Chapter 1, Fundamentals of Business Organizations for Paralegals Professor Morissette
Agency Please note we are only covering pages 4-9 of the first chapter. We are focusing on agency. A principal-agent relationship is so important because it can help determine liability. Typically, a principal will be held liable for the actions of his agent. An agent agrees to act for another, called the principal.
Formation of Agency Relationship There are several ways in which to form a principal- agent relationship: Agreement Express Can be oral or written. Implied—words, conduct, or prior interactions prove a principal- agent relationship Estoppel Public policy argument that says it would be unfair unless a principal-agent relationship was found by the judge.
Authority of Agents The principal-agent relationship covers more than just employers and employees. However, let’s say Tom, of Tom’s Cameras, hires Lucy. Lucy is selling a camera to Alyssa, when Lucy drops the very heavy camera on Alyssa’s foot. It is in Alyssa’s best interest to be able to sue Tom, because he owns his own business and likely to have more money than Lucy. It is in Tom’s interest to deny a principal-agent relationship with Lucy, so that he can avoid having to pay Alyssa. The general rule is to hold Tom liable for Lucy’s actions, in addition to holding Lucy liable for her own actions.
Actual Authority Express Written or Oral Implied Here means those acts reasonably necessary to allow the agent to perform his duties
Apparent Authority Occurs when a principal causes a third party to reasonably believe the agent has the authority to act for the principal. Examples: When you go to the dry cleaners, do you assume that the person working behind the counter has the authority to take your clothes and your money? If it appears that an agent has authority, then the principal will be held liable for the agent’s actions.
Ratified Authority Happens when the principal accepts an agent’s act(s) even though the agent had no authority to perform the act(s) or exceeded the scope of their authority.
Duties of Agents and Principals Duties are going to play an important role throughout corporate law. You’ll see them come into play starting now, and through all the business entities we’ll cover. California calls these duties slightly different names than in your book. Fiduciary duties—anything to do with money Good faith and fair dealing Honesty (really is considered part of fair dealing) Later we’ll hear about the duty of due care and the duty of loyalty
Agent’s Duties Performance—basically do the work as soon as possible, while still doing it carefully Notification—the book is not quite right. An agent does not have to disclose all information relating to the agency, only reasonable settlement offers. Loyalty—the duty not to compete or to have divided loyalties (conflict of interest) Accounting—LET THE PRINCIPAL KNOW ALL THE MONEY YOU’VE SPENT ON HIS BEHALF!!!
Principal’s Duties Compensation Reimbursement Cooperation Indemnification—General Rule (GR) is that principal’s are responsible for the acts of their agents and must pay for any lawsuits brought against the agent. HOWEVER: Different types of conduct: Negligent “Reckless and Willful” Intentional “Frolic and Detour”
Will the employer indemnify the agent?Depends upon conduct of agent…Negligence Employer must indemnify agent“Reckless and Depends In CA, In DE, Case-by-caseWillful” probably yes. probably no. basis.Intentional Employer does not have to indemnify agent“Frolic and Depends. How far did Case-by-caseDetour” the agent basis. frolic or detour?
Liability for Agent’s Torts Examples of Frolic and Detour On your own, make sure you understand the terms respondeat superior and vicarious liability—these are big issues in corporate law.
Termination of Agency Stated time period for agency expires (often 1 year) Purpose of agency has been completed (ie bought a house, escrow is closed, etc.) Mutual agreement (sometimes principal can revoke on their own, ie through reasonable notice) Death Bankruptcy Reasonable notice
Agency in Business Relationships Many of the relationships we will discuss in the future are based upon agency law. A sole proprietor is vicariously liable for the acts of her employees. In general partnerships, any partner is an agent of the others! In a corporation, directors and officers are agents of the corporation.