Agency Formation and Duties;
Agency Liability to Third Parties
and Termination
Chapter 25 & 26
Agency
• Relationship between two parties in which
one party (agent) agrees to represent or act
on behalf of another party (principal)
• Examples:
– employer-employee
– independent contractor
Agency
A fiduciary relationship that results when
principal authorizes or consents to allow an
agent to act on his or her behalf.
fiduciary – a person acting for the benefit of
another, a duty of trust and confidence
Formation of Agency
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Written Agreement
Oral Agreement (if performable in one year)
Implied by conduct
Estoppel- “apparent authority”
– actions of principal must imply authority
– (not actions of agent)
– reasonable person must believe agency
exists.
• Implied by operation of law
• By ratification
Agency Relationships
• Employee
– One who works for, and receives
payment from, an employer.
– Whose working conditions and methods
are controlled by the employer.
– For whose acts and omissions occurring
in the scope of employment the employer
is liable.
Agency Relationships
• Independent Contractor
– One who does work for, and receives
payment from, an employer.
– Whose working conditions and methods
are not controlled by the employer.
– For whose acts and omissions the
employer is not liable.
Employer-Employee
Relationships
• Determine whether an employee or
independent contractor by the following:
– Direction and control the employer
exercises over the details of work
– Who supplies tools used at workplace
– Degree of skill is required of the worker
– Duration of employment
– Method of payment
Employer-Employee
Relationships
• Primary factor the IRS uses to determine
whether an employee or independent
contractor:
– Direction and control the employer
exercises over the details of work
Agent’s Duties to Principal
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Performance
Notification
Loyalty
Obedience
Accounting
Principal’s Duties to Agent
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Compensation
Reimbursement
Indemnification
Cooperation
Safe Working Conditions
Liabilities in Agency
• Principal is liable for agent’s contracts, if
agency is disclosed
• Principal is liable for agent’s torts if agent in
“course and scope of employment”
Liabilities in Agency
• Respondeat Superior -- the doctrine by
which an employer or other principal is
liable, along with the agent or employee, for
any tort committed by the agent or
employee while acting within the scope of
their agency or employment.
• Does not apply if agent is on a “frolic” of
his own
Liabilities in Agency
•
Principal not liable for most criminal acts
unless criminal activity was directed by
principal (but are liable for intentional
torts committed in scope of employment)
Termination of Agency
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Lapse of Time
Purpose Achieved
Occurrence of Event
Mutual Agreement
Revocation (unless coupled with interest)
Termination of Agency
By Operation of Law
• Death or insanity
(Statutory Durable Power of Attorney
– Authority continues after principal
becomes disabled)
• Impossibility
• Materially changed circumstances
• Bankruptcy
• War
Agency Formation and Duties;
Agency Liability to Third Parties
and Termination
Chapter 25 & 26