Chapter 14 Meiners, Ringleb and Edwards The Legal Environment of Business, 13th Edition ©2018 Cengage Learning®. May not be scanned, copied or duplicated or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. AGENCY AND THE EMPLOYMENT RELATIONSHIP Agency Relationships • Agency is created when a person or company (an agent) agrees to act for or in place of another person or company (the principal) • 1. The principal creates authority in an agent • 2. The agent receives authority & carries out the principal’s instructions • 3. Third parties make contracts or are involved in torts with the agent • Result: The principal is generally bound by the agent’s acts with a third party. Classification of Agents Different agents have different kinds of authority. Universal agents: Do all acts that can be legally delegated, i.e. General Power of Attorney General agents: Execute all transactions in connection with a business, i.e. top level managers Special agents: Execute a specific transaction or series of transactions, i.e. a real estate agent Agency coupled with an interest: Agent has paid for the right to have authority for a business Gratuitous agent: No payment is made to the agent, i.e. a favor or a volunteer Subagents: Agent delegates authority to other agents Creating An Agency By Agreement of the Parties  May be oral or written  Legal document called a power of attorney establishes agency and creates an attorney-in-fact. Implied or Express Ratification by the Principal  A principal accepts responsibility for acts of an agent going beyond his/her authority (ratification). • Agency by Estoppel • Actions of the principal lead others to believe an agency exists – the principal is estopped from denying the agency’s existence. • Agency by Operation of Law • The agent acts beyond the authority granted. • Necessity or emergencies create agency existence. • The agent may do acts and bind the principal by operation of law. AGENT ACTS FOR THE PRINCIPAL Actual Authority • Principal sends signals to the agent to do something with a third party. • Express Authority: Oral or written instructions create the authority. • Implied Authority: Principal’s conduct or trade customs create authority. Apparent Authority  Principal sends signals to the third party that what the agent does binds the principal.  There is appearance of authority that a third party could reasonably conclude. Cove Management v. AFLAC, Inc. Galgano signed “Associates Agreement” with AFLAC. Authorized him to solicit applications for AFLAC insurance. Agreement stated Galgano was an independent contractor. Said Galgano may not enter into contracts or incur debt on behalf of AFLAC. Galgano did not have authority to “re ...

1. Chapter 14
Meiners, Ringleb and Edwards
The Legal Environment of Business, 13th Edition
©2018 Cengage Learning®. May not be scanned, copied or
duplicated or
posted to a publicly accessible website, in whole or in part,
except for use
as permitted in a license distributed with a certain product or
service or
otherwise on a password-protected website or school-approved
learning
management system for classroom use.
AGENCY AND THE
EMPLOYMENT
RELATIONSHIP
Agency Relationships
• Agency is created when a person or company (an agent) agrees
to act
for or in place of another person or company (the principal)
• 1. The principal creates authority in an agent
• 2. The agent receives authority & carries out the principal’s
instructions
• 3. Third parties make contracts or are involved in torts with

2. the agent
• Result: The principal is generally bound by the agent’s acts
with a third
party.
Classification of Agents
: Do all acts that can be legally delegated,
i.e. General
Power of Attorney
business,
i.e. top level managers
transactions,
i.e. a real estate agent
to have
authority for a business
favor or a
volunteer
Creating An Agency

3. attorney establishes agency and
creates an attorney-in-fact.
the Principal
bility for
acts of an agent going beyond
his/her authority (ratification).
• Agency by Estoppel
• Actions of the principal lead others to
believe an agency exists – the
principal is estopped from denying the
agency’s existence.
• Agency by Operation of Law
• The agent acts beyond the authority
granted.
• Necessity or emergencies create
agency existence.
• The agent may do acts and bind the
principal by operation of law.
AGENT ACTS FOR THE PRINCIPAL

4. Actual Authority
• Principal sends signals to
the agent to do something
with a third party.
• Express Authority: Oral or
written instructions create
the authority.
• Implied Authority:
Principal’s conduct or trade
customs create authority.
Apparent Authority
to the third party that
what the agent does
binds the principal.
of authority that a
third party could
reasonably conclude.
Cove Management v. AFLAC, Inc.
Authorized him to
solicit applications for AFLAC insurance. Agreement stated
Galgano was
an independent contractor. Said Galgano may not enter into

