Chapter 1: Legal Ethics 1

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Learning Objectives 1.What is the difference between an employee and an independent contractor? 2.How do agency relationships arise? 3.What duties do agents and principals owe to each other? 2

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Learning Objectives 4.When is a principal liable for the agent’s actions? When is the agent liable? 5.What are some of the ways in which the agency relationship can be terminated? 3

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use.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. 4

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use.Introduction  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. 5

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use.  Agency is a “fiduciary” relationship based on trust and confidence.  Employer-Employer Relationships. – Generally, all employees who deal with third parties are agents. Agency Relationships 6

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use.  Employer -Independent Contractor Relationships. – Employers have ‘no control’ over the details of their work performance.  Determination of Employee Status. Key is control.  Agency Relationships 7

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use.  Employer -Independent Contractor Relationships. – Employers have ‘no control’ over the details of their work performance.  Determination of Employee Status. Key is control.  Agency Relationships 8

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. YesNoIs there a great degree of skill required? YesNoIs the worker paid at the end of the job? NoYesHas the worker been employed a long time? NoYesDoes Employer provide the tools? NoYesIs the work usually done under Employer’s supervision? YesNoIs the worker engaged in an occupation or business distinct from Employer? NoYesDoes the Employer exercise a great degree of control over the details of the work? I.C. E’ee A “Yes” Tends to Show Employee Status Agency Relationships Determining Employee Status. 9

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use.  Determining Employee Status. – CASE 21.1 L OPEZ V. E L P ALMAR T AXI, I NC. (2009). – CASE 21.1 L OPEZ V. E L P ALMAR T AXI, I NC. (2009). What factors would have helped El Palmar avoid liability? – Criteria Used by the IRS. – Employee Status and “Works for Hire”: any copyrighted work created during scope of employment is owned by employer. Agency Relationships 10

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use.  Generally, agency relationships: – Are consensual. – Require no consideration. – Require principal to have contractual capacity (agent does not). – Can be created for any legal purpose.  How Agency Relationships Are Formed 11

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use.  Types of Agencies. – Agency by Agreement.  – Agency by Ratification.  – Agency by Estoppel.  – Agency by Operation of Law.  Necessaries for family. Emergency. How Agency Relationships Are Formed 12

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use.  Agency By Agreement of the Parties. – Formed through express consent (oral or written) or implied by conduct. – CASE 21.2 L AUREL C REEK H EALTH C ARE C ENTER V. B ISHOP (2010). – CASE 21.2 L AUREL C REEK H EALTH C ARE C ENTER V. B ISHOP (2010). When was the agency created between Bishop and his wife? How Agency Relationships Are Formed 13

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. How Agency Relationships Are Formed  Agency By Ratification. – Principal either by act or by agreement ratifies conduct of a person who is not in fact an agent. 14

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. How Agency Relationships Are Formed  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. 15

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use.  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. How Agency Relationships Are Formed 16

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Duties of Agents and Principals  Agent’s Duties to the Principal: – Performance: implied condition to use reasonable diligence and skill. If agent fails, possible breach of contract. Gratuitous Agent: only liable for torts.  – Notification: to principal of all matters concerning subject matter of agency. 17

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Duties of Agents and Principals  Agent’s Duties to the Principal: – Notification: to principal of all matters concerning subject matter of agency. – Loyalty: fundamental duty as fiduciary (no conflict of interest). – Obedience. – Accounting. 18

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Duties of Agents and Principals  Principal’s Duties to the Agent: – Compensation (Express or Implied). – Reimbursement and Indemnification. – Cooperation. – Safe Working Conditions. 19

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Agent’s Authority  Principal is liable for acts entered into by Agent when she gives Agent either actual or apparent authority: – Actual Authority: express or implied. – Apparent Authority: estoppel, emergency and ratification. 20

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Agent’s Authority  Principal is liable for acts entered into by Agent when she gives Agent either express or apparent authority: – Express Authority: express or implied.  – Apparent Authority: estoppel, emergency and ratification.  21

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Agent’s Authority  Express Authority. – Can be oral or written. – Equal Dignity Rule: if law requires written contract, agent’s authority must be in writing, or contract voidable. Exceptions: Executive Officer acting for Corporation, OR Agent acts in Principal’s presence.  22

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Agent’s Authority  Express Authority. – Power of Attorney gives agent express authority. POA is a written document and usually notarized. Special: specified acts only. General: all business for principal. Terminates on principal’s death or incapacity.  23

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Agent’s Authority  Express Authority. – Implied Authority. Agent has implied power to do what is reasonably necessary to carry out express authority. Inferred or conferred by custom, or agent’s position Test is whether agent reasonably believed she had authority to do the act.  24

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Agent’s Authority  Apparent Authority. – Arises based on what principal causes a THIRD party (not agent) to believe. Agent has apparent authority when principal, by either word or act, causes 3rd party to reasonably believe that Agent has authority to act for Principal.  25

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Agent’s Authority  Apparent Authority. – Pattern of Conduct: usually comes into existence through a principal’s pattern of conduct over a period of time. 26

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Agent’s Authority  Ratification. – Occurs when principal accepts responsibility for an agent’s unauthorized act (express or implied). – Requirements: 1.Agent must act on behalf of Principal. 2.Principal must know material facts. 3.Principal must affirm agents actions.  27

