Transcript Chapter 029 - Agency Formation & Termination

CHAPTER 16
AGENCY FORMATION
AND TERMINATION
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Agency Relationships
• Formed by the mutual consent of
principal and agent.
• Agency is 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.”
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Agency
• Agency Law – Body of common law that
governs agency.
– Contract law and tort law.
• 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.
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Principal-Agent Relationship
Principal
Agency
Contract
Principal’s
obligation to
perform the
contract
Third Party
Agent
Contract with third
party on behalf of
principal
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Who Can Initiate Agency Relationship
• Any person who has the capacity to
contract can appoint an agent to act on
his or her behalf.
• Persons who lack contractual capacity
cannot appoint an agent.
– E.g., insane persons and minors.
– Court may appoint guardian who may act as
agent of such persons.
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Purpose of Agency Relationship
• An agency can be created only to accomplish
a lawful purpose.
• Agency contracts that are created for illegal
purposes or are against public policy are void
and unenforceable.
– E.g., contract to hire agent to commit crime.
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Kinds of Employment Relationships
Principal-Agent
Relationship
Employer-Employee
Relationship
Principal-Independent
Contractor Relationship
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Principal-Agent Relationship
• Employer hires employee, giving employee
authority to act and enter into contracts on his or
her behalf.
• Extent of authority governed by any express
agreement between the parties and implied from
the circumstances of the agency.
– E.g., president of corporation has authority to enter
into major contracts; assembly line supervisor has
authority to enter contracts to buy supplies to keep
line running.
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Employer-Employee Relationship
• Employer hires an employee to perform
task or service.
• Employee is not an agent unless he or she
is specifically empowered to enter into
contracts on the principal/employer’s
behalf.
– E.g., assembly line worker may have no authority
to enter into contracts.
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Principal-Independent
Contractor Relationship
• Principals employ persons or businesses
that are not employees to perform certain
tasks.
– E.g., plumbers, architects, lawyers, CPAs.
• Crucial factor in determining whether
employee or independent contractor is
degree of control that principal has over
that person.
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Independent Contractor and
Agency Status
• Principal can authorize independent
contractor to enter into contracts.
– E.g., authorize attorney to enter into settlement
agreement on client’s behalf.
• Principal liable for authorized contracts of
independent contractors.
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Summary: Kinds of Employment
Relationships
Type of Relationship Description
Principal-Agent
The agent has the authority to act on behalf of the
principal as authorized by the principal and implied from
the agency.
Employer-Employee
The employer has the right to control the physical conduct
of the employee.
An employee is often the agent of his employer.
Principal-Independent The principal has no control over the details of the
Contractor
independent contractor’s conduct.
An independent contractor is usually not an agent of the
principal.
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Express Agency
• Express agency contracts may be
either oral or written, unless the Statute
of Frauds stipulates that they must be
written.
– E.g., agency agreement with real estate
agent to be in writing.
• May be exclusive agency agreement
or power of attorney.
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Formation of the Agency Relationship
Express
Agency
Agency by
Ratification
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Implied
Agency
Apparent
Agency
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Implied Agency
• Agency is implied from the conduct of the
parties.
• Extent of agent’s authority determined
from facts and circumstances of the
particular situation.
– Industry custom, prior dealings of parties,
agent’s position, acts necessary to carry out
agent’s express duties.
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Incidental Authority
• Express agency agreement may lack
certain details regarding performance.
• It may be implied that agent possesses
duties beyond express agency powers.
– E.g., to take reasonable actions in emergency
situations.
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Agency by Ratification
Agency that occurs when:
1. A person misrepresents himself or herself
as another’s agent when in fact he or she is
not, and
2. The purported principal ratifies (accepts)
the unauthorized act.
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Apparent Agency
• Agency that arises when a principal creates
the appearance of an agency that in actuality
does not exist.
• When an apparent agency is established, the
principal is estopped from denying the agency
relationship.
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Summary: Formation of Agency
Relationships (1 of 2)
Type of
Agency
Express
Implied
Definition
Enforcement of the
Contract
Authority is expressly
Principal and third party are
given to the agent by the bound to the contract.
principal.
Authority is implied from Principal and third party are
the conduct of the
bound to the contract.
parties, custom and
usage of trade, or act
incidental to carrying out
the agent’s duties.
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Summary: Formation of Agency
Relationships (2 of 2)
Type of
Agency
Apparent
Definition
Enforcement of the
Contract
Authority created when
Principal and third party are
the principal leads a third bound to the contract.
party into believing that
the agent has authority.
By Ratification Acts of the agent
committed outside the
scope of his authority.
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Principal and third party are
not bound to the contract
unless the principal ratifies
the contract.
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Principal’s Duties
• Principal compensates agent for services
provided, unless is gratuitous agent.
• Principal indemnifies agent for authorized
expenses or losses suffered because of
the principal.
• Principal cooperates with and assists
agent in performance of agent’s duties.
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Agent’s Duties
•
Agent must perform.
– Performing the lawful duties expressed in the
contract.
– Meeting the standards of reasonable care, skill,
and diligence implicit in all contracts.
•
•
Agent must notify principal of relevant
information.
Agent must maintain accurate accounting of
all transactions and money received.
– Money or other benefits belong to principal; held
in constructive trust.
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Termination of Agency by Act of Parties
• Parties may terminate agency by
agreement or by their actions.
– Mutual agreement.
– Lapse of time.
– Purpose achieved.
– Occurrence of specified event.
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Notification Required
• If agency terminated by agreement of parties,
principal must notify third parties of termination
of agency.
– Parties who dealt with the agent given direct notice.
– Parties who have knowledge of the agency given
direct or constructive notice. E.g., legal notice in
newspaper.
– Parties who have no knowledge of the agency owed
no notice.
• If proper notice not given, agent continues to
have apparent authority.
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Agency Coupled with an Interest
• Agency created for agent’s benefit.
– E.g., if debtor fails to pay debt, creditor/agent
authorized to sell debtor’s property.
• Irrevocable by principal.
• Not terminated by death or incapacity of
either principal or agent.
• Terminates only when agent’s obligations
are performed.
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Termination of Agency or
Employment Contract
• Contracts that do not specify a definite
time for termination may be terminated at
will by either party without liability.
– Principal revokes authority.
– Agent renounces authority.
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Wrongful Termination of Agency or
Employment Contract
• Termination of agency contract in violation
of its terms.
• Nonbreaching party may recover
damages.
• Critical distinction between power and
right to terminate an agency.
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Termination by Operation of Law
•
•
•
•
•
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Death of principal or agent.
Insanity of principal or agent.
Bankruptcy of principal.
Changed circumstances.
War between principal’s and agent’s countries.
Impossibility
•
•
•
Loss or destruction of subject matter of agency.
Loss of required qualification by agent.
Change in law making agency illegal.
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