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BUSINESS LAW Today STANDARD EDITION TEXT & SUMMARIZED CASES, 12e

Roger LeRoy Miller

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Agency Relationships in Business

Chapter 27

Chapter Outline

27-1 Agency Law

27-2 Formation of an Agency

27-3 Duties of Agents and Principals

27-4 Agent’s Authority

27-5 Liability in Agency Relationships

27-6 Termination of an Agency

Learning Objectives (slide 1 of 2)

What is the difference between an employee and an independent contractor?

How do agency relationships arise?

What duties do agents and principals owe to each other?

How does a person acquire apparent authority to act as someone’s agent?

When is a principal liable for an agent’s negligence?

Learning Objectives (slide 2 of 2)

What are some of the ways in which an agency relationship can be terminated?

27-1 Agency Laws (slide 1 of 2)

In an agency relationship between two parties, one of the parties, called the agent, agrees to represent or act for the other, called the principal.

27-1a Employer-Employee Relationships

Normally, all employees who deal with third parties are deemed to be agents.

Employment laws (state and federal) apply only to the employer-employee relationship.

27-1 Agency Laws (slide 2 of 2)

27-1b Employer-Independent Contractor Relationships

Independent Contractor:

One who works for, and receives payment from, an employer but whose working conditions and methods are not controlled by the employer.

An independent contractor is not an employee but may be an agent.

27-1c Determining Employee Status (slide 1 of 2)

Criteria Used by the Courts

How much control can the employer exercise over the details of the work?

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?

Does the employer supply the tools at the place of work?

For how long is the person employed?

What is the method of payment—by time period or at the completion of the job?

What degree of skill is required of the worker?

27-1c Determining Employee Status (slide 2 of 2)

Criteria Used by the IRS

To the IRS, the most important factor in this determination is the degree of control the business exercises over the worker.

Employee Status and “Works for Hire”

Case Example 27.2 Cooley v. Penguin Group (USA), Inc. (2014)

27-2 Formation of an Agency (slide 1 of 2)

27-2a Agency by Agreement

Most agency relationships are based on an express or implied agreement that the agent will act for the principal and that the principal agrees to have the agent so act.

Spotlight Case Example 27.4 Laurel Creek Health Care Center v. Bishop (2010)

27-2 Formation of an Agency (slide 2 of 2)

27-2b Agency by Ratification

A party’s act of accepting or giving legal force to a contract or other obligation entered into on his or her behalf by another that previously was not enforceable.

27-2c Agency by Estoppel

27-2d Agency by Operation of Law

A court may find an agency relationship in the absence of a formal agreement, such as in family relationships or emergencies.

27-3 Duties of Agents and Principals

27-3a Agent’s Duties to the Principal

Performance

The agent must use reasonable diligence and skill in performing the work

Notification

The agent must notify the principal of all matters that come to her or his attention concerning the subject matter of the agency.

Loyalty

The agent must act solely for the benefit of the principal.

27-3a Agent’s Duties to the Principal

Obedience

The agent must follow all lawful and clearly stated instructions of the principal, when acting on behalf of that principal.

Accounting

The agent must keep and make available to the principal an account of all property and funds received and paid out on behalf of the principal, unless the agent and principal have agreed otherwise.

27-3b Principal’s Duties to the Agent (slide 1 of 2)

Compensation

The principal has a duty to pay the agent for services rendered.

Case Example 27.9 Miller v. Paul M. Wolff Co. (2014)

Reimbursement and Indemnification

The principal has the duty to reimburse the agent whenever an agent disburses funds at the request of the principal or incurs expenses during the reasonable performance of agency duties.

27-3b Principal’s Duties to the Agent (slide 2 of 2)

Cooperation

A principal has a duty to cooperate with the agent and to assist the agent in performing her or his duties.

Safe Working Conditions

A principal is required to provide safe working premises, equipment, and conditions for all agents and employees.

The principal also has a duty to inspect the working conditions and to warn agents and employees about any hazards.

