CHAPTER 20 AGENCY I AGENCY RELATIONSHIPS Agency fiduciary relation that derives from an agreement between the principal and the agent to act on behalf and instead of the principal in negotiating and transacting business with third parties Fiduciary person having a duty created by the undertaking to act primarily for another s benefits in matters connected with the undertaking A Employee Employer Relationship Normally all employees that deal with third parties are considered agents B Employer Independent Contractor Relationship Independent contractors person who contracts with another to do something but is not control by the other or subject to other s rights to control with respect to other s conduct performance or undertaking may or may not be an agent i e contracting someone to build your pool is not an agent contracting someone to negotiate for you a house deal is an agent C Determination of Employee Status 1 Criteria Used by the Courts How much control does the employer exercise over the details of the work Most important factor considered Is the worker engaged in an occupation or business distinct from that of the employer Is the work usually done under the employer s direction or by a specialist without supervision if it is under employer s supervision it is employee relationship Does employer supply tools at place of work For how long is the person employed long period employee What is the method of payment by time period or by completion of job Degree of skill required from worker high degree might indicate independent contractor 2 Criteria Used by the IRS Degree of control the business exercise over the worker IRS scrutinizes closely a firm s classification of its workers because employers can avoid tax liabilities by hiring independent contractors 3 Employee Status and Works for Hire Any copyrighted work created by an employee within the scope of her or his employment at the request of the employer is a work for hire and the employer owns the copyright with independent contractors is the opposite unless agreed otherwise II FORMATION OF THE AGENCY RELATIONSHIP Agency relationships are normally consensual they come about by voluntary consent and agreement does not need to be in writing and consideration is not necessary To be a principal the person needs to have contractual capacity but not to be an agent A Agency by Agreement Express or implied agreement by the parties can also be implied by conduct and can be oral or written i e Hans is told by a hotel to park cars and is told how to park cars and Hans does as the hotel tells him implied agency by agreement B Agency by Ratification Principal affirms contract by word or action a person who is in fact not an agent may contract in behalf of another C Agency by Estoppel Principal s actions have created appearance of an agency that does not in fact exist and third person must prove he or she reasonably believed an agency relationship existed Only actions of the principal NOT the agent create agency by estoppel D Agency by Operation of Law Based on social or legal duty like support family members Emergency situations agent is unable to contact principal and agent s failure to act outside his her scope would cause principal significant losses DUTIES AND RIGHTS OF AGENTS AND PRINCIPALS III A Agents Duties to Principals 1 Performance Use reasonable diligence and skill in performing the work ordinary care for reasonable persons or exercise degree of skills claimed failure to do so is a breach of contract When agent acts without payment liable only for torts because there is no contract If a friend is a real estate broker and offers to sell your house at no charge if he does not do it you cannot sue him for breach If he finds a buyer but negligently fails to follow through you can sue for negligence 2 Notification Agent is required to notify the principal of all matters that come to his or her attention concerning subject matter of the agency 3 Loyalty most fundamental 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 Any information acquired through the agency relationship is confidential Agent has a duty to follow all lawful and clearly stated instructions of the principal Exceptions emergencies When instructions are not clearly stated good faith is expected 4 Obedience 5 Accounting Keep and make available to principal an account of all property and funds received and paid out on behalf of the principal B Principal s Duties to the Agent 1 Compensation If no amount has been expressly agreed on principal owes agent the customary compensation for such services 2 Reimbursement and Indemnification Whenever an agent disburses personal funds to fulfill duties to principal principal has duty to reimburse agent for those expenses except those derived from negligence or misconduct If agent forms contract with a third party and principal does not fulfill contract and third party sues agent principal has duty to pay that liability Indemnify agent for value of benefits the agent confers on the principal also applies to gratuitous agents 3 Cooperation Principal must be at agent s disposition for agent to fulfill duties to principal within reason Exclusive agency principal cannot compete with agent or appoint or allow another agent to compete 4 Safe Working Conditions C Rights and Remedies of Agents and Principals For every duty of one party the other has a right remedies derive from contract and tort law IV SCOPE OF AGENT S AUTHORITY Whether a principal is liable to third parties with whom an agent contracts depends on whether the agent had the authority to enter into legally binding contracts on the principal s behalf or if the principal ratified the actions Declared in clear direct and definite terms orally or in writing A Express Authority 1 Equal Dignity Rule If the contract being executed is or must be in writing then the agent s authority must also be in writing failure to comply might deem contract voidable at the option of the principal at this point law declares contract as an offer that principal can accept and must confirm in writing Exceptions ordinary business transactions and when principal is present in contract formation 2 Power of Attorney business for principal B Implied Authority Notarized written document Notary public public official authorized to attest to the authenticity of signatures Power of attorney can be special perform specified acts
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