Agency: Creation and Termination Agency: Creation and Termination

CHAPTER 29
AGENCY: CREATION AND TERMINATION
DAVIDSON, KNOWLES & FORSYTHE

Business Law: Cases and Principles
in the Legal Environment (8th Ed.)
BUSINESS LAW: Cases & Principles
Davidson • Knowles • Forsythe 8th Ed.
AGENCY LAW AND AGENCY RELATIONSHIPS

 Agency law concerns relationships between
employees and employers.
 Agency law involves duties/responsibilities
to each other, and the public at large.
 Agency law places significance reliance on
state law and precedent.
© 2004 West Legal Studies in Business

A Division of Thomson Learning 2

 Restatement explains key terms:
– Agency is a fiduciary relationship resulting
from consent of one person to another that the
other shall act on his/her behalf.
– Principal one whom action is taken for.
– Agent one who is to act.


 Agency relationship is consensual in nature.
 Based on concept that parties mutually
agree:
– Agent will act on behalf of principal.
– Agent will be subject to principal’s direction
and control.
 Agreement can be expressed or implied.


 Analysis of Agency Relationships:
– Was dispute between principal and agent?
– Agency formed voluntarily by principal and
agent, or is there other relationship?
– Did parties have capacity to perform roles as
principal and agent?
– What authority did principal vest on agent?
– Did agent enter into contract or commit a tort?

RESTRICTIONS ON CREATING
AN AGENCY RELATIONSHIP
 Agency law affects broad range of
situations.
 Few restrictions on who can form agency
relationship.
 One restriction is agency agreement require
agent to perform legal acts.

 Capacity to Be a Principal.
– With exception of minors and incompetents,
any person can appoint an agent.
– Generally any person having capacity to
contract can employ servant or nonservant
agent.
 Capacity to Be an Agent.
– Anyone can be an agent.
– It is capacity of the principal that controls.

 Duties an Agent Can Perform.
– Agents authorized to do almost any legal task.
– There are some non-delegable duties:
 Employer’s duty to provide safe working conditions.
 Person’s duty under certain contracts.
 Landlord duties to tenants.
 Common carrier’s duty to passengers.
 Duty of person engaged in inherently dangerous
work to take precautions.

– Non-delegable duties defined by state statutes.
TYPES OF AGENCY RELATIONSHIPS

 General and Special Agents.
– Special agent: employed to complete one
transaction or simple series of transactions, the
relationship covers limited period and is not
continuous.
– General agent: conduct series of transactions,
has more discretion to carry out employers’
business.


 General and Special Agents.
– Factors that determine agent’s status:
 Number of acts agent must complete to
obtain an authorized result.
 Number of people that must be dealt with.
 Length of time necessary to obtain the
desired result.


 Gratuitous Agents.
– Person volunteers services without an
agreement or expectation of payment.
– Requirements:
 Person volunteered to help another.
 Person being helped accepted this assistance.

SERVANTS AND INDEPENDENT

CONTRACTORS
 Most workers are servants or independent
contractors.
 Servants and employees are synonymous.
 Servants (Employees):
– Physically work for Master; and
– Master (employer) has right to control how task
accomplished.


CONTRACTORS
 Servants:
– Distinction between servant and independent
contractor in determining liability for
employee’s conduct.
– Employer liable for physical acts of servant.


CONTRACTORS
 Independent Contractors:
– Hired by employer to accomplish a task for
someone else.
– Hiring party does not control or subject to
control physical acts of independent contractor.
– Independent contractors who are agents have
fiduciary duties and can bind their principals of
contracts.

CONTRACTORS
 Responsibility for Independent Contractors.
– Contract Liability: principals who engage
independent contractors as agents will be liable
on contract if contract was authorized.
– Tort Liability: independent contractor who is
injured while working generally can’t recover
from hiring party. Employees of independent
contractors have been permitted to recover
from independent contractor.


