Exam Two Study Guide Hughes Chapter 33 34 Agency More than half the exam and ALL of the hard questions Chapters 42 43 Employment Chapters 35 41 Business Organization will include 30 50 questions only from Con nect Test Bank Chart on blackboard that has all the types of business organizations and the traits associated with them Information from these chapters to be studied only in the context of the chart Chapter 33 Agency formation and duties I Introduction to Agency Law A Agency generally defined as a relationship between a principal and an agent More elaborately defined as the fiduciary relationship that results from the mani festation 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 1 Fiduciary a person who has a duty to act primarily for another person s bene fit B Agency relationship an agent is authorized to act for and on behalf of the princi pal who hires the agent to represent himself C US companies operating in foreign countries often hire agents in other countries who know the local laws Creation of the Agency Relationship II A Agency relationships are consensual relationships formed by informal oral agreements or formal written contracts Two Criteria 1 They can be created only for a lawful purpose 2 Almost anyone can act as an agent however an individual who does not have contractual capacity such as a minor cannot hire an agent to make contracts on his behalf B As long as these two criteria are met agency relationships can be created on the basis of any of the following four forms of authority 1 By expressed agency or agency by agreement 2 By implied authority 3 By apparent agency or agency by estoppel 4 By ratification Four types of agency III A Expressed Agency Agency by Agreement when parties form an agency rela tionship by making a written or oral agreement This is the most common type If it is written it must meet all the elements of a contract 1 Power of attorney established an agency by agreement that gives an agent authority to sign legal documents on behalf of the principal a often given for business and health care purposed b An agent cannot make decisions about a principal s medical care if the principal cannot unless the principal preemptively enacts a durable power of attorney 1 Durable power of attorney a written document where the principal ex presses his wished for an agent s authority not to be affected by sub sequent incapacity B Agency by Implied Authority if a homeowner asks a real estate broker to sell his house authority is implied however implied authority cannot conflict with express authority C Apparent Agency Agency by estoppel if a principal falsely leads a third party to believe another individual serves as his agent Can only be created on the acts of the principal never on the basis of what the purported agent says or does 1 Third party must demonstrate the following to be able to make agreements enforceable a that he reasonably believed on the basis of the principal s conduct that an agency relationship existed D Agency by Ratification if an person misrepresents himself as an agent of an other the other is not required to uphold the agreement however if he does he has accepted the agent and is bout by the contract 1 An individual must misrepresent himself as an agent for another party 2 The principal must accept or ratify the unauthorized act a For ratification to be effective two additional requirements must be met the principal must ratify the entirety of the agent s act 1 2 The principal must have complete knowledge of all material facts re garding the contract IV Agency Relationships A Principal Agent Relationship typically exists when an employer hires an em ployee to enter into contracts on its behalf Most common and basic Sales clerks B Employer Employee relationship whenever a employer hires an employee to perform some sort of physical service Subject to employers control Generally all employees are agents of the employer C Employer Independent contractor relationship 1 Building contractors doctors stockbrokers and lawyers are all independent contractors They are also agents but not employees But they cannot enter into contracts on behalf of the principal unless the contractor possesses au thority from the principal D Employee or independent contractor 1 employee employer relationship is subject to workers compensation work place safety discrimination and unemployment statutes while the employer independent contractor relationship is not 2 Employees business a do not engage in a distinct occupation or an independently established b Their work is done with supervision c Employer supplies tools d No specialized skill e employed for a long time f g Regular payments Independent Contractor a engages in a distinct occupation or an independently established busi is a regular part of the employer s business 3 ness b Their work is done without constant supervision c Employer does not supply tools d Specialized skill e employed for irregular amount of time f g Payed when job is complete Duties of the Agent and the Principal is not a regular part of the employer s business V A Principal s duties to the agent 1 The principal owes specific duties to the agent Failure to fulfill these rights provides the bassi for a tort or contract action against the the principal a The duty of compensation principal must compensate the agent for the services provided unless the partied have agreed the agent will act gratu itously Principal must also compensate for any damages incurred within the scope of the agent s duties b Duty of Reimbursement and Indemnification the principal has a duty to re imburse or indemnify the agent for any authorized expenditures or any losses the agent incurs in the sources of working on behalf of the princi pal c Duty of Cooperation must assist the agent in the performance of his du d Duty to provide safe working conditions including equipment and ties premises B Agent s duty to the Principal 1 When an agent fails to fulfill his duties to the principal that failure provides the basis for a contract or tort action against the agent a Duty of Loyalty agent has a responsibility to act in the interest of the prin cipal including avoiding conflicts of interest and protecting the principal s confidentiality b Duty of notification The agent must notify the principal of any relevant in c Duty of obedience The agent must follow the lawful