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
What You’ll Learn
How to explain the nature of an agency
relationship (p. 392)
How to distinguish between a servant
and an independent contractor (p. 394)
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
What You’ll Learn
How to explain the nature of contract
liability (p. 396)
How to explain the legal doctrine of
respondeat superior in relation to tort
liability (p. 397)
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
Why It’s Important
Understanding the doctrine of respondeat
superior will help you protect yourself against
tort liability in a variety of situations.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Legal Terms
agency (p. 392)
agent (p. 392)
principal (p. 392)
master (p. 394)
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Legal Terms
servant (p. 394)
independent contractor (p. 394)
respondeat superior (p. 397)
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Section Outline
Agency and Similar Relationships
Principal-Agent Relationship
Master-Servant Relationship
Proprietor-Independent Contractor
Relationship
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Section Outline
Why Are These Distinctions
Important?
Contractual Liability
Tort Liability
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Pre-Learning Question
What is an agency relationship?
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
18.1 18.1 Agency Relationships
Section
Principal-Agent Relationship
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
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
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.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
True or False
1. An agent is a person who has the
right to control the conduct of
another who performs a task for
the agent’s benefit.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
2. A principal is someone
represented by an agent.
3. 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
4. A proprietor is someone who hires
a servant.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
ANSWER
1.
2.
3.
4.
False
True
True
False
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Pre-Learning Question
Why is the true nature of the business
relationship important?
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Why Are These
Distinctions Important?
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
Unless a servant is also and 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.
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.
Sometimes, however, the person who
hired the tortfeasor may also be held
liable.
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 18.1 Agency Relationships
Section 18.1 Assessment
Reviewing What You Learned
1. What is an agency relationship?
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Section 18.1 Assessment
Reviewing What You Learned
Answer
The term agency describes a relationship
in which one person, the agent, represents
another person, the 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
Section 18.1 Assessment
Reviewing What You Learned
2. What is the difference between a
servant and an independent
contractor?
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Section 18.1 Assessment
Reviewing What You Learned
Answer
A master controls or has the right to control
the activities of a servant. An independent
contractor is not controlled by the
proprietor who has hired that independent
contractor.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Section 18.1 Assessment
Reviewing What You Learned
3. What is the nature of contract
liability?
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Section 18.1 Assessment
Reviewing What You Learned
Answer
When a principal appoints an agent to
carry out business transactions that agent
has the power to create contractual liability
between the principal and a third party.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Section 18.1 Assessment
Reviewing What You Learned
4. What is the legal doctrine of
respondeat superior?
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Section 18.1 Assessment
Reviewing What You Learned
Answer
The legal doctrine of respondeat superior
will extend tort liability from the servant
(employee) to the master (employer).
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Section 18.1 Assessment
Critical Thinking Activity
Tort Law
Why does the law permit an injured party to
bring a tort law case against both an
employee and his or her employer?
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Section 18.1 Assessment
Critical Thinking Activity Answer
Tort Law
Because of the principle of respondeat
superior. The master may be held liable for
the tortious conduct of the servant if the
servant was acting within the scope of
authority or course of employment.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Section 18.1 Assessment
Legal Skills in Action
Agency
Your friend, Louis, has just hired Franco as
his delivery driver. One afternoon while he
is supposed to be making a delivery on the
west side of town, Franco decides to take a
15-mile detour to the east side to pick up
his dry cleaning.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Section 18.1 Assessment
Legal Skills in Action
Agency
While entering the parking lot of the dry
cleaners, Franco makes an illegal turn and
collides with a police car.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Section 18.1 Assessment
Legal Skills in Action
Agency
Louis fears he will be liable not only for
Franco’s traffic ticket but also for all
damages to the police cruiser.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Section 18.1 Assessment
Legal Skills in Action
Agency
Write a letter to Louis in which you explain
why you think he won’t be liable for the
traffic ticket or the damage to the police
cruiser.
Understanding Business and Personal Law
Creation of an Agency
Section 18.1 Agency Relationships
Section 18.1 Assessment
Legal Skills in Action Answer
Agency
Letters will vary but should include that
Franco, the driver of the delivery truck, was
off on personal business and was,
therefore, not operating within the scope of
his employment.
Understanding Business and Personal Law
Creation of an Agency
End of Section 18.1
Agency Relationships