© 2004 West Legal Studies in Business A Division of Thomson Learning 1 Chapter 31 Agency Formation and Duties Chapter 31 Agency Formation and Duties

© 2004 West Legal Studies in Business A Division of Thomson Learning 2 Introduction Agency=Principal and Agent. Agency is the most common and most important legal relationship. Understanding agency is crucial to understanding the legal environment of business. Agency=Principal and Agent. Agency is the most common and most important legal relationship. Understanding agency is crucial to understanding the legal environment of business.

© 2004 West Legal Studies in Business A Division of Thomson Learning 3 Introduction [2] Principals use agents to be able to conduct multiple business operations simultaneously in various locations. The principal has the right to control the agent in matters entrusted to the agent. Principals use agents to be able to conduct multiple business operations simultaneously in various locations. The principal has the right to control the agent in matters entrusted to the agent.

© 2004 West Legal Studies in Business A Division of Thomson Learning 4 Agency is a “fiduciary” relationship based on trust and confidence. Distinguish Employee vs. Independent Contractor Relationships. Agency is a “fiduciary” relationship based on trust and confidence. Distinguish Employee vs. Independent Contractor Relationships. § 1: Agency Relationships Employer Employee Independent Contractor Independent Contractor

© 2004 West Legal Studies in Business A Division of Thomson Learning 5 Factors: Employee or Independent Contractor Status Factors Courts Consider: E’eeI.C. Does the Employer exercise a great degree of control over the details of the work? YesNo Is the worker engaged in an occupation or business distinct from Employer? NoYes Is the work usually done under Employer’s supervision?YesNo Does Employer provide the tools?YesNo Has the worker been employed a long time?YesNo Is the worker paid at the end of the job?NoYes Is there a great degree of skill required?NoYes

© 2004 West Legal Studies in Business A Division of Thomson Learning 6 Employer Liability Determining whether the worker is an employee or an independent contract affects liability of Principal/Employer.  Tax Liability: Employer liable if employee.  Contract Liability: Employer not necessarily liable.  Tort Liability: Employer liable for torts of employee within scope of employment.  Works for Hire. Case 31.1: Graham v. James (1998). Determining whether the worker is an employee or an independent contract affects liability of Principal/Employer.  Tax Liability: Employer liable if employee.  Contract Liability: Employer not necessarily liable.  Tort Liability: Employer liable for torts of employee within scope of employment.  Works for Hire. Case 31.1: Graham v. James (1998).

© 2004 West Legal Studies in Business A Division of Thomson Learning 7 §2: Formation of the Agency Relationship Consensual Agreement. No consideration required. Principal needs contractual capacity, Agent does not. For any legal purpose. Consensual Agreement. No consideration required. Principal needs contractual capacity, Agent does not. For any legal purpose.

© 2004 West Legal Studies in Business A Division of Thomson Learning 8 Types of Agencies Agency by Agreement. Agency by Ratification. Agency by Estoppel. Agency by Operation of Law.  Necessaries for family.  Emergency. Agency by Agreement. Agency by Ratification. Agency by Estoppel. Agency by Operation of Law.  Necessaries for family.  Emergency.

© 2004 West Legal Studies in Business A Division of Thomson Learning 9 Agency By Agreement Formed through express consent (oral or written) or implied by conduct. Case 31.2: Acordia of Virginia Insurance Agency v. Genito Glenn (2002). Formed through express consent (oral or written) or implied by conduct. Case 31.2: Acordia of Virginia Insurance Agency v. Genito Glenn (2002).

© 2004 West Legal Studies in Business A Division of Thomson Learning 10 Agency by Ratification Principal either by act or by agreement ratifies conduct of a person who is not in fact an agent.

© 2004 West Legal Studies in Business A Division of Thomson Learning 11 Agency by Estoppel Principal causes a third person to believe that another person is the Principal’s Agent, and the third person acts to her detriment in reasonable reliance on that belief.

© 2004 West Legal Studies in Business A Division of Thomson Learning 12 Agency by Operation of Law Agency based on social duty is formed in certain situations when the Agent is unable to contact the Principal.  Necessaries.  Emergencies. Agency based on social duty is formed in certain situations when the Agent is unable to contact the Principal.  Necessaries.  Emergencies.

© 2004 West Legal Studies in Business A Division of Thomson Learning 13 Agent’s Duties to Principal Performance: reasonable diligence and skill (special skills). Notification to P. Loyalty (no conflict of interest).  Case 31.3: American Express v. Topel (1999). Obedience. Accounting. Performance: reasonable diligence and skill (special skills). Notification to P. Loyalty (no conflict of interest).  Case 31.3: American Express v. Topel (1999). Obedience. Accounting.

© 2004 West Legal Studies in Business A Division of Thomson Learning 14 Principal’s Duties to Agent Compensation (Express or Implied). Reimbursement and Indemnification. Cooperation. Provide safe working conditions. Compensation (Express or Implied). Reimbursement and Indemnification. Cooperation. Provide safe working conditions.

© 2004 West Legal Studies in Business A Division of Thomson Learning 15 § 4: Rights and Remedies of Agents and Principals Rights of Agents:  Right to compensation, reimbursement, indemnification and cooperation.  Agent can withhold performance and demand an accounting.  Agent can recover damages for past services and future damages. Rights of Agents:  Right to compensation, reimbursement, indemnification and cooperation.  Agent can withhold performance and demand an accounting.  Agent can recover damages for past services and future damages.

© 2004 West Legal Studies in Business A Division of Thomson Learning 16 Principal’s Rights and Remedies:  Contract remedies for breach of fiduciary duty and performance.  Can sue in tort: libel, slander, trespass, deceit, fraud.  Constructive Trust – money/ property agent steals from Principal.  Avoidance of contract if agent does not do as told.  Indemnification Principal’s Rights and Remedies:  Contract remedies for breach of fiduciary duty and performance.  Can sue in tort: libel, slander, trespass, deceit, fraud.  Constructive Trust – money/ property agent steals from Principal.  Avoidance of contract if agent does not do as told.  Indemnification Rights and Remedies of Agents and Principals

© 2004 West Legal Studies in Business A Division of Thomson Learning 17 Law on the Web Agency at Cornell U. Legal Research Exercises on the Web. Agency at Cornell U. Legal Research Exercises on the Web.