Business Law: Chapter 20 Agency RelationshipsIndependent

Business Law: Chapter 20 (Agency Relationships/Independent

Contractor Relationships) Flashcards Authorized Acts of Agent-Disclosed Principal: the principal is obligated to perform the contract and agent has no contractual liability for the performance of the Principal or the 3rd party.-Partially

Disclosed Principal: in most states, the agent is treated as

a party to the contract; the third party can hold the agent liable for contractual nonperformance of

principal.-Undisclosed Principal: both the agent and the

principal have a liability to perform. However, if agent is forced to pay the third party, the agent is entitled to be indemnified (compensated and held harmless) by the principal.Liability for ContractsLiability for contracts formed by an agent depends on how the principal is classified and on whether the actions of the

agent were authorized or unauthorized:Classification of

Principals-Disclosed: identity of principal known to 3rd party

at the time contract made by agent.-Partially Disclosed: 3rd

party knows it is dealing with an agent acting on behalf of a

principal, but doesn't know principal's identity.-Undisclosed:

3rd party does not know it is dealing with an agent and principal's identity is totally unknown.Liability for Agent's Intentional TortsPrincipal (employer) is liable for intentional torts of agent (employee) committed within the scope of employment.Principal (employer) may also be liable for agent's (employee's) acts which it knew or should have known the Agent (employee) had a propensity to commit.Agency by AgreementFormed through express consent (oral or written) or implied by conduct.Agency by RatificationPrincipal either by act or by agreement ratifies conduct of a person who is not in fact an agent.Employer-Employee RelationshipsA familiar example of an agent is an officer who serves in a representative capacity for the owners of a corporation (other entity such as an LLC). In this capacity, the officer/employee has the authority to bind the principal (i.e., employer) to a contract or other legal obligation. Agency law is essential to the existence and operation of a corporate (or other entity) because only through its agents can an entity function and enter into contracts or binding legal relationships Fiduciaryterm that is at the heart of agency law. It refers to a person having a duty created by his or undertaking to act primarily

for another's benefit in matters connected with the undertaking. A fiduciary relationship means that the relationship is one that involves a high degree of trust and confidence.

Employer's Liability for Employee's Negligence -Distinction Between a "Detour" and a "Frolic" for purpose of determining whether employee's negligence was outside

scope of employment: if employee merely taking a detour,

principal (employer) is liable. If employee on a "frolic",

principal (employee) is not liable.-Employee Travel Time:

An employee going to or from work or to or from meals is considered to be outside scope of employment.Employee StatusWhether a worker is classified as an employee or an independent contractor can effect the company's liability for the worker's actions. Copyright ownership in works created by employees is automatically assigned to the employer under the "works-for-hire" doctrine (independent contractors may acquire ownership unless copyright ownership transferred in writing). Employees are protected under various state and federal employment laws (such as anti-discrimination statutes); independent contractors are not.Principal's Duties to Agent-Compensation to be timely paid (can be express or implied).-Reimbursement for expenses incurred by agent.-Indemnification of agent for any liabilities incurred because of authorized and lawful acts and transactions.-Cooperation (assist agent in performing duties).-Safe Working Conditions (principal also has duty to inspect working areas and to warn of unsafe conditions).Liability for Agent's CrimesAgent is liable for his or her own crimes.Principal is not liable, even if the crime was committed within the scope of

employment, unless:Principal participated in the

crime.Some states hold principal (employer) may be liable for agent violation of regulations.Liability for Independent Contractor's Torts General Rule: Employer (party engaging the contractor) is not liable for acts of independent contractors because employer (party engaging contractor) has no right to control.Liability for Torts and CrimesAgent is liable to 3rd party for his or her own torts/crimes.Whether the Principal can also be held liable for the Agent's torts and crimes depends on several factors.-Did Principal authorize Agent's tortious conduct?-Agent's misrepresentations made when acting under express or apparent scope of authority?-Agent's negligence actionable under doctrine of respondeat superior ("let the master respond")?Principal-Agent RelationshipIn other words, in a principal-agent relationship, the parties have agreed that the agent will act on behalf of and instead of the principal in negotiating and transacting business with third parties.

agentparty who agrees to represent or act for the other party (called the "principal").Agency relationships qualifications-Are consensual (voluntary agreement between the parties).-Do not need to be in writing.-Require no consideration.-Require principal (not agent) to have contractual capacity.-Can be created for any legal purpose.principalparty that has the right to control the agent's conduct in matters entrusted to the agent. By using agents, they can conduct business operations simultaneously in multiple locations.AgencyThe fiduciary relationship that results from the manifestation of consent by one person to another that the other shall act in her or his behalf and subject to her or his control, and consent by the other to so act. Is the most common and most important legal relationship.Agent's Duties to the Principal-Performance: implied condition to use reasonable diligence and skill. If agent fails to perform, possible breach

of contract.-Loyalty: Agent undertakes fundamental duty as

fiduciary (no conflict of interest).-Obedience: Agent must

comply with all lawful and clearly stated

instructions.-Accounting: Agent must not intermingle

principal's funds with his own.Unauthorized Acts of AgentIf agent has no authority to act but nevertheless contracts with a third party, the principal can not be held liable on the contract (does not matter whether principal was disclosed, partially disclosed or undisclosed). The agent is solely liable.Scope of Agent's AuthorityThe liability of a principal to third parties with whom the agent contracts depends on whether the agent had authority to enter into legal binding contracts on the

principal's behalf.-Express Authority (example: written

Power of Attorney document)-Apparent Authority: can be

implied by custom or pattern of conduct or inferred from the position that the agent occupies.-Agent has apparent authority when principal causes 3rd party to reasonably believe that Agent has authority to act for Principal.Agency by EstoppelPrincipal causes a third person to believe that another person is the Principal's Agent, and the third person acts to her detriment in reasonable reliance on that belief.Uber Case StudyDispute between whether Uber drivers are employees or independent contractors.Independent Contractor RelationshipsAn independent contractor is a person who contracts with another (this "engaging party" can be an individual or an entity) to do something for the engaging party but who is not controlled by the engaging party nor subject to the