Agency and Independent Contractors

Nature of Agency

• Agency is a relationship where one party (the agent) is authorized to act for and on behalf of another party (the principal).
• Agents represent the principal in business dealings with third parties.
• If an agent (employee) is negligent, the principal can be held liable for resulting injuries or losses.
• Generally, a principal can authorize an agent to do anything they could do themselves.
• Principals cannot authorize agents to do actions they are not legally allowed to do.
• Some actions are personal and cannot be delegated (e.g., contracts for personal services).
• Employers have the right to control the physical conduct of their employees.
• All employees are agents, but not all agents are employees.
• Independent contractors are not subject to the employer's control.

Determining Employee vs. Independent Contractor

• Control: extent of control the principal has over the agent's work is crucial.
• Occupation: whether the agent has a distinct occupation or business.
• Supervision: if the work is typically done under supervision or independently.
• Skill: level of skill required for the agent's occupation.
• Tools and Workplace: who provides the tools and workplace.
• Duration: length of time the agent works for the principal.
• Payment: if the agent is paid by the job or by time worked.
• Regular Business: if the agent's work is part of the principal's regular business.
• Belief: if the principal and agent believe they are creating an employment relationship.
• Business Status: if the principal is in business.

Creation of Agency

• Three Key Elements:
  • Assent
  • Control by the principal
  • Agent acting on behalf of the principal.
• Agency by Estoppel: A party can be liable as a principal, even if no actual agency exists, if a third party reasonably relies on the appearance of an agency relationship.
  • A person (principal) intentionally or carelessly leads a third party to believe someone else (agent) has authority to act for them.
  • The principal knows about the third party's belief and doesn't correct it.
  • The third party reasonably and in good faith relies on the appearance.
  • The third party is harmed because they relied on the apparent authority.

Capacity

• Principal must have legal capacity to enter the agency relationship.
• Agents do not need the same legal capacity.

Duties of Agent to Principal

• Duty of Obedience: follow instructions.
• Duty of Good Conduct: act appropriately.
• Duty to Inform: keep the principal updated on relevant information.
• Duty to Account: keep track of and report finances.
• Fiduciary Duty: act with loyalty and good faith, avoiding conflicts of interest, and protecting confidential information.

Duties of Principal to Agent

• Contractual Duties: fulfilling obligations outlined in the agency contract.
• Compensation: paying the agent as agreed.
• Reimbursement: paying back authorized expenses.
• Indemnification: covering losses the agent incurred

Termination of Agency

• Agency can be terminated by:
  • Lapse of time: when agreed upon time ends.

Fulfillment of Purpose

• Objective is achieved.
• Mutual Agreement: both parties agree to end.

Revocation of Authority

• Principal withdraws the agent's authority.
• Renunciation by the Agent: agent quits.

Operation of Law

• Death, incapacity, change in circumstances, destruction of subject matter, change in law.

Bankruptcy

• Usually terminates agency relationships.

Disloyalty

• Agent breaches fiduciary duty.
• Outbreak of War

Irrevocable Agencies

• Agent has a security interest in the subject, making termination difficult.

Agency Authority

• Actual Authority: Agent's power to act is based on the principal's consent.
• Express Authority: Principal explicitly grants the agent power to act.
• Implied Authority: Agent's authority implied from nature of relationship, principal's conduct, or custom/usage.
• Apparent Authority: A principal can be bound by the agent's actions if the principal created the appearance of authority, and a third party reasonably relied on it.

Liability of Principal for Contracts

• Disclosed Principal: Third party knows the agent acts on behalf of a principal, and the principal's identity is known.
• Partially Disclosed Principal: The third party knows of the principal but not their identity.
• Undisclosed Principal: The third party is unaware of the principal.

Liability of Principal for Torts

• Respondeat Superior: Principal is liable for employee's torts committed during their employment.
• Independent Contractors: Principal generally not liable for independent contractor's torts unless negligent in hiring or if the work is inherently dangerous.

Termination of Apparent Authority

• Notice to Third Parties: Principal notifies third parties that dealt with the agent of termination, preventing the agent further binding the principal.

Introduction to Sales and Leases

• Goods: Moveable personal property
• Sale: Transfer of ownership of goods for consideration.
• Lease: Transferring the right to possess and use goods for a period.

Governing Law

• Sales Transactions: Primarily governed by Article 2 of the UCC.
• Lease Transactions: Governed by Article 2A of the UCC.
• Transactions Outside UCC: not governed by the UCC.

Fundamental Principles of Articles 2 and 2A

• Modernization, Uniformity, and standardization of sales and lease laws.
• Good Faith: Honest performance in sales and lease contracts.
• Unconscionability: Unethical or improper contract terms are unenforceable.

Commercial Practices

• Course of Dealing: History of previous interactions, setting precedent.
• Usage of Trade: Standards of a specific industry/trade
• Merchants: Individuals with specialized knowledge in dealing.

Freedom of Contract

• UCC allows for flexibility.

Formation of Contracts

• Parties show intent to create.
• Manifestation of Mutual Assent: Offer and Acceptance.
• Definiteness of terms: The deal is clear enough to be a contract.

Irrevocable Offers

• Option: separate contract to keep an offer open
• firm offer - A signed, written offer by a merchant to buy or sell goods that is irrevocable

Variant Acceptances

• When acceptance includes different or additional terms.

Manner of Acceptance

• Acceptance in reasonable way. Timely. Effective upon delivery.

Consideration

• Contract modifications in good faith don't require new consideration if made in good faith. Firm offers are binding even without consideration.

Form of Contract

• Requirement: Contracts for goods over $500 (or $1000 for leases) must be written, exceptions exist.

Parol Evidence Rule

• In agreements with written parts, other proof about the agreement cannot be introduced unless the written agreement is incomplete.

Promoter Liability

• Promoters act on behalf of corporations, are personally liable for pre-incorporation contracts, unless the corporation adopts or novation.