ch 14 Agency Relationships in Business Law

Agency Relationships

• An agency is formed when an agent agrees to act on behalf of a principal.
• Agents can bind the principal to contracts within their given authority.
• Types of Agents:
  • Universal Agent: Authorized to perform all legally permissible acts on behalf of the principal (often with a power of attorney).
  • General Agent: Authorized to conduct all transactions related to a specific business.
  • Special Agent: Authorized to perform specific transactions, typically for a limited time.
  • Agent Coupled with an Interest: Agent pays for the right to represent the principal.
  • Gratuitous Agent: Agent volunteers services without payment.
  • Subagent: Agent authorized to delegate authority to another agent.
• Agency can be created by:
  • Agreement (written or oral)
  • Ratification: Principal approves the agent's actions (express or implied).
  • Estoppel: Principal's actions create a reasonable belief in a third party that the agent has authority.

Types of Authority

• Actual Authority (Real Authority):
  • Express Authority: Based on specific instructions (written or oral).
  • Implied Authority: Authority to complete tasks reasonably necessary to fulfill agent's purpose.
• Apparent Authority: Created by the principal's actions, leading a third party to reasonably believe the agent has authority.

Duties

• Principal's Duties to Agent: Cooperation, compensation, reimbursement, and indemnification.
• Agent's Duties to Principal: Loyalty, obedience, performance, reasonable care, accounting, and notification.

Liability for Contracts

• Disclosed Principal: Principal's identity is known to the third party; principal is liable.
• Apparent Authority and liability for principal: Principal liable if third party contracts with agent based on apparent authority.
• Undisclosed Principal: Principal's identity is unknown; agent is liable.

Terminating Agency Relationships

• Agency ends through agreement, fulfillment of purpose, termination by one party, operation of law, or withdrawal of authority; notice to third parties is crucial.

Agency and the Employment Relationship

Employment Relationships

• Employer-Independent Contractor: Contractor is not controlled by the employer; employer avoids certain taxes.
  • The employer doesn't hold liability for the independent contractor.
• Determining Independent Contractor status: Courts evaluate factors like employer control, distinct occupation, supervision, skill, tools/supplies, relationship length, compensation type, and integration into employer's workforce.
• Employer-Employee: Employee's work is controlled by the employer; can be an agent.

Employees as Agents

• Some employees are agents, authorized to make business decisions and enter into contracts.

Employment At-Will

• Common law allows employers to dismiss at-will employees without cause.
• Statutory grounds for employee lawsuits for wrongful dismissal may exist.

Employment Contracts

• Express Contracts: Explicit agreement defining employment terms.
• Implied Contracts: Created by actions, statements, or practices of the employer/employee.
• Implied Covenant of Good Faith and Fair Dealing: Some states extend this to the employment relationship.

Tort Liability

• Principal's Liability: Principal is liable for torts committed by agents if authorized or occurring within the scope of employment.
• Unauthorized Torts: Agent is liable; principal generally isn't.
• Vicarious Liability (Respondeat Superior): Principal is liable for torts of agent acting within the scope of employment.
• Negligent Hiring: An employer may be held liable for an employee's negligent action if the hiring process was deemed to be negligent and the employer failed to perform proper background checks.