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PowerPoint Slides to Accompany      BUSINESS LAW E-Commerce and Digital Law International Law and Ethics           5th Edi...
The Nature of Agency Agency   relationships are formed by the  mutual consent of a principal and an agent. Agency is the...
The Nature of Agency (continued) Agency  Law – The large body of common law that governs agency.     A mixture of contra...
The Principal-Agent Relationship     Principal                                                   Principal’s              ...
Persons Who Can Initiate an AgencyRelationship Any person who has the capacity to contract  can appoint an agent to act o...
Persons Who Can Initiate an AgencyRelationship (continued) An agency can be created only to  accomplish a lawful purpose....
Kinds of Employment Relationships               Employer-Employee                 Relationship                  Principal-...
Employer-Employee RelationshipA  relationship that results when an employer  hires an employee to perform some form of  p...
Principal-Agent Relationship An employer hires an employee and gives  that employee authority to act and enter into  cont...
Principal-Independent ContractorRelationship Principalsemploy persons or businesses who are not employees to perform cert...
Principal-Independent ContractorRelationship (continued) The crucial factor in determining whether a person is an employe...
Employment at Will At-Will        Employees – Employees who do not have an employment contract.     Under common law, an...
Summary: Kinds of Employment RelationshipsType of Relationship    DescriptionEmployer-Employee       The employer has the ...
Formation of the Agency Relationship  Express                                     Implied  Agency                         ...
Express Agency Anagency that occurs when a principal and an agent expressly agree to enter into an agency agreement with ...
Implied Agency An  agency that occurs when a principal and  an agent do not expressly create an agency. The agency is im...
Apparent Agency Agency    that arises when a principal creates  the appearance of an agency that in actuality  does not e...
Agency by RatificationAn agency that occurs when:1. A person misrepresents himself or herself   as another’s agent when in...
Summary: Formation of Agency Relationships(1 of 2)Type of Agency Definition                      Enforcement of the Contra...
Summary: Formation of Agency Relationships(2 of 2)Type of Agency Definition                        Enforcement of the Cont...
Termination of an Agency and EmploymentContract Anagency contract is similar to other contracts in that it can be termina...
Termination by Acts of the Parties     An agency may be terminated by the     following acts of the parties:1.   Mutual ag...
Termination by Operation of Law     An agency is terminated by operation of     law, including:1.   Death of the principal...
Irrevocable Agency An   agency coupled with an interest:   Special type of agency relationship   This type of agency is...
Wrongful Termination of an Agency orEmployment Contract The  termination of an agency contract in  violation of the terms...
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    1. 1. PowerPoint Slides to Accompany BUSINESS LAW E-Commerce and Digital Law International Law and Ethics 5th Edition by Henry R. Cheeseman Chapter 29 Agency Formation and Termination Slides developed by Les Wiletzky Wiletzky and Associates, Puyallup, WA Copyright © 2004 by Prentice-Hall. All rights reserved.
    2. 2. The Nature of Agency Agency relationships are formed by the mutual consent of a principal and an agent. Agency is 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 © 2004 by Prentice-Hall. All 29 - 2
    3. 3. The Nature of Agency (continued) Agency Law – The large body of common law that governs agency.  A mixture of contract law and tort law. Principal – The party who employs another person to act on his or her behalf. Agent – The party who agrees to act on behalf of another. Copyright © 2004 by Prentice-Hall. All 29 - 3
    4. 4. The Principal-Agent Relationship Principal Principal’s obligation to Agency perform the Contract contract Agent Third Party Contract with third party on behalf of principal Copyright © 2004 by Prentice-Hall. All 29 - 4
    5. 5. Persons Who Can Initiate an AgencyRelationship 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.  e.g., insane persons and minors Copyright © 2004 by Prentice-Hall. All 29 - 5
    6. 6. Persons Who Can Initiate an AgencyRelationship (continued) An agency can be created only to accomplish a lawful purpose. Agency contracts that are created for illegal purposes or are against public policy are void and unenforceable. Copyright © 2004 by Prentice-Hall. All 29 - 6
    7. 7. Kinds of Employment Relationships Employer-Employee Relationship Principal-Agent Relationship Principal-Independent Contractor Relationship Copyright © 2004 by Prentice-Hall. All 29 - 7
    8. 8. Employer-Employee RelationshipA relationship that results when an employer hires an employee to perform some form of physical service. An employee is not an agent unless he or she is specifically empowered to enter into contracts on the principal employer’s behalf. Copyright © 2004 by Prentice-Hall. All 29 - 8
    9. 9. Principal-Agent Relationship An employer hires an employee and gives that employee authority to act and enter into contracts on his or her behalf. The extent of this authority is governed by any express agreement between the parties and implied from the circumstances of the agency. Copyright © 2004 by Prentice-Hall. All 29 - 9
