Chapter 17

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Chapter 17

  1. 1. CHAPTER 17 Agency
  2. 2. <ul><li>What is the difference between an employee and an independent contractor? </li></ul><ul><li>How do agency relationships arise? </li></ul><ul><li>When is a principle liable for the agent’s actions? When is the agent liable? </li></ul><ul><li>What are some of the ways in which the agency relationship can be terminated? </li></ul>Learning Objectives
  3. 3. Introduction <ul><li>Agency= Principal and Agent. </li></ul><ul><li>Understanding agency is crucial to understanding the legal environment of business. </li></ul><ul><li>Principals use agents to be able to conduct multiple business operations simultaneously in various locations. </li></ul><ul><li>The principal has the right to control the agent in matters entrusted to the agent. </li></ul>
  4. 4. <ul><li>Agency is a “fiduciary” relationship based on trust and confidence. </li></ul><ul><li>Distinguish Employee vs. Independent Contractor Relationships. </li></ul>Agency Relationships Employer Employee Independent Contractor
  5. 5. Employee vs. Independent Contractor Analysis x Is there a great degree of skill required? x Does the Employer exercise a great degree of control over the details of the work? I.C. E’ee Factors Courts Consider: (“X” = Yes) x Is the worker engaged in an occupation or business distinct from Employer? x Is the work usually done under Employer’s supervision? x Does Employer provide the tools? ? How is the worker paid and how long has he been employed?
  6. 6. Employer Liability <ul><li>Determining whether the worker is an employee or an independent contract affects liability of Principal/Employer. </li></ul><ul><ul><li>Tax Liability: Employer liable if employee. </li></ul></ul><ul><ul><li>Contract Liability: Employer not necessarily liable. </li></ul></ul><ul><ul><li>Tort Liability: Employer liable for torts of employee within scope of employment. </li></ul></ul><ul><ul><li>“ Works for Hire”: Graham v. James (1998). </li></ul></ul>
  7. 7. How Agency Relationships Are Formed <ul><li>Consensual Agreement. </li></ul><ul><li>No consideration required. </li></ul><ul><li>Principal needs contractual capacity, Agent does not. </li></ul><ul><li>Can be for any legal purpose. </li></ul>
  8. 8. Types of Agencies <ul><li>Agency by Agreement. </li></ul><ul><ul><li>Formed through express consent (oral or written) or implied by conduct. </li></ul></ul><ul><li>Agency by Ratification. </li></ul><ul><ul><li>Principal either by act or by agreement ratifies conduct of a person who is not in fact an agent. </li></ul></ul>
  9. 9. Types of Agencies <ul><li>Agency by Estoppel. </li></ul><ul><ul><li>Principal causes a third person to believe that another person is the Principal’s Agent, and </li></ul></ul><ul><ul><li>The third person acts to her detriment in reasonable reliance on that belief. </li></ul></ul>
  10. 10. Types of Agencies <ul><li>Agency by Operation of Law. </li></ul><ul><ul><li>Agency based on social duty is formed in certain situations when the Agent is unable to contact the Principal. </li></ul></ul><ul><ul><li>Necessaries for family. </li></ul></ul><ul><ul><li>Emergency. </li></ul></ul>
  11. 11. Duties of Agents and Principals <ul><li>Performance: reasonable diligence and skill (special skills). </li></ul><ul><li>Notification to P. </li></ul><ul><li>Loyalty (no conflict of interest). </li></ul><ul><ul><li>American Express v. Topel (1999). </li></ul></ul><ul><li>Obedience. </li></ul><ul><li>Accounting. </li></ul>
  12. 12. Principal’s Duties to Agent <ul><li>Compensation (Express or Implied). </li></ul><ul><li>Reimbursement and Indemnification. </li></ul><ul><li>Cooperation. </li></ul><ul><li>Provide safe working conditions. </li></ul>
  13. 13. Agent’s Authority <ul><li>Principal is liable for acts entered into by Agent when she gives Agent either actual or apparent authority: </li></ul><ul><ul><li>Actual Authority: express or implied. </li></ul></ul><ul><ul><li>Apparent Authority: estoppel, emergency and ratification. </li></ul></ul>
  14. 14. Express Authority <ul><li>Can be oral or written. </li></ul><ul><ul><li>“Equal Dignity Rule”: if law requires written contract, Agent’s authority must be in writing. Failure to comply with the rule renders contract voidable. Exceptions: </li></ul></ul><ul><ul><ul><li>Officer acting for Corporation. </li></ul></ul></ul><ul><ul><ul><li>Agent acts in Principal’s presence. </li></ul></ul></ul><ul><li>Power of Attorney (ordinary v durable). </li></ul>
  15. 15. Implied Authority <ul><li>Inferred or conferred by custom, Agent’s position or what is reasonably necessary to carry out Agent’s express authority. </li></ul><ul><li>What the Agent reasonably thinks the Principal means. </li></ul>
  16. 16. Apparent Authority <ul><li>Principal, by either word or act, causes 3rd party to reasonably believe that Agent has authority to act for Principal. </li></ul><ul><li>If 3rd party changes legal position by relying on Principal’s representations, Principal is estopped from denying Agent had authority to contract. </li></ul>
