Chapter 23 Notes Flashcards
1
Q
A relationship betwen two parties in which on party (the agent) agrees to represent or act for the other (the principal).
A
Agency
2
Q
Agrees to represent or act for the other person in an agency relationship. Must exercise his or her powers “for the benefit of the principal only.”
A
Agent
3
Q
Has the right to control the agent’s conduct in matters entrusted to the agent.
A
Principal
4
Q
As a noun, a person having a duty created by his or her undertaking to act primarily for another’s benefit in matters connected to the undertaking. As an adjective, a relationship founded on trust and confidence.
A
Fiduciary
5
Q
- Employer-Employee Relationships
- Employer-Independent Contractor Relationships
A
Examples of Agency Relationships
6
Q
Normally, all employees who deal with third parties are deemed to be agents.
- Salespeople
- Representations of fact
- Agency law and employee law overlap
A
Employer-Employee Relationships
7
Q
Can exist outside an employer-employee relationship so agency law has a broader reach than employment law.
- Agency law is based on common law
A
Agency Relationships
8
Q
Both state and federal apply only to the employer-employee relationship.
- Based on statutory law
- Social security, withholding taxes, workers’ compensation, unemployment compensation, workplace safety, employment discrimination are only applicable if employer-employee status exist.
A
Employment Laws
9
Q
One who works for, and receives payment from, an employer but whose working conditions and methods are not controlled by the employer. Not an employee but may be an agent.
A
Independent Contractor
10
Q
- How much control can the employer exercise over the details of the work?
- Is the worker engaged in an occupation or business distinct from that of the employer?
- Is the work usually done under the employer’s direction or by a specialist without supervision?
- Does the employer supply the tools at the place fo work?
- For how long is the person employed?
- What is the method of payment? By time period or at the completion of the job?
- What degree of skill is required of the worker?
A
Determining Employment Status- Criteria Used by Courts
11
Q
If an employer can exercise considerable control over the details of the work, this indicates employee status. The employer’s degree of control is perhaps the most important factor weighed by the courts in determining employee status.
A
How Much Control can the Employer Exercise Over the Details of the Work?
12
Q
If so, this points to independent-contractor status.
A
Is the Working Engaged in an Occupation or Business Distinct from that of the Employer?
13
Q
If the work is usually done under the employer’s direction, this indicates employee status.
A
Is the Work Usually Done Under the Employer’s Direction or by a Specialist Without Supervision?
14
Q
If so, this indicates employee status.
A
Does the Employer Supply the Tools at the Place of Work?
15
Q
If the person is employed for a long, continuous period, this indicates employee status.
A
For How Long is the Person Employed?
16
Q
Regular payment by time period, such as one month, indicates employee status.
A
What is the Standard Method of Payment- by Time Period or at the Completion of the Job?
17
Q
Independent contractors are more likely to be highly skilled or to have unique skills than to be unskilled, so these types of skills may indicate independent-contractor status.
A
What Degree of Skill is Required of the Worker?
18
Q
- Workers may benefit from having employee status– for tax purposes and to be protected under certain employment laws.
- Federal statutes governing discrimination apply only when an employer-employee relationship exists.
- Protection under antidiscrimination statutes provide a significant incentive for workers to claim that they are employees rather than independent contractors.
A
Disputes Involving Employment Law
19
Q
An employer is normally not responsible for the actions of idependent contractors.
A
Disputes Involving Tort Liability
20
Q
- The degree of control the business exercises over the worker (most important)
- IRS tends to closely scrutinize a firm’s classification of its workers because employers can avoid certain tax liabilities by hiring independent contractors instead of employees.
- When listed as an independent contractor and the IRS determines they are an employee- the employer is responsible to pay for social security, withholding, and unemployment taxes.
A
Criteria Used by the IRS
21
Q
Copyright Act of 1976- Any copyrighted work created by an employee within the scope of his or her employment at the request of the employer is a “work for hire” and the employer owns the copyright to the work. When an employer hires an independent contractor- a freelance artist, writing, or computer programer (for example)- the independent contractor owns the copyright unless the parties agree in writing that the work is a “work for hire” and the work falls into specified categories, including audiovisual and other works.
