Section 18.1
Agency Relationships
Section
18.1
Agency
Relationships
Creation
of an Agency
Chapter 18
Section 18.1
Agency Relationships
Section 18.2
Creation and Types of Agents
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Why It’s Important
Identifying the nature of an agency
relationship will help you know your rights
and duties in such a situation.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Agency and Similar Relationships
An agency relationship lets us act
through other people to accomplish
tasks that might be difficult or
impossible to do on our own.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Agency and Similar Relationships
The term agency describes a
relationship in which one person,
called an agent, represents another
person, called a principal, in some
sort of business transaction with a
third party.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Agency and Similar Relationships
NOTES: An agent can negotiate
business deals, contracts, and
perform other business tasks for the
principal.
Understanding Business and Personal Law
Creation of an Agency
18.1 18.1 Agency Relationships
Section
Principal-Agent Relationship
NOTES:
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Principal-Agent Relationship
The principal-agent relationship is a
true agency relationship.
Legally, we distinguish an agent from
other types of representatives by
noting that the agent has the power to
transact business for the principal.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Master-Servant Relationship
A master is a person who has the
right to control the conduct of another
who is performing a task for the
benefit of the master.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Master-Servant Relationship
A servant is a person whose conduct
in the performance of a task is subject
to the control of another.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Master-Servant Relationship
NOTES: If a servant has the power to
conduct business transactions for the
master, he or she is also an agent.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Proprietor-Independent Contractor
An independent contractor works for
but is not under the control of a
proprietor.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Proprietor-Independent Contractor
NOTES: The proprietor is a person who
chooses to have someone perform a task
on his or her behalf but has no control over
the way that task is carried out.
Does have a right to specify a particular
outcome.
Example 3 – p. 394
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Why Are These
Distinctions Important?
NOTES: Finding out the true nature of
a relationship can be crucial in
determining liability.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Contractual Liability
A principal is generally bound to the
terms of a contract made by an agent
unless the agent has no authority to
enter the contract.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Contractual Liability
NOTES: Unless a servant is also an
agent, he or she has no authority to
negotiate contracts for the master.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Contractual Liability
Likewise, a contractor has no power to
bind the proprietor to a contract,
unless expressly permitted to do so.
Example 5 – p. 396
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Tort Liability
All people are responsible for their
own tortious conduct.
NOTES: Sometimes, however, the
person who hired the tortfeasor may
also be held liable.
Pesticide accident in Layton
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Tort Liability
This situation is known as vicarious
liability, and it is founded on the
principle of respondeat superior, or
let the master respond.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Tort Liability
Typically, respondeat superior, applies
to master-servant relationships
because the master has the right to
control the physical conduct of the
servant. In contrast, a proprietor
usually doesn’t have that right with an
independent contractor.
Understanding Business and Personal Law
Creation of an Agency
18.1 18.1 Agency Relationships
Section
Respondeat Superior
Was servant
acting within
scope of
authority or
course of
employment
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Tort Liability
The court will ask many questions to
determine whether there is a masterservant or proprietor-independent
contractor a relationship in order to
determine tort liability.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Questions the Court Asks
Does the hiring person supply the
tools for the worker?
Does the hiring person set the
worker’s hours?
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Questions the Court Asks
Is the worker employed by the
person responsible for the hiring?
Is the business of the worker the
same as the business of the hiring
person?
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Questions the Court Asks
Does the worker lack authority to
hire or fire other workers?
Does the worker perform his or her
tasks in a highly supervised
environment?
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Questions the Court Asks
Is very little skill required to perform
the worker’s job?
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Questions the Court Asks
The more questions that require “yes”
answers, the more likely it is that a
master-servant relationship exists,
and the master could be liable for the
servant’s tortious conduct.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Tort Liability
A master may escape vicarious
liability, if the servant was not acting
within the scope of employment.
When the tort was committed, the
worker must have been performing
the task for which he or she was hired.
Understanding Business and Personal Law
Creation of an Agency
Section 18.2
Agency Relationships
Section 18.1 Agency Relationships
Types of Agents
We can distinguish between types of
agents in two ways. We can examine
1. the extent of the agents’ authority
2. how the agents relate to one
another
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Extent of Authority
The two types of agents distinguished
on the basis of extent of authority are
general agents and special agents.
NOTES: General agents have more
authority than special agents.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
General Agent
A person who has been given
authority to perform any act within the
scope of a business is a general
agent.
The manager of a department store is
a general agent.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Special Agent
A person who is employed to
accomplish a specific purpose or to do
a particular job is a special agent.
NOTES: Sales representatives are
special agents.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
How Agents Relate
to One Another
Agents may be classified according to
the nature of their relationships with
other agents.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Subagents
NOTES: A subagent is an agent
lawfully appointed by another agent.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Agent’s Agent
NOTES: If an agent has no power to
appoint a subagent but does so
anyway, he or she has appointed an
agent’s agent.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Coagents
NOTES: If the principal hires two or
more agents, he or she has created a
coagent situation.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
How Agency Relationships
Are Created
Generally, any business you can
transact personally can also be
transacted through an agent.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
How Agency Relationships
Are Created
A principal-agent relationship can be
developed
by agreement
by operation of law
by ratification
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
By Agreement
NOTES: Most agency relationships
are created by agreements, which are
usually, but not always, contracts.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
By Agreement
No contract exists if an agreement
does not involve consideration.
An agency agreement that does not
involve a contract is called a
gratuitous agency.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
By Operation of Law
NOTES: Agency relationships may be
created automatically by operation of
law.
Sometimes the law creates an agency
relationship by circumstance.
Agency relationships can also arise
through enactment of specific laws.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Agency by Estoppel
When the law creates an agency
relationship by circumstance, it is
called agency by estoppel.
NOTES: Also known as apparent
authority.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Agency By Statute
NOTES: Sometimes a state
legislature decides that certain
situations justify automatic creation of
agency relationships by statute.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
By Ratification
At times a person may act as an agent
without the authority, or an agent who
has the authority to negotiate one type
of contract oversteps that authority
and negotiates another type of
contract.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
By Ratification
Ratification occurs if the principal,
with full knowledge of the facts,
accepts the benefits of the
unauthorized acts.
NOTES: The act is thereby approved
or ratified.
Understanding Business and Personal Law
Creation of an Agency
End of Section 18.2
Agency Relationships