’s duties and the accomplishment of the agency § Unless otherwise agreed upon Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -17

Agent’s Duties Duty to account Agent’s Duties Duty to perform Duty to notify Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -18

Agent’s Duty to Perform § An agent’s duty to a principal that includes § Performing the lawful duties expressed in the contract § Meeting the standards of reasonable care, skill, and diligence implicit in all contracts Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -19

Agent’s Duty to Notify § An agent owes a duty to notify the principal of important information concerning the agency § Imputed knowledge: Information that is learned by an agent that is attributed to the principal Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -20

Agent’s Duty to Account § A duty that an agent owes to maintain an accurate accounting of all transactions undertaken on the principal’s behalf § Requires the agent to § Maintain a separate account for the principal § Use the principal’s property in an authorized manner Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -21

Termination of Agency by Act of Parties § Agency can be terminated by the following acts § Mutual assent of the parties § If a stated time has lapsed § If a specified purpose is achieved § Occurrence of a stated event § Notice of Termination § Direct notice § Constructive notice Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -22

Termination by an Unusual Change in Circumstances § Unusual change in circumstances – leads the agent to believe that the principal’s original instructions should no longer be valid § Termination by impossibility of performance § The loss or destruction of the subject matter of the agency § The loss of a required qualification § A change in the law Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -23

Termination by Operation of Law § An agency contract is terminated in the following circumstances § The death of either the principal or agent § The insanity of either the principal or the agent § The bankruptcy of the principal § The outbreak of a war between the principal’s country and the agent’s country § No duty to notify third parties about the termination Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -24

Wrongful Termination § The termination of an agency contract in violation of the terms of the agency contract § The nonbreaching party may recover damages from the breaching party Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29 -25

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