    10. 10. Principal-Independent ContractorRelationship Principalsemploy persons or businesses who are not employees to perform certain tasks on their behalf.  These persons and businesses are called independent contractors.A principal can authorize an independent contractor to enter into contracts.  Principals are bound by the authorized contracts of their independent contractors. Copyright © 2004 by Prentice-Hall. All 29 - 10
    11. 11. Principal-Independent ContractorRelationship (continued) The 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. Copyright © 2004 by Prentice-Hall. All 29 - 11
    12. 12. Employment at Will At-Will Employees – Employees who do not have an employment contract.  Under common law, an at-will employee could be discharged by an employer at any time for any reason. Exceptions to the at-will doctrine:  Statutory Exception  Contract Exception  Public Policy Exception Copyright © 2004 by Prentice-Hall. All 29 - 12
    13. 13. Summary: Kinds of Employment RelationshipsType of Relationship DescriptionEmployer-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 The principal has no control over the details of theContractor independent contractor’s conduct. An independent contractor is usually not an agent of the principal. Copyright © 2004 by Prentice-Hall. All 29 - 13
    14. 14. Formation of the Agency Relationship Express Implied Agency AgencyAgency by ApparentRatification Agency Copyright © 2004 by Prentice-Hall. All 29 - 14
    15. 15. Express Agency Anagency that occurs when a principal and an agent expressly agree to enter into an agency agreement with each other.  Exclusive agency contract  Power of attorney Express agency contracts can be either oral or written unless the Statute of Frauds stipulates that they must be written. Copyright © 2004 by Prentice-Hall. All 29 - 15
    16. 16. Implied Agency An agency that occurs when a principal and an agent do not expressly create an agency. The agency is implied from the conduct of the parties. The extent of the agent’s authority is determined from the particular facts and circumstances of the particular situation.  Incidental authority Copyright © 2004 by Prentice-Hall. All 29 - 16
    17. 17. Apparent Agency Agency that arises when a principal creates the appearance of an agency that in actuality does not exist. When an apparent agency is established, the principal is estopped from denying the agency relationship. It is the principal’s actions that create an apparent agency. Copyright © 2004 by Prentice-Hall. All 29 - 17
    18. 18. Agency by RatificationAn agency that occurs when:1. A person misrepresents himself or herself as another’s agent when in fact he or she is not, and2. The purported principal ratifies (accepts) the unauthorized act. Copyright © 2004 by Prentice-Hall. All 29 - 18
    19. 19. Summary: Formation of Agency Relationships(1 of 2)Type of Agency Definition Enforcement of the ContractExpress Authority is expressly given to Principal and third party are the agent by the principal. bound to the contract.Implied Authority is implied from the Principal and third party acts are conduct of the parties, bound to the contract. custom and usage of trade, or act incidental to carrying out the agent’s duties. Copyright © 2004 by Prentice-Hall. All 29 - 19
    20. 20. Summary: Formation of Agency Relationships(2 of 2)Type of Agency Definition Enforcement of the ContractApparent Authority created when the Principal and third party are principal leads a third party bound to the contract. into believing that the agent has authority.By Ratification Acts of the agent committed Principal and third party are not outside the scope of his bound to the contract unless the authority. principal ratifies the contract. Copyright © 2004 by Prentice-Hall. All 29 - 20
    21. 21. Termination of an Agency and EmploymentContract Anagency contract is similar to other contracts in that it can be terminated by:  Acts of the parties, or  Operation of law Once an agency relationship is terminated, the agent can no longer represent the principal or bind the principal to contracts. Copyright © 2004 by Prentice-Hall. All 29 - 21
    22. 22. Termination by Acts of the Parties An agency may be terminated by the following acts of the parties:1. Mutual agreement2. Lapse of time3. Purpose achieved4. Occurrence of a specified event Copyright © 2004 by Prentice-Hall. All 29 - 22
    23. 23. Termination by Operation of Law An agency is terminated by operation of law, including:1. Death of the principal or agent2. Insanity of the principal or agent3. Bankruptcy of the principal4. Impossibility of performance5. Changed circumstances6. War between the principal’s and agent’s countries Copyright © 2004 by Prentice-Hall. All 29 - 23
    24. 24. Irrevocable Agency An agency coupled with an interest:  Special type of agency relationship  This type of agency is irrevocable by the principal  Not terminated by the death or incapacity of either the principal or the agent  Terminates only when the agent’s obligations are performed Copyright © 2004 by Prentice-Hall. All 29 - 24
    25. 25. Wrongful Termination of an Agency orEmployment Contract 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. The distinction between the power and the right to terminate an agency is critical. Copyright © 2004 by Prentice-Hall. All 29 - 25
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