1. PowerPoint Slides to accompany The Legal Environment of Business and Online Commerce 5E, by Henry R. Cheeseman
Chapter 19
Agency Law
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2. The Agency Relationship
Agency relationships are formed by the mutual consent of a principal and an agent.
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
Agency
The principal-agent relationship
Any person who has capacity to contract can appoint an agent.
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3. Employment Relationships
Employer-employee
A relationship that results when an employer hires an employee to perform some form of physical service
Principal-agent
A relationship that results when an employer hires an employee and gives that employee authority to act and enter into contracts on his or her behalf
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4. Principal-Independent Contractor
A relationship that results when a person or business that is not an employee is hired by a principal to perform a certain task on his or her behalf
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5. Formation of an Agency Express agency Implied agency
An agency that occurs when a principal and an agent expressly agree to enter into an agency agreement with each other
A power of attorney is a formal type of agency agreement.
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
Incidental authority
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6. Formation of an Agency Apparent agency (agency by estoppel)
Agency that arises when a principal creates the appearance of an agency that in actuality does not exist
Agency by ratification
Agency that 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.
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7. Duties of Principals Duty of compensation
Duty of reimbursement and indemnification
Reimburse expenses
Indemnify for losses suffered
Duty of cooperation
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8. Agent’s Duties Duty of performance Duty of notification
Duty of accountability
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9. Agent’s Duties Duty of loyalty Self-dealing Usurping an opportunity
Competing with the principal
Misuse of confidential information
Dual agency
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10. Contract Liability to Third Parties
Fully disclosed agency
Principal is liable
Agent is not liable
Partially disclosed agency
Third party is aware of agency status but does not know the identity of the principal.
Both principal and agent are liable.
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11. Contract Liability to Third Parties
Undisclosed agency
Third party is unaware of the agency.
Both principal and agent are liable.
Agent exceeding scope of authority
Agent breaches the implied warranty of authority.
Principal is not liable unless he or she ratifies the contract.
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12. Tort Liability to Third Parties
Principal and agent are each liable for their own torts.
Principal is liable for agent’s torts while agent is acting within the scope of authority.
Agent is not liable for principal’s torts unless he or she participates in or aids and abets principal’s conduct.
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13. Liability for Negligence
Principal is liable for agent’s negligence if agent is acting within the scope of employment.
Respondeat superior – principal is vicariously liable for agent’s negligence.
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14. Frolic and Detour
When an agent does something during the course of his or her employment to further his or her own interests rather than the principal’s
Principal is generally relieved of liability if the detour is substantial.
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15. “Coming and Going” Rule
A principal is generally not liable for injuries caused by its agents and employees while they are on their way to or from work.
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16. Dual-Purpose Mission
An errand or other act that a principal requests of an agent while the agent is on his or her own personal business
Most jurisdictions hold both principal and agent liable if agent injures a third party while on dual-purpose mission.
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17. Liability for Intentional Torts
Principal is not liable for agent’s intentional torts that are committed outside the scope of business.
Principal may be vicariously liable for intentional torts committed by agent acting within the scope of business.
Motivation test
Work-related test
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18. Misrepresentation
Principal is liable for agent’s intentional or innocent misrepresentation made by agent acting in the scope of employment.
Third party’s options
Rescind the contract and recover consideration.
Affirm the contract and recover damages.
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19. Independent Contractor
Degree of control that principal has over agent is the crucial factor in determining status.
Other factors for determining independent contractor status include:
Distinct operation or independent business
Length of time employed by principal
Amount of time agent works for principal
Whether principal or agent supplies tools used in the work
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20. Liability for Independent Contractor’s Contracts
Principal is liable on contracts entered into by an independent contractor under principal’s authority.
Principal is not liable if a contract is entered by an independent contractor without express or implied authority.
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21. Liability for Independent Contractor’s Torts
A principal is generally not liable for the torts of its independent contractors, with the following exceptions:
Inherently dangerous activity
Negligence in the selection of an independent contractor
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22. Termination of an Agency
By acts of the parties
Mutual agreement
Lapse of time
Purpose achieved
Occurrence of a specified event
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23. Termination of an Agency
By operation of law
Death of either party
Insanity of either party
Bankruptcy of the principal
Impossibility
Loss or destruction of subject matter
Loss of required qualification
Change in the law
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24. Termination of an Agency
By operation of law, continued
Changed circumstances
War between principal’s country and agent’s country
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25. Notification of Termination
Termination of agency ends agent’s actual authority.
If notice is not given, agent may still have apparent authority.
Notice must be given to
Parties who have dealt with the agent
Parties who have knowledge of agency
Parties who have no knowledge – principal may need to give constructive notice if agent has had written authority.
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26. Wrongful Termination Most agencies may be terminated at will
Termination by principal – revocation of authority
Termination by agent – renunciation of authority
If a termination breaches the contract between principal and agent, it is a wrongful termination.
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