Chapter 18

 A fiduciary relationship “which results from the manifestation of consent by one person to another that the other shall act in his behalf and subject to his control, and consent by the other so to act”  Principal: The party who employs another person to act on his or her behalf  Agent: The party who agrees to act on behalf of another 18-2 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

 Principal–agent relationship: A relationship formed when an employer hires an employee and gives that employee authority to act and enter into contracts on his or her behalf 18-3 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 Employer-employee relationship: A relationship that results when an employer hires an employee to perform some task or service but the employee has not been authorized to enter into contracts on behalf of the employer 18-5 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

 Express agency: An agency that occurs when a principal and an agent expressly agree to enter into an agency agreement with each other  Exclusive agency contract: A contract a principal and an agent enter into that says the principal cannot employ any agent other than the exclusive agent 18-6 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

 An express agency agreement that is often used to give an agent the power to sign legal documents on behalf of the principal  General power of attorney: A power of attorney in which a principal confers broad powers on the agent to act in any matters on the principal’s behalf  Special power of attorney: A power of attorney in which a principal confers powers on an agent to act in specified matters on the principal’s behalf 18-7 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

 Implied agency: An agency that occurs when a principal and an agent do not expressly create an agency, but it is implied from the conduct of the parties  Agency by ratification: Occurs when  A person misrepresents himself or herself as another’s agent when in fact he or she is not  The purported principal ratifies (accepts) the unauthorized act 18-8 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

 Apparent agency (agency by estoppel): Agency that arises when a principal creates the appearance of an agency that in actuality does not exist 18-9 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

 Duty of compensate: Owed by a principal to pay an agreed-upon amount to the agent either upon the completion of the agency or at some other mutually agreeable time  Duty of reimbursement: Unless otherwise agreed, a duty a principal owes to reimburse an agent for expenses incurred by the agent if the expenses were:  Authorized by the principal  Within the scope of the agency  Necessary to discharge the agent’s duties in carrying out the agency Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

 Duty to indemnify  Duty to cooperate: Unless otherwise agreed, a principal’s duty to cooperate with and assist an agent in the performance of the agent’s duties and the accomplishment of the agency Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

 Duty of perform: An agent’s duty to a principal that includes  Performing the lawful duties expressed in the contract  Meeting the standards of reasonable care, skill, and diligence implicit in all contracts  Duty of notify: An agent’s duty to notify the principal of important information concerning the agency  Imputed knowledge: Information that is learned by an agent that is attributed to the principal Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

 Duty to account: A duty that an agent owes to maintain an accurate accounting of all transactions undertaken on the principal’s behalf  Duty of loyalty: A fiduciary duty owed by an agent not to act adversely to the interests of the principal Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

 Principal and agent are each liable for their own tortious conduct  Three main sources of tort liability:  Negligence: ▪ Respondeat superior: A rule that says an employer is liable for the tortious conduct of its employees or agents while they are acting within the scope of the employer’s authority ▪ Vicarious liability: Liability without fault that occurs where a principal is liable for an agent’s tortious conduct because of the employment contract between the principal and agent, not because the principal was personally at fault Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

▪ Frolic and detour: A situation in which an agent does something during the course of his or her employment to further his or her own interests rather than the principal’s ▪ Coming and going rule (going and coming rule): A rule that says a principal is generally not liable for injuries caused by its agents and employees while they are on their way to or from work ▪ Dual-purpose mission: A situation that occurs when a principal requests an employee or agent to run an errand or do another act for the principal while the agent is on his or her own personal business Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

 Intentional torts include acts such as assault, battery, false imprisonment, and other intentional conduct that causes injury to another person ▪ Motivation test: A test that determines whether an agent’s motivation in committing an intentional tort is to promote the principal’s business; if so, the principal is liable for any injury caused by the tort ▪ Work-related test: A test that determines whether an agent committed an intentional tort within a work-related time or space; if so, the principal is liable for any injury caused by the agent’s intentional tort  Misrepresentation: A deceit in which an agent makes an untrue statement that he or she knows is not true ▪ Innocent misrepresentation Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

 Fully disclosed agency: An agency in which a contracting third party knows  That the agent is acting for a principal  The identity of the principal  Partially disclosed agency: An agency in which a contracting third party knows that the agent is acting for a principal but does not know the identity of the principal Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

 Undisclosed agency: An agency in which a contracting third party does not know of either the existence of the agency or the principal’s identity  Agent exceeding scope of authority  Implied warranty of authority: A warranty of an agent who enters into a contract on behalf of another party that he or she has the authority to do so  Ratification of a contract: A situation in which a principal accepts an agent’s unauthorized contract Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

 “A person who contracts with another to do something for him who is not controlled by the other nor subject to the other’s right to control with respect to his physical conduct in the performance of the undertaking”  Principal–independent contractor relationship: A relationship between a principal and an independent contractor who is not an employee of the principal but has been employed by the principal to perform a certain task on behalf of the principal Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 The crucial factor in determining whether someone is an independent contractor or an employee is the degree of control that the principal has over that party  Generally, a principal is not liable for the torts of its independent contractors  Principals cannot avoid liability for inherently dangerous activities that they assign to independent contractors  A principal can authorize an independent contractor to enter into contracts Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

 An agency contract is similar to other contracts in that it can be terminated by an act of the parties  The mutual assent of the parties  The passage of a stated time  The achievement of a specified purpose  The occurrence of a stated event Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

 Notice of termination: If the principal fails to give the proper notice of termination to a third party, the agent still has apparent authority to bind the principal to contracts with these third parties  Direct notice  Constructive notice  An agency terminates when there is an unusual change in circumstances that would lead the agent to believe that the principal’s original instructions should no longer be valid Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

 An agency relationship terminates if a situation arises that makes its fulfillment impossible  The loss or destruction of the subject matter of the agency  The loss of a required qualification  A change in the law Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

 Agency contracts can be terminated by operation of law  The death of either the principal or the agent  The insanity of either the principal or the agent  The bankruptcy of the principal  The outbreak of a war between the principal’s country and the agent’s country Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

 Wrongful termination: The termination of an agency contract in violation of the terms of the agency contract  In such a situation, the nonbreaching party may recover damages from the breaching party Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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