MAN-3
Erlan Bakiev, Ph. D.
Agency Formation and Duties
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Introduction
Agency=Principal and Agent.
Agency is the most common and most important
legal relationship.
Understanding agency is crucial to understanding
the legal environment of business.
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Introduction [2]
Principals use agents to be able to conduct
multiple business operations simultaneously in
various locations.
The principal has the right to control the agent in
matters entrusted to the agent.
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§ 1: Agency Relationships
 Agency is a “fiduciary” relationship based on trust and
confidence.
 Distinguish Employee vs. Independent Contractor
Relationships.
Employer
Employee
Independent
Contractor
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Creating an Agency
Relationship
Agency is a relationship in which the agent
agrees to perform a task for, and under the
control of, the principal.
To create an agency, there must be:
 A principal,
 An agent,
 Who mutually consent that the agent will act on
behalf of the principal, and
 Be subject to the principal’s control,
 Thereby creating a fiduciary relationship.
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Formation of the Agency
Relationship
Express
Agency
Agency by
Ratification
Implied
Agency
Apparent
Agency
Copyright © 2004 by
Principal-Independent Contractor
Relationship
The crucial factor in determining whether a
person is an employee or an independent
contractor is the degree of control that the
principal has over that person.
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Kinds of Employment Relationships
Type of Relationship
Description
Employer-Employee
The employer has the right to control the physical conduct of
the employee.
Principal-Agent
The agent has the authority to act on behalf of the principal
as authorized by the principal and implied from the agency.
An employee is often the agent of his employer.
Principal-Independent
Contractor
The principal has no control over the details of the
independent contractor’s conduct.
An independent contractor is usually not an agent of the
principal.
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Employer Liability
Determining whether the worker is an
employee or an independent contract affects
liability of Principal/Employer.
 Tax Liability: Employer liable if employee.
 Contract Liability: Employer not necessarily liable.
 Tort Liability: Employer liable for torts of
employee within scope of employment.
 Works for Hire. Case 31.1: Graham v. James
(1998).
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§2: Formation of the
Agency Relationship
Consensual Agreement.
No consideration required.
Principal needs contractual capacity, Agent does
not.
For any legal purpose.
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Types of Agencies
Agency by Agreement.
Agency by Ratification.
Agency by Estoppel.
Agency by Operation of Law.
 Necessaries for family.
 Emergency.
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Agency By Agreement
 Formed through express consent (oral or
written) or implied by conduct.
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Agency by Ratification
Principal either by act or by agreement ratifies
conduct of a person who is not in fact an agent.
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Agency by Estoppel
Principal 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.
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Agency by Operation of Law
Agency based on social duty is formed in certain
situations when the Agent is unable to contact the
Principal.
 Necessaries.
 Emergencies.
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Agent’s Duties to Principal
Performance: reasonable diligence and skill
(special skills).
Notification to P.
Loyalty (no conflict of interest).
Obedience.
Accounting.
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Principal’s Duties to Agent
Compensation (Express or Implied).
Reimbursement and Indemnification.
Cooperation.
Provide safe working conditions.
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§ 4: Rights and Remedies of
Agents and Principals
Rights of Agents:
 Right to compensation, reimbursement,
indemnification and cooperation.
 Agent can withhold performance and demand an
accounting.
 Agent can recover damages for past services and
future damages.
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Rights and Remedies of
Agents and Principals
Principal’s Rights and Remedies:
 Contract remedies for breach of fiduciary duty and
performance.
 Can sue in tort: libel, slander, trespass, deceit, fraud.
 Constructive Trust – money/ property agent steals
from Principal.
 Avoidance of contract if agent does not do as told.
 Indemnification
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“Once again, the subject is tradeoffs. You can
accomplish more if other people do things for
you. On the other hand, you may face liability
for their actions.”
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