CONTRACTORS
 Responsibility for Independent Contractors.
– Employer not liable for physical acts of
independent contractors unless hiring party:
 Reserves right to supervise/control work.
 Directs independent contractor to do something
wrong.
 Knew about activity and did nothing to stop it.
 Does not supervise independent contractor.
 Careless in selecting independent contractor.
 Independent contractor hired to commit crime and
engage in ultrahazardous activities.
DUTIES OF THE AGENT TO THE PRINCIPAL

 Agent must protect interests of principal.
 Requires agent to perform certain duties:
– Duty of Good Faith (a fiduciary duty).
– Duty of Loyalty.
– Duty to Obey All Lawful Instructions.
– Duty to Act with Reasonable Care.
– Duty to Segregate Funds.
– Duty to Account for Funds.
– Duty to Give Notice .

DUTIES OF THE PRINCIPAL TO THE AGENT

 Principal duties may be specified in the
contract between principal and agent.
 In general, principal has following
obligations to the agent:
– Pay agent per the agreement.
– Maintain proper accounts so compensation and
reimbursement will be correct.
– Provide agent with means to do the job.
– Continue employment for time period specified.

TERMINATION OF THE AGENCY RELATIONSHIP

 Agreement of Parties.
– Contract between principal and agent state
when it will end.
 Agency at Will.
– Terminable at any time by either party after
notice.
 Fulfillment of the Agency Purpose.
– Completion of work terminates.


 Revocation.
– Principals revoke authority of agents to act on
their behalf.
 Renunciation.
– Agent notifies principal they quit.


 Operation of Law.
– Termination occurs automatically:
 Upon death of agent or principal.
 Either party becomes insane.
 Principal becomes bankrupt.
 Agent becomes bankrupts, if bankruptcy affects the
agency.
 Agency cannot be performed.
 Unforeseen events destroy the agency relationship.
 Change in law makes agency illegal.


 Importance of Notice.
– Early termination by either party, except by
operation of law, requires notice.
– Actual or constructive notice may be
acceptable.
 Breach of Agency Agreement.
– If principal wrongfully revokes agent’s
authority, agent can sue for breach of express or
implied contract.

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CHAPTER 29

AGENCY: CREATION AND TERMINATION

DAVIDSON, KNOWLES & FORSYTHE

AGENCY LAW AND AGENCY RELATIONSHIPS

© 2004 West Legal Studies in Business

AGENCY LAW AND AGENCY RELATIONSHIPS

© 2004 West Legal Studies in Business

AGENCY LAW AND AGENCY RELATIONSHIPS

© 2004 West Legal Studies in Business

AGENCY LAW AND AGENCY RELATIONSHIPS

© 2004 West Legal Studies in Business

© 2004 West Legal Studies in Business

© 2004 West Legal Studies in Business

 Person’s duty under certain contracts.

 Landlord duties to tenants.

 Common carrier’s duty to passengers.

 Duty of person engaged in inherently dangerous

work to take precautions.

TYPES OF AGENCY RELATIONSHIPS

© 2004 West Legal Studies in Business

TYPES OF AGENCY RELATIONSHIPS

 Length of time necessary to obtain the

© 2004 West Legal Studies in Business

TYPES OF AGENCY RELATIONSHIPS

© 2004 West Legal Studies in Business

SERVANTS AND INDEPENDENT

© 2004 West Legal Studies in Business

SERVANTS AND INDEPENDENT

© 2004 West Legal Studies in Business

SERVANTS AND INDEPENDENT

SERVANTS AND INDEPENDENT

© 2004 West Legal Studies in Business

SERVANTS AND INDEPENDENT

DUTIES OF THE AGENT TO THE PRINCIPAL

© 2004 West Legal Studies in Business

DUTIES OF THE PRINCIPAL TO THE AGENT

© 2004 West Legal Studies in Business

TERMINATION OF THE AGENCY RELATIONSHIP

© 2004 West Legal Studies in Business

TERMINATION OF THE AGENCY RELATIONSHIP

© 2004 West Legal Studies in Business

TERMINATION OF THE AGENCY RELATIONSHIP

 Either party becomes insane.

 Principal becomes bankrupt.

 Agent becomes bankrupts, if bankruptcy affects the

 Unforeseen events destroy the agency relationship.

 Change in law makes agency illegal.

© 2004 West Legal Studies in Business

TERMINATION OF THE AGENCY RELATIONSHIP

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