27-4 Agent’s Authority (slide 1 of 2)

27-4a Express Authority

Equal Dignity Rule: A rule requiring that an agent’s authority be in writing if the contract to be made on behalf of the principal must be in writing.

Power of Attorney: Authorization for another to act as one’s agent or attorney either in specified circumstances (special) or in all situations (general).

27-4 Agent’s Authority (slide 2 of 2)

27-4b Implied Authority

27-4c Apparent Authority

Apparent authority: Authority that is only apparent, not real. An agent’s apparent authority arises when the principal causes a third party to believe that the agent has authority, even though she or he does not.

Spotlight Case Example 27.13 Lundberg v. Church Farm, Inc. (1986)

23–4d Emergency Powers

27-4e Ratification

Agent must have acted on behalf of identified principal who subsequently ratifies action.

Principal must know all material facts involved in transaction. If principal ratifies contract without knowing all facts, principal can rescind (cancel) contract.

Principal must affirm agent’s act in its entirety.

Principal must have legal capacity to authorize transaction at time agent engages in act and at time principal ratifies; third party must also have legal capacity to engage in transaction.

Principal’s affirmation must occur before third party withdraws from transaction.

Principal must observe same formalities when approving act done by agent as would have been required to authorize initially.

Exhibit 27-1 Duties of the Agent

Exhibit 27-2 Duties of the Principal

27-5 Liability in Agency Relationships (slide 1 of 2)

27-5a Liability for Contracts

Authorized Acts

If an agent acts within the scope of her or his authority, normally the principal is obligated to perform the contract regardless of whether the principal was disclosed, partially disclosed, or undisclosed.

Disclosed or Partially Disclosed Principal

Case Example 27.16 Stonhard, Inc. v. Blue Ridge Farms, LLC (2014)

Undisclosed Principal

27-5 Liability in Agency Relationships (slide 2 of 2)

27-5a Liability for Contracts

Unauthorized Acts

If an agent has no authority but contracts with a third party, the principal cannot be held liable on the contract.

27-5b Liability for Torts and Crimes

Principal’s Tortious Conduct

A principal conducting an activity through an agent may be liable for harm resulting from the principal’s own negligence or recklessness.

27-5b Liability for Torts and Crimes (slide 1 of 3)

Principal’s Authorization of Agent’s Tortious Conduct

A principal who authorizes an agent to commit a tort may be liable to persons or property injured thereby, because the act is considered to be the principal’s

Liability for Agent’s Misrepresentation

A principal is exposed to tort liability whenever a third person sustains a loss due to the agent’s misrepresentation.

27-5b Liability for Torts and Crimes (slide 2 of 3)

Liability for Agent’s Negligence

Respondeat Superior: A doctrine under which a principal or an employer is held liable for the wrongful acts committed by agents or employees while acting within the course and scope of their agency or employment.

Determining the Scope of Employment

The Distinction between a “Detour” and a “Frolic”

Employee Travel Time

Notice of Dangerous Conditions

Liability for Agent’s Intentional Torts

27-5b Liability for Torts and Crimes (slide 3 of 3)

Liability for Independent Contractor’s Torts

Generally, an employer is not liable for physical harm caused to a third person by the negligent act of an independent contractor in the performance of the contract.

Liability for Agent’s Crimes

A principal or employer is not liable for an agent’s crime even if the crime was committed within the scope of authority or employment, unless the principal participated by conspiracy or other action.

Landmark in the Law

The Doctrine of Respondeat Superior

Theory of vicarious liability has practical implications in all situations in which a principal-agent relationship exists

27-6 Termination of an Agency

27-6a Termination by Act of the Parties

Wrongful Termination

Parties may not always possess the right to do terminate the contract, though they have the power to do so.

Agency Coupled with an Interest

An agency, created for the benefit of the agent, in which the agent has some legal right (interest) in the property that is the subject of the agency.

Notice of Termination

27-6b Termination by Operation of Law

Death or insanity

Impossibility

Changed circumstances

Bankruptcy

War

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