5. contracts or
incur debt on behalf of AFLAC. Galgano did not have authority
to “rent
any office space” or obligate AFLAC without “specific wr itten
authorization”.
listed the
tenant as AFLC and listed Galgano as guarantor for office to be
used for
“insurance services.” Galgano signed the lease but later
defaulted on
payments.
ed AFLAC for losses. Cove noted the office was an
AFLAC office
and engaged in business for AFLAC and it had the right to
presume
Galgano had authority as an agent to bind AFLAC.
Cove Management v. AFLAC, Inc.
• Affirmed. Galgano was not acting under apparent authority.
• Cove argued that AFLAC clothed Galgano with apparent
authority, and
created liability in AFLAC as lessee under lease.
• Apparent authority: “Such authority as the principal
knowingly permits
the agent to assume . . . or holds his agent out as possessing . . .
.” The
other party has “reasonably and detrimentally relied on agent’s

6. authority.”
• Court cannot consider:
• (1) When office was set up, the parking signed had the
AFLAC symbol and duck.
• (2) That there were AFLAC’s stylized blue materials – in and
out of office.
• (3) AFLAC was listed on the director of the building.
• Cove made no effort to determine if Galgano was independent
contractor
or agent of AFLAC.
• Cove relied exclusively on statement and representations of
Galgano that
he had authority to bind AFLAC to the lease on premises.
PRINCIPAL’S DUTIES TO AGENT
• Cooperation – with the agent to fulfill the agency purpose
• Compensation – for services rendered
• Unless agent agreed to work for free
• Reimbursement – of “reasonable” expenses
• No reimbursement for agents misconduct
• Working Conditions – as required by law and to meet legal
obligations
• Indemnify (pay back) – for legal liabilities incurred by the
agent

7. AGENT’S DUTIES TO THE PRINCIPAL
• Loyalty – Place the principal’s interest above the agent’s
interests.
• Can not compete with principle without permission.
• Massachusetts Court: Held CEO would forfeit all
compensation paid to him during his
disloyalty to the company
• Obedience and Performance – To perform in compliance with
the
principal’s instructions.
• Reasonable Care & Skill – To perform as is “reasonable under
the
circumstances” (including emergencies).
• Account – For the funds and property of the principal (avoid
mixing
personal funds with the principal’s).
• Notify/Inform – As to all facts of the agency purpose.
Bearden v. Wardley Corporation
• Bearden listed property for sale with real estate agent, Gritton
who
worked for Wardley Corp. Gritton told Bearden he wanted to
buy the
property for $89,000. Bearden agreed. Contract called for
Gritton to pay
Bearden $400/mo., followed by balloon payment after five

8. years.
• Bearden would keep title until balloon payment was made.
Unknown to
Bearden, Gritton gave her the deed with other documents to
sign. He had
signature notarized, recorded the deed, and transferred title to
himself.
• Gritton did not keep up on payments. Bearden hired a lawyer.
He
discovered the fraud and that Gritton had borrowed money
against the
property and it was in foreclosure for lack of payments to
lender.
• Bearden paid $60,000 to keep property from being lost.
• Sued Gritton and Wardley for breach of contract, fraud, and
breach of
fiduciary duty.
Bearden v. Wardley Corporation
• Jury awarded $75,000 damages +$25,000 punitive damages +
$50,000
attorney fees and costs against Gritton & Wardley.
• Wardley was stuck with the judgment and appealed.
• Affirmed. Listing contract with Wardley had “fiduciary duties
to seller”
clause in it.

9. • Wardley’s internal policy prohibited agents from purchasing
properties
they listed.
• Knew Gritton purchased the property but never questioned
Gritton about violating
internal policy re: purchase of listed property. Never asked
Gritton to stop
representing Bearden
• Never informed Bearden of Gritton’s internal policy
violations.
• Wardley breached its duty of care to Bearden and is liable.
Liability for Contracts
1. Disclosed principal: Identity of principal is known by the
third party at time
of making of contract with agent.
2. Principal is liable to a third party for a contract of the agent
if the agent has
actual authority.
3. If there is apparent authority, the principal is contractually
liable to a third
party. However, the principal may sue the agent for losses if
agent has
breached a duty.
4. Undisclosed principal: Identity of principal is unknown to
third party, which
can be fine. Agent does the work and will be indemnified by

10. principal if agent
acts within scope of authority.
Yim v. J’s Fashion Accessories, Inc.
• Benjamin Yim did business under trade name Ho Tae.
• Ordered goods from J’s Fashion. Invoices were sent to Ho
Tae.
• Account not paid. Fashion sued Yim, as Fashion presumed Ho
Tae was
merely his trade name.
• He denied liability, saying he acted as an agent for a principal,
Hosung
Enterprise, Inc.
• Hosung did business under name Ho Tae.
• Fashion said that at no time did Yim disclose existence of a
corporation
entity.
• Fashion thought they were always dealing with Yim with trade
name Ho Tae.
• Trial court entered summary judgment against Yim.
• He appealed, saying he was only an agent for Hosung
Enterprises.
Yim’s v. J’s Fashion Accessories
• HELD: Affirmed.
• Agent who makes a contract without giving identity of the
principal

