Agency Law Objective 3.02 Understand agency law

What is agency law? Area of law dealing relationships created between two parties in which the principal gives authority to an agent to act of the principal’s behalf in business transactions with a third party. Principal -> Agent -> Third Party Example: You picked up and paid for a pizza ordered by a family member

Agency Definitions Principal Agent Third party Individual who gives authority to the agent. Agent Individual employed by principal to work with the third party. Third party The person or company whom the agent deals with on behalf of the Principal. Relationship Triangle & Liability

Types of Work Relationships Principal-Agent Relationship “Genuine” agency relationship Agent has conducts business on behalf of the principal (it is as if the principal has acted) Examples: Employer-Employee, Officers of a Corporation, Partners in a Partnership, Franchisees

Types of Work Relationships Proprietor-Independent Contractor Proprietor is an individual or business that hires someone to perform a task Independent contractor (plumber, electrician, lawyer, etc.) works for the proprietor Independent contractor cannot act on behalf of proprietor without expressed permission

Types of Work Relationships Master-Servant Relationships A master is a person who has the right to control the actions of another person Actions include where to work, what time to arrive at work and tasks to complete at work. The person performing the actions is the servant At times, the interactions between employer-employee are considered to be master-servant Liability….

Actual Authority If the principal intentionally gives express and implied powers to the agent to act for him/her, the agent possesses actual authority. Express Powers Responsibilities of the agent are written or spoken. Implied Powers Responsibilities created by the agent’s actions.

Bailee & Trustee Relationship A bailee is a person who holds personal property of another for a certain purpose. Laundry, auto repair shop, movie rental A trustee manages a trust A trust is a legal device by which property is held by one person for the benefit of another.

Apparent Authority Apparent Authority Also called, agency by estoppel. Created by law or circumstance. Occurs when a principal, intentionally or negligently, causes or allows a third person to believe that an agency relationship exists, when there is no express agency. Principal remains liable for the agent’s actions.

Types of Agents General Agent Special Agent Subagent Given authority by principal to perform a VARIETY of tasks. Special Agent Authority restricted to certain, specific tasks. Subagent An agent appointed by another agent with the knowledge and consent of the principal.

Types of Agents Agent’s Agent Co-agents Partially Disclosed Agent An agent appointed by another agent without the knowledge and consent of the principal. Co-agents Two or more agents working together. Partially Disclosed Agent Given authority to work with a third party but forbidden to reveal identity of the principal.

Types of Agents Gratuitous agent Agent that works for free No contract exists between agent and principal Agent can terminate relationship at any time WORKSHEET: Agency Law Matching WORKSHEET: Agency Law Review

Duties of Agent to the Principal An agency relationship is fiduciary in nature; a good faith relationship based on trust Agent must protect the interests of the principal Breach?

Duties of Agent to the Principal Duty of loyalty – Faithfulness or acting in best interest Duty of confidentiality Not sharing information/processes/recipes/secrets with others Duty to abide by all lawful instructions - Obedience - obey reasonable orders Duty to act with reasonable care – Loyalty - faithfulness or acting in best interest Deal honestly without intent to seek personal advantage Duty to account for funds - accountable for all money entrusted to him/her

Duties of Principal to the Agent Compensation Payment for services rendered Reimbursement Payment for expenses incurred by the agent on behalf of the principal Indemnification Payment for losses incurred by the agent on behalf of the principal

Duties of Principal to the Agent Cooperation Principal must allow agent to perform his/her tasks Principal must not make agent’s job difficult or impossible to perform

Termination of Agency By operation of law: Death of principal or agent Either party becomes insane Bankruptcy of principal Destruction of subject matter Agent’s objective becomes illegal

Who Has Liability? Contractual Liability of Principals When an agent makes a contract on behalf of the principal, the agent is said to “stand in the shoes of the principal”. Thus the law holds principals fully liable.

Who Has Liability? Contractual Liability of Independent Contractors Agent is liable when: Agent made agreement beyond authority Principal is a minor but did not disclose Principal is unknown and third party can not identify principal

Who Has Liability? Tort Liability of Principals Generally, all people are responsible for their own torts The law extends the Master-Servant relationship to the agent-principal relationship Master is responsible for torts of his or her servants

Who Has Liability? Tort Liability of Proprietors Proprietor may be held liable for torts of an independent contractor A nondelegable duty is a duty that cannot be delegated or transferred to another party

RELATIONSHIPS ARE CREATED By agreement (contract) By operation of law (circumstantial or specific) By statute (special interest of a state)

Agreements Requiring Licensed Agents All states regulate certain professions of agents Lawyers Stock Brokers Insurance Agents Real Estate Brokers Must pass examination and be licensed by the state

Agreements Involving Minors Minors may be a principal or an agent Minors do not have contractual capacity If minor is a principal, with an adult agent, the agent may be held liable for an injury, breach of contract or error. If minor is an agent representing an adult principal, the principal must uphold a contract made by the minor

CREATING AN AGENCY RELATIONSHIP Agreements Requiring Licensed Agents Agreements Involving Minors Agencies Created by Operation of Law Agency by Estoppel Agency by Ratification Agency by Statute

Agencies created by Operation of Law Agency by Estoppel When the principal’s actions lead the third party to believe that the agent is working for the principal. Agency by Ratification Agent may not have authority but principal chooses to ignore, accept or approves decision

Agencies created by Operation of Law Agency by Statute State legislature decided to appoint someone as an agent in order to protect an interest

Termination of Agency By operation of law Death of principal or agent Bankruptcy Impossibility of performance Agent’s objective becomes illegal

Termination of Agency Termination by acts of the parties Performance Mutual agreement Agent’s withdrawal Agent’s discharge

Termination of Agency Notice to third parties Actual Notice Credit has been given to principal. Cash business has been done. No notice when third party never heard of agency relationship. Actual Notice Notice by Publication

Termination of Agency Fulfillment of the agency purpose Mutual content The agent completes his/her task Mutual content Both agent and principal agree to end relationship Expiration of time Only applies if the agent is contracted to perform duties within a certain period of time PROJECT: Agency Law Firm Project WORKSHEET: Agency Relationships

Summary/Review Agency Law READING: Pages 288 - 319 PROJECT: Agent Contract Development