Business Law 4510 Chapter 22 Notes Agency Relationships I Agency Relationships a Agency Relationship one party is the agent who agrees to represent or act for the other the principal b Agency the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act in his or her behalf and subject to his or her control and consent by the other so to act i The parties have agreed that the agent will act on behalf and instead of the principal in negotiating and transacting business with third parties ii Fiduciary a relationship involving trust and confidence Employer Employee Relationships c i Any employee who deals with third parties are deemed agents ii Agency law and employment law overlap considerably in employer employee relations d Employer Independent Contractor Relationships i Independent contractor a person who contracts with another to do something for him but who is not controlled by the other or subject to the other s right to control with respect to his physical conduct in the performance of the undertaking He may or may not be an agent e Determining Employee Status i Criteria Used by the Courts 1 How much control can the employer exercise over the details of the work a Employee status If an employer can exercise control over the details Is the worker engaged in an occupation or business distinct from that of the employer a Independent contractor status if yes Is the work usually done under the employer s direction or by a specialist without supervision Employee status If the work is usually done under the employer s direction a 4 Does the employer supply the tools at the place of work a Employee status if yes For how long is the person employed Employee status if employed for a long time 6 What is the method of payment by time period or at the completion of the job 2 3 5 a a a Employee status if payment is by time period 7 What degree of skill is required of the worker Employee status if little skill is required ii Criteria Used by the IRS 1 The degree of control the business exercises over the worker a Highly scrutinized since companies can evade taxes by classifying employees are iii Employee Status and Works for Hire independent contractors 1 Work for Hire any copyrighted work created by an employee within the scope of his or her employment at the request of the employer The employer owns the copyright to the work a b When an employer hires and independent contractor they independent contractor owns the copyright unless the parties agree in writing that the work is a work for hire II How Agency Relationships are Formed a Come about by voluntary consent and agreement between the parties consensual i Need not be in writing and do not require consideration ii iii Can be created for any legal purpose if illegal or contrary to public policy relationship is unenforceable In order to be a principal the person must have contractual capacity however anyone can be an agent b Agency by Agreement c Agency by Ratification i Based on an express or implied agreement i Ratification involves a question of intent ii If a person who is not an agent makes a contract on behalf of another the person can approve or affirm the contract by word or action d Agency by Estoppel i When a principal causes a third party to believe that another person is his or her agent and the third party deals with the supposed agent the principal is estopped to deny the agency relationship 1 The principals actions create the appearance of an agency that does not in fact exist 1 2 The third person must prove that they reasonably believed that an agency relationship existed ii Motorsport Marketing Inc v Wiedmaier Inc 1 2 Issue Did Motorsport reasonably believe that Michael acted as Wiedmaier s agent in ordering merchandise Yes III e Agency by Operation of Law i Family situations ii Emergency situations Duties of Agents and Principals a b Agent s Duties to the Principal i Performance In a fiduciary relationship each party owes the other the duty to act with the utmost good faith 1 Reasonable diligence and skill while performing work ii Notification iii Loyalty 1 iv Obedience v Accounting 1 Duty of notification or duty to inform an agent is required to notify the principal of all matters that come to her or his attention concerning the subject matter of the agency The agent has the duty to act solely for the benefit of his or her principal and not in the interest of the agent or a third party a Any information or knowledge acquired through the agency relationship is confidential 1 An agent has a duty to follow all lawful and clearly stated instructions of the principal 2 If instructions are not clearly stated the agent can fulfill the duty of obedience by acting in good faith and in a manner reasonable under the circumstances 1 The agent has the duty to keep and make available to the principal an account of all property and funds received and paid out on behalf of the principal c Principal s Duties to the Agent i Compensation 1 The principal has a duty to pay the agent for services rendered in a timely manner a If no amount has been agreed on the principal must pay the agent the customary compensation for such services ii Reimbursement and Indemnification 1 2 3 1 2 The principal has the duty to reimburse the agent for any payments used to pay for necessary expenses or to fulfill the request of the principal The principal has the duty to compensate or indemnify an agent for liabilities incurred because of authorized and lawful acts and transactions The principal has the duty to indemnify pay the agent for the value or reasonable value if no amount is specified of benefits that the agent confers on the principal iii Cooperation iv Safe Working Conditions 1 A principal has a duty to cooperate with the agent and to assist them in performing their duties The principal must do nothing to prevent such performance a b An exclusive agency is created when a principal grants an agent an exclusive territory The principal has a duty to inspect the working conditions and to warn agents and employees about any unsafe areas The principal is required to provide safe working premises equipment and conditions for all agents and employees IV Agent s Authority a Actual Authority express or implied arises from what the principal makes clear to the agent i Express Authority 1 Authority can be given orally or in writing 2 Equal dignity rule requires that if the contract being executed is