Chapter 18 Agency Law. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.18-2...

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 18-1

Chapter 18

Agency Law


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.


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


Formation of an Agency Express 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


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.


Duties of Principals Duty of

compensation Duty of

reimbursement and indemnification Reimburse expenses Indemnify for losses

suffered Duty of cooperation


Agent’s Duties Duty of

performance Duty of notification Duty of

accountability


Agent’s Duties Duty of loyalty

Self-dealing Usurping an opportunity Competing with the principal Misuse of confidential information Dual agency


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.


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.


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.


“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.


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.


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


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.


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.


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.


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


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


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.


Termination of an Agency By acts of the parties

Mutual agreement Lapse of time Purpose achieved Occurrence of a specified event


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


Termination of an Agency

By operation of law, continued Changed circumstances War between principal’s country and

agent’s country


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.


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.

Chapter 18 Agency Law. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.18-2...

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Transcript of Chapter 18 Agency Law. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.18-2...