AGENCY
The Agency Relationship
Creation of Agency

An Agreement of two parties that on
party (the agent) will act for the
benefit of the other (the principal)
under the principal’s direction.
Creation of Agency


Consideration is not necessary.
An agency contract may be oral unless state
law provides otherwise.
– Statute of Frauds

Contracts which cannot be performed within one year
must be in writing
– Equal Dignity Rule

Requires agent’s authority to be in writing if agent is
entering into a contract which must be in writing
Creation of Agency

Agency through ratification by principal
– Occurs when

agent represents that he has authority he really does
not have, and principal accepts the results of the
agent’s act.
– Conditions necessary for effective ratification:


Principal must have full knowledge of the agent’s
action.
Existence of principal must be clear to third party at
time of agent’s act.
Creation of Agency
Agency by estoppel, (apparent
agency)
– Actions of principal lead third person to
believe that a certain person is her
agent.
– Third party relies on principal’s
conduct.
Employee or Independent Contractor
Determines liability to pay and withhold
Federal income tax, social security and
Medicare taxes, and Federal
unemployment tax, as well as
Medical Benefits, Retirement, etc.
Above paid for employee but not for
Independent Contractor
Employee or Independent Contractor
Facts to consider in deciding whether a
worker is an independent contractor or
an employee.

Behavioral Control

Financial Control

Type of Relationship
Employee or Independent Contractor
Behavioral Control
1.when, where, and how to work
2.what tools or equipment to use
3.what workers to hire or to assist with the
work
4.where to purchase supplies and services
5.what work must be performed by a specified
individual
6.what order or sequence to follow
Employee or Independent Contractor
Financial Control
The extent to which the worker has expenses which
are not reimbursed
The extent of the worker’s investment
The extent to which the worker makes services
available to the relevant market
How the business pays the worker
The extent to which the worker can realize a profit
or loss
Employee or Independent Contractor
Type of Relationship
 Written contracts describing the relationship the
parties intended to create

Whether the worker is provided with employee-type
benefits

The permanency of the relationship

How integral the services are to the principal
activity
Agents Duties to Principal
–Duty
–Duty
–Duty
–Duty
–Duty
of
of
of
of
of
loyalty (Fiduciary Duty)
obedience
accounting
performance
Notification
Duty of Loyalty /
Fiduciary Duty

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 of disclose confidential
information
Agents Duties to Principal


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.
Agents Duties to Principal



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 Principal to Agent

Principal’s duties to agent
–Duty of compensation
–Duty of reimbursement and
indemnification
–Duty of cooperation
–Duty to provide safe working
conditions
Termination of the PrincipalAgent Relationship

Termination by agreement
– Either party may decide to terminate the agency.
(However, party may not have right to terminate)
– Notice should be given to third parties.
Actual notice to those who dealt with the agent.
Constructive notice by newspaper to others.

Termination by law: (Terminates actual authority)
Death of one of the parties.
Incapacity of one of the parties.
Bankruptcy of the principal.
Outbreak of war.
Intervening Illegality
Destruction of subject matter
Termination


Exception:
Agency coupled with an interest may
not be terminated by the principal
Notice
To terminate apparent authority third
party needs to be aware that agency
relationship has terminated.
Generally accomplished by notice.
Actual notice to those who have dealt with
agent.
Constructive notice to all others
Notice
Apparent authority is terminated and no
notice is required if agency terminates
as a result of:
Death of principal
Incapacity of principal
Bankruptcy of principal