MAN3 Erlan Bakiev Ph D Agency Formation and

MAN-3 Erlan Bakiev, Ph. D. Agency Formation and Duties 1

Introduction üAgency=Principal and Agent. üAgency is the most common and most important legal relationship. üUnderstanding agency is crucial to understanding the legal environment of business. 2

Introduction [2] üPrincipals use agents to be able to conduct multiple business operations simultaneously in various locations. üThe principal has the right to control the agent in matters entrusted to the agent. 3

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

Creating an Agency Relationship üAgency is a relationship in which the agent agrees to perform a task for, and under the control of, the principal. üTo create an agency, there must be: § A principal, § An agent, § Who mutually consent that the agent will act on behalf of the principal, and § Be subject to the principal’s control, § Thereby creating a fiduciary relationship. 5

Formation of the Agency Relationship Express Agency by Ratification Implied Agency Apparent Agency Copyright © 2004 by Prentice-Hall. All rights

Principal-Independent Contractor Relationship üThe crucial factor in determining whether a person is an employee or an independent contractor is the degree of control that the principal has over that person. 7

Kinds of Employment Relationships Type of Relationship Description Employer. Employee The employer has the right to control the physical conduct of the employee. Principal-Agent The agent has the 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. Principal. Independent Contractor The principal has no control over the details of the independent contractor’s conduct. An independent contractor is usually not an agent of the principal. 8

Employer Liability üDetermining 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. § Works for Hire. Case 31. 1: Graham v. James (1998). 9

§ 2: Formation of the Agency Relationship üConsensual Agreement. üNo consideration required. üPrincipal needs contractual capacity, Agent does not. üFor any legal purpose. 10

Types of Agencies üAgency by Agreement. üAgency by Ratification. üAgency by Estoppel. üAgency by Operation of Law. § Necessaries for family. § Emergency. 11

Agency By Agreement ü Formed through express consent (oral or written) or implied by conduct. 12

Agency by Ratification üPrincipal either by act or by agreement ratifies conduct of a person who is not in fact an agent. 13

Agency by Estoppel üPrincipal causes a third person to believe that another person is the Principal’s Agent, and the third person acts to her detriment in reasonable reliance on that belief. 14

Agency by Operation of Law üAgency based on social duty is formed in certain situations when the Agent is unable to contact the Principal. § Necessaries. § Emergencies. 15

Agent’s Duties to Principal üPerformance: reasonable diligence and skill (special skills). üNotification to P. üLoyalty (no conflict of interest). üObedience. üAccounting. 16

Principal’s Duties to Agent üCompensation (Express or Implied). üReimbursement and Indemnification. üCooperation. üProvide safe working conditions. 17

§ 4: Rights and Remedies of Agents and Principals üRights 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. 18

Rights and Remedies of Agents and Principals üPrincipal’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 19

ü“Once again, the subject is tradeoffs. You can accomplish more if other people do things for you. On the other hand, you may face liability for their actions. ” 20