Download Chapter 11 Agency

AGENCY
Definition of Agency
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A fiduciary relationship.
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Mutual agreement of two persons
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Trust and confidence
that one person (agent) will act on the behalf of
the other (principal).
and will be subject to the principal’s control and
consent.
Capacity to be an agent.
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Most people can be agents.
Including minors.
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But minor would be able to avoid the agreement until
he or she reaches the age of majority.
FIDUCIARY
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A person in a position of trust and
confidence.
Agent’s duties to principal
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Duty of loyalty
(Fiduciary Duty)
Duty of obedience
Duty of accounting
Duty of performance
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Agent must use reasonable care and skill.
Fiduciary Duty
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Fiduciary duty is one of utmost loyalty and
good faith. Requires:
A. Agent must act solely in the interest of his
principal.
B. Cannot compete with principal or act on
behalf of a competitor.
C. May not use or disclose confidential
information
D. Account for financial benefits received.
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Duty to Account : Agent must
maintain and provide true and
complete accounting of money and
property received or expended on
behalf of the principal.
Duty of Obedience: Agent must act
only as authorized and directed by the
principal and obey reasonable
instructions of the principal.
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Duty of Due Diligence: Agent must
act with reasonable care and skill in
performing agency responsibilities.
Duty to Inform: Agent must provide
principal with information relevant to
the affairs entrusted to agent.
(Notice to agent is notice to principal)
Duties of Principals
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Principal’s duties to agent
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Duty of compensation
Duty of reimbursement and
indemnification
Duty of cooperation
Duty to provide safe working conditions
Creation of an Agency
Relationship
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Expressed agency or agency by
agreement
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No formality required, however agency
agreements for more than one year must be
in writing. Also equal dignity rule may require
a writing.
Power of attorney.

A legal document used to establish an agency
relationship giving agent authority to sign legal
documents on behalf of principal. General or
limited.
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Health care power of attorney. Gives agent
authority to make health care decisions if principal
AGENTS AUTHORITY
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Actual Authority
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Express: Authority found in the spoken
or written words communicated to agent
by principal.
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Implied: a. Authority which agent
reasonably infers the principal intends. b.
The authority to do those things
necessary to accomplish express
authority.
AUTHORITY
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Apparent Authority: Created by
words or actions of principal causing
third parties to believe agent has
authority.
Principal’s and Agent’s
Liability to Third Parties
(Contract)
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Disclosed Principal: Third party
knows they are dealing with an agent
and knows the identity of the principal.
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Principal is liable. (Assuming agent has
authority)
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Agent is not liable.
Principal’s and Agent’s
Liability to Third Parties
(Contract)

Partially Disclosed Principal : Third
party knows they are dealing with an
agent but does not know the identity of
the principal.
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Principal and Agent both liable.
Principal’s and Agent’s
Liability to Third Parties
(Contract)

Undisclosed Principle: Third party
does not know they are dealing with an
agent.
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Both principal and agent are liable.
LIABILITY TO THIRD
PARTIES
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Tort liability
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Respondeat superior
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Employer is liable for torts committed by
employees
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if within the scope of their employment.
Criteria for determining scope of employment:
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Was the agent acting in the principal’s
interest?
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Was the agent authorized to be in the
particular place where the tort was
committed?
Employee or Independent Contractor
Determines liability to pay and withhold
Federal income tax,
Social security
Medicare taxes,
Federal unemployment tax, Medical
Benefits,
Retirement, etc.
Above paid for employee but not for
Independent Contractor
Employer-Independent
Contractor
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Hired to do specific job
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Factors to consider.
 whether hired persons had distinct
occupation or profession.
 whether they supplied their own tools and
equipment.
 whether they were employed only for a
specific time period
 whether they are paid hourly or on
completion of a job.
 what degree of skill is required to do the job.
Termination of the PrincipalAgent Relationship
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Termination by agreement
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Either party may decide to terminate the agency.
Notice should be given to third parties.
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Actual notice to those who dealt with the agent.
Constructive notice by newspaper to others.
Termination by law
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death of one of the parties.
insanity of one of the parties.
bankruptcy of the principal.
impossibility of performance.
outbreak of war.