  17. 17. Ratification Authority <ul><li>1. Agent must act on behalf of Principal. </li></ul><ul><li>2. Principal must affirm entire deal. </li></ul><ul><li>3. Principal must affirm before 3rd party withdraws from transaction. </li></ul><ul><li>4.Principal and 3rd party must have legal capacity to contract when Agent made the deal. </li></ul><ul><li>5. Principals must know all the material facts involved in the transaction. </li></ul>
  18. 18. Liability for Contracts <ul><li>Principal’s liability for Agent’s contract depends on whether Agent’s actions were authorized or unauthorized. </li></ul><ul><li>Principals are classified as: </li></ul><ul><ul><li>Disclosed: identity known to 3rd party. </li></ul></ul><ul><ul><li>Partially Disclosed: 3rd party knows he is dealing with Agent, but doesn’t know Principal’s identity. </li></ul></ul><ul><ul><li>Undisclosed: 3rd party does not know he is dealing with an Agent, and Principal’s identity is totally unknown. </li></ul></ul>
  19. 19. Liability: Authorized Acts <ul><li>Disclosed or partially disclosed Principal is liable to 3rd party if Agent acts within scope of authority. </li></ul><ul><li>Agent has no liability to 3rd P for disclosed Principal’s non-performance. (Agent may be liable if Principal is partially disclosed). </li></ul>
  20. 20. Liability: Authorized Acts <ul><li>If undisclosed Principal, no liability unless: </li></ul><ul><ul><li>Principal expressly excluded. </li></ul></ul><ul><ul><li>Contract is a negotiable instrument. </li></ul></ul><ul><ul><li>Agent’s performance is personal. </li></ul></ul><ul><ul><li>3rd party would have contracted if he knew the Principal’s identity. </li></ul></ul><ul><ul><li>McBride v. Taxman Corp (2002). </li></ul></ul>
  21. 21. Unauthorized Acts <ul><li>Unauthorized acts outside of Agent’s express, implied or apparent authority. </li></ul><ul><li>If Agent has no authority, Principal is not liable, but Agent is liable. </li></ul>
  22. 22. Principal’s Liability For Agent’s Torts <ul><li>Agent is liable to 3rd party for his own torts. </li></ul><ul><li>Principal may be liable for Agent’s torts if they result from: </li></ul><ul><ul><li>Principal’s own tort. </li></ul></ul><ul><ul><li>Principal’s authorization of tort. </li></ul></ul><ul><ul><li>Agent’s unauthorized but fraudulent conduct made within scope of agency. </li></ul></ul><ul><ul><li>Respondeat Superior  </li></ul></ul>
  23. 23. Liability for Agent’s Negligence <ul><li>Applies only to Employer-Employee relationships. </li></ul><ul><li>Principal/Employer is vicariously liable for Agent/Employee’s negligent torts if committed within the Agent’s “course and scope of employment” ( respondeat superior ). </li></ul><ul><li>Distinction between Detour vs. Frolic . </li></ul>
  24. 24. Scope of Employment X Did the act involved a serious crime? X Did Employer have reason to know Employee would do the act? X Did Employer furnish instrumentality (tools)? X Did act advance Employer’s interests? X Was act commonly performed by Employees? ? ? The Time place and purpose of act (factually based) X Was Employee’s act authorized by Employer? Employer NOT Liable Employer Liable Factors: For Principal to Be Liable, Agent’s Act must have occurred within the Course and Scope of Employment. (X = Yes)
  25. 25. Liability for Agent’s Intentional Torts <ul><li>Principal liable for intentional torts committed with the scope of employment. </li></ul><ul><li>Employee is a tortfeasor as well. </li></ul><ul><li>Employer is liable for Employee’s acts which Employer knew or should have known the Employee had a propensity to commit. </li></ul>
  26. 26. Liability for Independent Contractor’s Torts <ul><li>First determine whether worker is employee or independent contractor. </li></ul><ul><li>General rule: Employer is not liable for acts of independent contractors because Employer no right to control. </li></ul><ul><li>Exception: hazardous activities </li></ul><ul><li>Independent Contractor is liable for her own torts. </li></ul>
  27. 27. Principal Liability: Review Worker P Generally Not Liable (unless strict liability) Outside CSE-P Not Liable Within CSE -P Liable “ Course and Scope of Employment” Independent Contractor Employee Factors
  28. 28. Liability for Agent’s Crimes <ul><li>General Rule: Agent is liable, Principal is not, unless: </li></ul><ul><ul><li>Principal authorized or participated in crime. </li></ul></ul><ul><ul><li>Some jurisdictions hold Principal liable for violating statutes. </li></ul></ul>
  29. 29. How Agency Relationships Are Terminated <ul><li>Agency can be terminated by: </li></ul><ul><ul><li>An Act of the Parties; or </li></ul></ul><ul><ul><li>By Operation of Law. </li></ul></ul><ul><li>Once agency terminated Agent has no actual authority to bind the Principal, but may have apparent authority to bind Principal. </li></ul>
  30. 30. Termination By Act of the Parties <ul><li>Lapse of Time. </li></ul><ul><li>Purpose Achieved. </li></ul><ul><li>Occurrence of a Specific Event. </li></ul><ul><li>Mutual Agreement. </li></ul><ul><li>Termination by One Party. </li></ul><ul><li>Notice of Termination. </li></ul>
  31. 31. Termination By Operation of Law <ul><li>Death or Insanity of either Principal or Agent: automatic. </li></ul><ul><li>Impossibility. </li></ul><ul><li>Changed Circumstances. </li></ul><ul><li>Bankruptcy. </li></ul><ul><li>War. </li></ul>

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