11. becomes personally liable when the agent believes the principal
is willing
to be responsible for the contract.
• There is a duty to disclose the principal’s identity.
• Agent must be specific in disclosure.
• Use of a trade name is not necessarily a disclosure of
principal’s identity.
At no point did Yim indicate he was acting other than an
individual doing
business as Ho Tae, so Fashion could presume he was
personally liable.
Terminating an Agency
1. Either party may terminate (unilateral termination)
• Agent says, “I quit”
• Or principal says, “You’re fired.”
2. Specific date set for agency to end
3. Purpose of agency is fulfilled. Notice of termination must be
made to 3rd
parties to end an agent’s apparent authority.
4. Termination by operation of law
• Principal or agent dies
• Subject matter of the agreement is lost or destroyed
The Essential Employment Relationship

12. -Agent
e principal; agent has a degree of
personal discretion;
principal is usually liable for contracts made.
-Servant or Employer-Employee
-servant is old term still used, but employer-employee
is used more.
Employee’s conduct is controlled by employer. The employee
can also be an agent
(distinction is sometimes blurred). Employer is usually liable
for contracts made by
employee; may be responsible for some torts.
-Independent Contractor (I/C)
does not control
the details of the I/C’s
performance. Contractors usually not agents, but can be
(attorneys, auctioneers).
Employer is not liable for the I/C’s torts.
France v. Southern Equipment Co.
• Hensley did business under trade name Royalty Builders.
Hired 16-year-
old Robert France to do roofing work.
• Southern Equipment needed a new roof on a building.
• Accepted bid form Quality Metal Roof. Quality hired Royalty
to do work;
Quality supplied materials.

13. • While working on roof, France fell and suffered head injuries.
He sued
Southern (and others) for exposing him to an inherently
dangerous job
of roofing.
• Court granted summary judgment for Southern.
• France appealed. Affirmed.
• Royalty Builders was an independent contractor. Southern
had no
control over the work done by Royalty.
• Southern could not be held vicariously liable as Royalty
Builder’s
(thereby France’s) employer.
Employment-at-Will
-at-will or quit when they want
contract, but must establish why limits to employer’s rights to
discharge
-will: express contract; implied
contract; or implied covenant of good faith and fair dealing

14. Guz v. Bechtel National, Inc.
(BNI) 1971-1993 with a good
employment record under
employment at will. Company said terminations would be for
unsatisfactory
performance or due to a layoff.
terminated. The company
was doing well. Guz’s duties were transferred to other
employees. He applied for
other positions at BNI but was rejected.
only for good cause
and breach of implied covenant of good faith & fair dealing.
Trial court dismissed suit, saying he was at-will employee.
Appeals court reversed,
holding that his longevity, raises, etc. warranted a retrial.
Appeal.
s may define
for themselves
causes for termination. Here, there is no evidence that BNI had
additional terms
to employment security and BNI had the right to reorganize and
terminate
employees as they wished.
s not create a
contractual guarantee for

15. employment security.
Employment Handbooks
under Employment-At-Will Doctrine
contract between employer and employee
handbook saying it is not a contract – have employees
sign
SOCIAL MEDIA RULES IN THE WORKPLACE
e-mails
that come to company computers or accounts
-mails for red flag words – sex, guarantee,
social
security number, etc.
Litigation from harassment from e-mails with sexual content

16. to
social media account
do not
insist.
retrieved later.
Principal’s Liability
oIf the principal directs the agent to do tortious acts, then the
principal is liable (rare).
oPrincipal may give actual authority or instructs employee or
agent
to do a certain act. Thereby the principal may ratify agent’s
conduct.
• Vicarious Liability imposed
employment”?
he doctrine of respondeat superior.
negligent hiring or supervision.

