Chapter 29 Agency Formation and Termination. Introduction to Agency Formation and Termination Use...

Chapter 29 Agency Formation and Termination

Introduction to Agency Formation and Termination

Use of agents — allows one person to act on behalf of another

Independent contractors — Outside contractors who are employed by a principal to conduct limited activities for the principal

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 29-2

Agency

Principal–agent relationship The 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”


Agency

Agency law: The large body of common law that governs agency A mixture of contract law and tort law

Principal: A party who employs another person to act on his or her behalf

Agent: A party who agrees to act on behalf of another


Exhibit 29.1: Principal–Agent Relationship


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


Type of Relationship Description

Principal–agent The agent has authority to act on behalf of the principal, as authorized by the principal and implied from the agency.An employee is often the agent of his employer.

Employer–employee An employee is hired to perform a task or service.An employee cannot enter into contractson behalf of the employer.

Kinds of Employment Relationships


Independent Contractor

Principal-independent contractor relationship: The relationship between a principal and an independent contractor The contractor is not an employee of the principal

but has been employed by the principal to perform a certain task on behalf of the principal

A principal can authorize an independent contractor to enter into contracts Principals are bound by the contracts


Case 29.1: Agency

Case Bosse v. Brinker Restaurant Corporation, d.b.a.

Chili’s Grill and Bar Web 2005 Mass. Super. Lexis 372 (2005) Superior Court of Massachusetts

Issue Is the restaurant patron who engaged in the high-

speed car chase an agent of Chili’s?


Power of Attorney

An express agency agreement that is often used to give an agent the power to sign legal documents on behalf of the principal

General power of attorney: A principal confers broad powers on the agent to act in any matters on the principal’s behalf

Special power of attorney: A principal confers powers on an agent to act in specified matters on the principal’s behalf


Case 29.2: Scope of Employment

Case Matthews v. Food Lion, LLC 695 S.E.2d 828, Web 2010 N.C. App. Lexis 1151 (2010) North Carolina Court of Appeals

Issue Was Hall acting within the scope of her

employment at the time of the accident?


Formation of Agency Relationships

Type of Agency Formation Enforcement of the Contract

Express Authority is expressly given to the agent by the principal

Principal and third party are bound to the contract

Implied Authority is implied from the conduct of the parties, custom and usage of trade, or act incidental to carrying out the agent’s duties


By ratification Principal and third party are bound to the contract

Principal and third party are not bound to the contract unless the principal ratifies the contract


Formation of Agency Relationships

Type of Agency Formation Enforcement of the Contract

Apparent Authority is created when the principal leads a third party to believe that the agent has authority


Incidental Authority that is implied to act beyond express agency powers to take all actions reasonably necessary to protect the principal’s property and rights



Principal’s Duties


Principal’s Duty to Compensate

A duty that a principal owes to pay an agreed-upon amount to the agent Either upon the completion of the agency or at

some other mutually agreeable time Agency contract specifies the compensation to be

paid No agreement as to the amount of compensation –

principal will pay the agent the customary fee paid in the industry


Principal’s Duty to Reimburse

The principal owes a duty to reimburse the agent for expenses incurred by the agent if the expenses were Authorized by the principal Within the scope of the agency Necessary to discharge the agent’s duties in

carrying out the agency Unless otherwise agreed upon


Principal’s Duty to Indemnify

A principal owes a duty to indemnify the agent for any losses the agent suffers because of the principal’s conduct

Duty to cooperate: The principal owes a duty to cooperate with and assist the agent in the performance of the agent’s duties and the accomplishment of the agency Unless otherwise agreed upon


Agent’s Duties


Agent’s Duty to Perform

An agent’s duty to a principal that includes Performing the lawful duties expressed in the

contract Meeting the standards of reasonable care, skill, and

diligence implicit in all contracts


Agent’s Duty to Notify

An agent owes a duty to notify the principal of important information concerning the agency

Imputed knowledge: Information that is learned by an agent that is attributed to the principal


Agent’s Duty to Account

A duty that an agent owes to maintain an accurate accounting of all transactions undertaken on the principal’s behalf

Requires the agent to Maintain a separate account for the principal Use the principal’s property in an authorized

manner


Termination of Agency by Act of Parties

Agency can be terminated by the following acts Mutual assent of the parties If a stated time has lapsed If a specified purpose is achieved Occurrence of a stated event

Notice of Termination Direct notice Constructive notice


Termination by an Unusual Change in Circumstances

Unusual change in circumstances – leads the agent to believe that the principal’s original instructions should no longer be valid

Termination by impossibility of performance The loss or destruction of the subject matter of the

agency The loss of a required qualification A change in the law


Termination by Operation of Law

An agency contract is terminated in the following circumstances The death of either the principal or agent The insanity of either the principal or the agent The bankruptcy of the principal The outbreak of a war between the principal’s

country and the agent’s country No duty to notify third parties about the termination


Wrongful Termination

The termination of an agency contract in violation of the terms of the agency contract The nonbreaching party may recover damages

from the breaching party


Chapter 29 Agency Formation and Termination. Introduction to Agency Formation and Termination Use...

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