Agency Relationships Section 18.1

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency Section 18.1 Agency Relationships Section 18.2 Creation and Types of Agents 18 Chapter Creation of an Agency

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency Why It’s Important Identifying the nature of an agency relationship will help you know your rights and duties in such a situation.

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency An agency relationship lets us act through other people to accomplish tasks that might be difficult or impossible to do on our own. Agency and Similar Relationships

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency The term agency describes a relationship in which one person, called an agent, represents another person, called a principal, in some sort of business transaction with a third party. Agency and Similar Relationships

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency NOTES: An agent can negotiate business deals, contracts, and perform other business tasks for the principal. Agency and Similar Relationships

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency 18.1 Principal-Agent Relationship NOTES:

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency The principal-agent relationship is a true agency relationship. Legally, we distinguish an agent from other types of representatives by noting that the agent has the power to transact business for the principal. Principal-Agent Relationship

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency A master is a person who has the right to control the conduct of another who is performing a task for the benefit of the master. Master-Servant Relationship

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency A servant is a person whose conduct in the performance of a task is subject to the control of another. Master-Servant Relationship

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency NOTES: If a servant has the power to conduct business transactions for the master, he or she is also an agent. Master-Servant Relationship

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency An independent contractor works for but is not under the control of a proprietor. Proprietor-Independent Contractor

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency NOTES: The proprietor is a person who chooses to have someone perform a task on his or her behalf but has no control over the way that task is carried out. Does have a right to specify a particular outcome. Proprietor-Independent Contractor Example 3 – p. 394

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency NOTES: Finding out the true nature of a relationship can be crucial in determining liability. Why Are These Distinctions Important?

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency A principal is generally bound to the terms of a contract made by an agent unless the agent has no authority to enter the contract. Contractual Liability

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency NOTES: Unless a servant is also an agent, he or she has no authority to negotiate contracts for the master. Contractual Liability

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency Likewise, a contractor has no power to bind the proprietor to a contract, unless expressly permitted to do so. Contractual Liability Example 5 – p. 396

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency All people are responsible for their own tortious conduct. NOTES: Sometimes, however, the person who hired the tortfeasor may also be held liable. Tort Liability Pesticide accident in Layton

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency This situation is known as vicarious liability, and it is founded on the principle of respondeat superior, or let the master respond. Tort Liability

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency Typically, respondeat superior, applies to master-servant relationships because the master has the right to control the physical conduct of the servant. In contrast, a proprietor usually doesn’t have that right with an independent contractor. Tort Liability

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency 18.1 Respondeat Superior Was servant acting within scope of authority or course of employment

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency The court will ask many questions to determine whether there is a master- servant or proprietor-independent contractor a relationship in order to determine tort liability. Tort Liability

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency Does the hiring person supply the tools for the worker? Does the hiring person set the worker’s hours? Questions the Court Asks

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency Is the worker employed by the person responsible for the hiring? Is the business of the worker the same as the business of the hiring person? Questions the Court Asks

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency Does the worker lack authority to hire or fire other workers? Does the worker perform his or her tasks in a highly supervised environment? Questions the Court Asks

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency Is very little skill required to perform the worker’s job? Questions the Court Asks

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency The more questions that require “yes” answers, the more likely it is that a master-servant relationship exists, and the master could be liable for the servant’s tortious conduct. Questions the Court Asks

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency A master may escape vicarious liability, if the servant was not acting within the scope of employment. When the tort was committed, the worker must have been performing the task for which he or she was hired. Tort Liability

Agency Relationships Section 18.2

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency We can distinguish between types of agents in two ways. We can examine Types of Agents 1.the extent of the agents’ authority 2.how the agents relate to one another

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency The two types of agents distinguished on the basis of extent of authority are general agents and special agents. NOTES: General agents have more authority than special agents. Extent of Authority

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency A person who has been given authority to perform any act within the scope of a business is a general agent. The manager of a department store is a general agent. General Agent

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency A person who is employed to accomplish a specific purpose or to do a particular job is a special agent. NOTES: Sales representatives are special agents. Special Agent

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency Agents may be classified according to the nature of their relationships with other agents. How Agents Relate to One Another

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency NOTES: A subagent is an agent lawfully appointed by another agent. Subagents

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency NOTES: If an agent has no power to appoint a subagent but does so anyway, he or she has appointed an agent’s agent. Agent’s Agent

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency NOTES: If the principal hires two or more agents, he or she has created a coagent situation. Coagents

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency Generally, any business you can transact personally can also be transacted through an agent. How Agency Relationships Are Created

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency A principal-agent relationship can be developed How Agency Relationships Are Created by agreement by operation of law by ratification

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency NOTES: Most agency relationships are created by agreements, which are usually, but not always, contracts. By Agreement

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency No contract exists if an agreement does not involve consideration. An agency agreement that does not involve a contract is called a gratuitous agency. By Agreement

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency NOTES: Agency relationships may be created automatically by operation of law. By Operation of Law Sometimes the law creates an agency relationship by circumstance. Agency relationships can also arise through enactment of specific laws.

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency When the law creates an agency relationship by circumstance, it is called agency by estoppel. NOTES: Also known as apparent authority. Agency by Estoppel

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency NOTES: Sometimes a state legislature decides that certain situations justify automatic creation of agency relationships by statute. Agency By Statute

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency At times a person may act as an agent without the authority, or an agent who has the authority to negotiate one type of contract oversteps that authority and negotiates another type of contract. By Ratification

Understanding Business and Personal Law Agency Relationships Section 18.1 Creation of an Agency Ratification occurs if the principal, with full knowledge of the facts, accepts the benefits of the unauthorized acts. NOTES: The act is thereby approved or ratified. By Ratification

Agency Relationships End of Section 18.2