17. NEGLIGENT HIRING
torts committed
by an employment who is not acting in the scope of employment
issues.
independent
contractor for doubtful history. i.e.
ild molester: Should not be in routine contact with
children
company
truck
Anderson v. Mandalay Corporation
• Anderson was in Las Vegas, staying at Mandalay Bay Resort
and Casino.
• She went to diner – drank a lot. She went to her room at 2
a.m.
• Gonzalez, hotel employee, had passkey. Went in her room and
assaulted her.
Security tracked him down. He pleaded guilty to sexual assault.
• Anderson sued Mandalay for negligent hiring --Vicarious
liability for employee’s

18. intentional tort
• While working at Mandalay, Gonzalez had been suspended for
a month for
threatening a female supervisor.
waiting for you in
the parking garage.”
• At trial, showed 5 previous sexual assaults at Mandalay by
employees who
entered into guest rooms unauthorized – about one a month.
• District Court held for hotel. Assault not foreseeable.
Anderson appealed.
Anderson v. Mandalay Corporation
• Reversed and remanded. Employers are vicariously liable for
employees’
intentional torts. If employee’s act is “reasonably foreseeable”
given the
nature and of scope of employment
• Reasonably foreseeable: Person of ordinary intelligence could
anticipate
conduct of probable injury to plaintiff.
• Mandalay suspended Gonzalez 31 days for threats toward
female
supervisor.
• When suspension ended, restored his keycard access with

19. minimal
supervision. Mandalay. Reasonable jury could conclude it was
foreseeable that he would sexually assault a Mandalay guest.
• Mandalay contended Gonzalez’s act was not “within the scope
of his
employment.” Obviously not, but sexual assault not
unforeseeable.
• Juries can determine whether facts show if employee’s tortious
conduct
was “reasonably foreseeable.”
AGENCY AND THE EMPLOYMENT RELATIONSHIP�
Agency RelationshipsClassification of AgentsCreating An
AgencyAGENT ACTS FOR THE PRINCIPALCove Management
v. AFLAC, Inc.Cove Management v. AFLAC,
Inc.PRINCIPAL’S DUTIES TO AGENTAGENT’S DUTIES TO
THE PRINCIPALBearden v. Wardley CorporationBearden v.
Wardley Corporation Liability for Contracts Yim v. J’s Fashion
Accessories, Inc.Yim’s v. J’s Fashion AccessoriesTerminating
an AgencyThe Essential Employment RelationshipFrance v.
Southern Equipment Co. Employment-at-WillGuz v. Bechtel
National, Inc.Employment HandbooksSOCIAL MEDIA RULES
IN THE WORKPLACEPrincipal’s Liability NEGLIGENT
HIRINGAnderson v. Mandalay CorporationAnderson v.
Mandalay Corporation
Chapter Fourteen Assignments and Objectives.htmlObjectives-
Chapters 14
5.1 Identify and list all of the different types and
classifications of Agents and Agency relationships with
Principals and Third parties.
5.2 Identify and list the individual steps to take to create an
agency.
5.3 Identify and list the different duties that an Agent can

20. perform on behalf of the Principal, as well as what the Agent
cannot do on behalf of the Principal.
5.4 Identify and list the Agent's and the Principal's duties to
each other as well as how to terminate an Agency.
5.5 Identify, list and memorize all of the different types of
employment relationships there are between employee and
employer. (This specifically relates to General Objective 5)
5.6 List the types of liability an employer can incur as a result
of the actions of his employee. Chapter 5 deals with how
criminal law can relate to business. There is a brief discussion
of the categories of crimes as well as the elements of different
crimes.
Readings
Read Chapter Fourteen Assignments
Chapter 14 Assignments
Chapter 14 Part 1:
Do the Discussion Question in the middle of page 350-answer
this question fully, giving reasons for your answers. Your
discussion should involve elements of employment law and
elements of criminal law. You should also fully discuss an
agent's duty to their employer as well as the duties that the
agent violated in this situation. Be sure to tell me who has legal
ownership of the car and give the legal reasons for your answer.
This assignment must be long enough to fully discuss the
questions in detail.
Be sure to review the rubric for this assignment. Chapter 14
Part 1 Rubric
Chapter 14 Part 2:
Case Question #6 on page 351. Meyers v. National Detective
Agency, 281, A.2d 435, Ct. App., D.C. (1971) (copy and paste
this link ) https://law.justia.com/cases/district-of-

21. columbia/court-of-appeals/1971/5725-3.html This is a good
discussion of when a master is liable for the negligence of his
servant if at the time of the negligent act the latter is acting
within the scope of his employment, and this liability applies
even in instances where the servant, while disobeying his
master's orders injures a third party. Tell me what the court
said as to why or why not the employer could be liable in this
case.
Be sure to review the rubric for this assignment. Chapter 14
Part 2 RubricSubmission InstructionsAll Chapter 14
Assignments have a due date. The due date for all Chapter 14
assignments is July 25th, and I will not accept them late. Be
sure to upload your files into the appropriate Dropbox. You can
access the dropboxes by going to Tasks in the top menu bar and
selecting Dropboxes from the dropdown menu.