Chapter 18 Creation of an Agency

Agency A relationship in which one person (agent), represents another person (principal) in a business transaction. They can negotiate deals, enter into contracts, and have the authority to act. The Principal is legally bound to the agreement made by the agent.

Principal-Agent A true agency relationship, but not always contractual. Gratuitous Agent: representing a principal without being paid Fiduciary: relationship is based on the trust that exists between agent and client.

Master-Servant Master: has the right to control the conduct of another who is performing a task for them. Servant: person whose conduct is subject to control of another.

Proprietor-Independent Contractor Proprietor: person who chooses to have someone performs a task on his/her behalf Independent Contractor: someone hired to perform a task, but not controlled by proprietor.

Contractual Liability Principal is bound to the terms of a contract made by the agent. If the agent enters a contract that they do not have authority for; there is no liability.

Tort Liability Vicarious Liability: the law holds not only the tortfeasor, but also the person hired by them liable. A security guard injures a person while detaining them for suspected shoplifting. The store may also be held liable Respondeat Superior: “let the master respond” See questions p. 398

Scope of Employment When the tort was committed the worker must have been performing the task for which he or she was hired Taking a side trip to make a personal purchase is not within the scope of a worker’s employment.

Negligent Hiring The proprietor can be held liable if they do not check a contractor’s qualifications.

Negligent Retention After hiring the contractor, the proprietor learns about incompetence They should fire them at that time.

Non-delegable Duty Proprietor cannot pass off to another party A common carrier such as a railroad, cannot delegate its duty to maintain a system that protects the safety of its passengers.

Types of Agents General: person who has been given authority to perform any act within the scope of business (store manager) Special: employed to accomplish a specific purpose or to do a particular job. (sports agent)

How Agents Relate to One Another Subagents: an agent lawfully appointed by another agent When??? A principal may give an agent express power to appoint subagents Most agents can appoint subagents to carry out routine tasks In an emergency that would prevent the agent from performing

How Agents Relate to One Another Agent’s Agent: a subagent appointed without the power to do so. Co-agents: If the principal has hired two or more agents Subject to the authority of principal but not one another

How Agency Relationships are Created

By Agreement Agreements are usually contracts but not always No consideration; no contract Express: clearly stated and usually in writing Implied: words or actions

By Operation of Law Agency by Estoppel: when the law created an agency relationship by circumstance Can a third party reasonably assume that a non-agent is an agent? Also known as: apparent authority

By Statute Sometimes a state legislature decides that certain situations justify automatically creating agencies. The law requires corporations to appoint an agent who can be served with a complaint and summons.

By Ratification Occurs if the principal, with full knowledge of the facts, accepts the benefits of the unauthorized act. A principal’s failure to ratify leaves the agent open to liability to a third party.