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Agent’s Authority  Ratification. – Requirements. 4.Principal must affirm before 3rd party withdraws from transaction. 5.Principal and 3rd party must have legal capacity to contract when Agent made the deal. 6.Principals must know all the material facts involved in the transaction. 28

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Liability in Agency Relationships  Liability for Contracts. – Principals are classified as: Disclosed: identity known to 3 rd party. Partially Disclosed: 3 rd party knows he is dealing with an agent, but doesn’t know principal’s identity.  29

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Liability in Agency Relationships  Liability for Contracts. – Principals are classified as: Undisclosed: 3 rd party does not know he is dealing with agent and therefore the principal’s identity is totally unknown 30

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Liability in Agency Relationships  Liability for Contracts. – Authorized Acts. Disclosed or Unidentified Principal: liable if agent acts within scope of authority. – Agent has no liability to 3 rd party for disclosed principal’s non-performance. Agent may be liable if principal is partially disclosed.  31

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Liability in Agency Relationships  Liability for Contracts. – Authorized Acts. Undisclosed Principal: no liability unless: – Principal expressly excluded. – Contract is a negotiable instrument. – Agent’s performance is personal. – 3rd party would have contracted if he knew the principal’s identity.  32

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Liability in Agency Relationships  Liability for Contracts. – Authorized Acts. Undisclosed Principal. – CASE 16.3 W ILLIAMS V. P IKE (2011). – CASE 16.3 W ILLIAMS V. P IKE (2011). What was Henderson’s relationship to the buyer? 33

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Liability in Agency Relationships  Liability for Contracts. – Unauthorized Acts. Unauthorized acts are outside the agent’s express, implied, or apparent authority. If agent has no authority, principal is not liable, but agent is personally liable. 34

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Liability in Agency Relationships  Liability for Contracts. – Liability for E-Agents. An “e-agent” is a semi-autonomous computer program capable of executing specific tasks on behalf of a principal. Principals and agents can be liable for acts of an authorized e-agent. 35

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Liability in Agency Relationships  Liability for Torts and Crimes. – Principal’s Tortious Conduct. Principal liable for harm resulting from P’s own negligence or recklessness. – Principal’s Authorization of Agent’s Tortious Conduct. Principle liable.  36

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Liability in Agency Relationships  Liability for Torts and Crimes. – Liability for Agent’s Misrepresentation. Apparent Implied Authority. Innocent Misrepresentation. 37

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Liability in Agency Relationships  Liability for Torts and Crimes. – Liability for Agent’s Negligence. Doctrine of Respondeat Superior: employer is vicariously liable for employee’s negligent torts committed within the agent’s “course and scope of employment.” Determining the Scope of Employment.  38

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use.  Determining the Scope of Employment. Liability in Agency Relationships Employer NOT Liable No Did the act involved a serious crime? NoYes Did Employer have reason to know Employee would do the act? NoYes Did act advance Employer’s interests? ?? The Time place and purpose of act (factually based) NoYes Was Employee’s act authorized by Employer? Employer Liable Factors Courts Consider NoYes Was act commonly performed by Employees? NoYes Did Employer furnish instrumentality (tools)? 39

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Liability in Agency Relationships  Liability for Torts and Crimes. – Liability for Agent’s Negligence Determining the Scope of Employment. – Distinction Between “Detour” and “Frolic”: if detour, principal is liable, if frolic principal is not liable. – Employee Travel Time: to or from meals is outside scope of employment. Notice of Dangerous Conditions. 40

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Liability in Agency Relationships  Liability for Torts and Crimes. – Liability for Agent’s Intentional Torts. Principal is liable for intentional torts committed within the scope of employment. – Employer is also liable for employee’s acts, which employer knew or should have known the Employee had a propensity to commit. 41

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use.  Liability for Torts and Crimes. – Liability for Independent Contractor’s Torts. General Rule: Employer is not liable for acts of independent contractors because employer has no right to control. Must determine whether worker is employee or independent contractor.  Liability in Agency Relationships 42

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use.  Liability for Torts and Crimes. – Agent is liable for her own crimes. – Principal is not liable, even if the crime was committed within the scope of employment, unless: Principal participated in the crime. Some states, principals may be liable for agent violation of regulations. Liability in Agency Relationships 43

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. Worker P Generally Not Liable (unless strict liability) Outside Scope -P Not Liable Within Scope -P Liable “ Course and Scope of Employment” p. 422 Independent Contractor Employee Factors p.411 Review: Determining Principal Liability 44

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. How Agency Relationships are Terminated  Once the agency is terminated, Agent has no actual authority to bind the Principal, but may have apparent authority to bind Principal.  Agency can be terminated by: – An Act of the Parties;  – By Operation of Law.  45

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. How Agency Relationships are Terminated  Termination by Act of the Parties. – Lapse of Time. – Purpose Achieved. – Occurrence of a Specific Event. – Mutual Agreement. – Termination by One Party. – Notice of Termination. 46

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, 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 for classroom use. How Agency Relationships are Terminated  Termination by Operation of Law. – Death or Insanity of either Principal or Agent: automatic. – Impossibility. – Changed Circumstances. – Bankruptcy. – War. 47