A
Employee Status and “Works for Hire”
22
Q
Agency relationships normally are consentual. They come about by voluntary consent and agreement between the parties. Generally, the agreement need not be in writing, and consideration is not required.
- A person must have contractual capacity to be a principal.
- An agency relationship can be created for legal purpose.
A
Formation of an Agency
23
Q
Those who cannot legally enter into contracts directly should not be allowed to do so indirectly through an agent. Any person can be an agent, though, regardless of whether he or she has teh capacity to enter a contract (including minors).
A
Principal Must Have Contractual Capacity
24
Q
Any agency relationship that is created for an illegal purpose or that is contrary to public policy is unenforceable. It is also illegal for physicans and other licensed professionals to employ unlicensed agents to perform professional actions.
A
Agency Relationship Created for Any Legal Purpose
25
* Agency by agreement
* Agency by ratification
* Agency by estoppel
* Agency by operation of law
Formation of an Agency- Types
26
Most agency agreements are based on an express or implied agreement that the agent will act for the principal and that the principal agrees to have the agent so act.
* Can take the form of an express written contract or be created by an oral agreement.
* Can also be implied by conduct
Agency by Agreement
27
On occasion, a person who is in fact not an agent (or who is an agent acting outside the scope of her or his authority) may make a contract on behalf of another (a principal). If the principal affirms that contract by word or action, an agency relationship is created by ratification.
Agency by Ratification
28
When a principal causes a third person to believe that another person is his or her agent, and the third person deals with the supposed agent, the principal is "estopped to deny" to agency relationship. The principals actions create the appearance of an agency that does not in fact exist.
* Third person must prove that he or she reasonably believed that an agency relationship existed.
* Deeds and statements of the principal create the agency by estoppel (not the agent).
Agency by Estoppel
29
* The courts may find an agency relationship in the absence of formal agreement in the family setting.
* May also occur in emergency situations, when the agent's failure to act outside the scope of his or her authority would cause the principal substantial loss. Courts will grant if the agent cannot contact the principal.
Agency by Operation of Law
30
Because an agency is fiduciary each party owes the other the duty to act with the utmost good faith. In general, for every duty of the principal, the agent has a corresponding right, and vice versa.
Duties of Agents and Principals
31
1. Performance
2. Notification
3. Loyalty
4. Obedience
5. Accounting
Agents Duties to the Principal
32
Agents agreement to use reasonable diligence and skill in performing the work. When an agent fails to perform his or her duties, liability for breach of contract may result. The degree of skill or care required of an agent is usually that expected of a reasonable person under similar circumstances. If an agent claimed to possess a special skill, failure to exercise that degree of skill constitutes breach of that agent's duty.
* A gratuitous agent cannot be liable for breach of contract, but he or she may be subject to tort liability. Once this kind of agent has begun to act in an agency capacity, they have the duty to continue to perform in that capacity. Must perform in an acceptable manner and is subject to the same standards of care and duty to perform as other agents.
Performance
33
An agent is required to notify the principal of all matters that come to her or his attention concerning the subject matter of the agency.
* Generally, the law assumes that the principal knows of any information aquired by the agent that is relevant to the agency- regardless of whether the agent actually passes on this information to the principal. It is the basic tenet of angecy law that notice to the agent is notice to the principal.
Notification
34
One of the most fundamental duties in a fiduiary relationship. The agent has a duty to act solely for the benefit of the principal and not in the interest of the agent or a third party.
* Any information or knowledge acquired through the agency relationship is considered confidential (during and after the relationship).
* Loyalty must be undivided
Loyalty
35
When acting on behalf of a principal, an agent has a duty to follow all lawful and clearly stated instructions fo the principal.
* During emergency situations, when the principal cannot be consulted, the agent may deviate from the instructions without violating this duty.
* When instructions are not clearly stated, the agent may act in good faith and in a manner reasonable under the circumstances to fulfill this duty.
Obedience
36
Unless an agent and principal agree otherwise, the agent has a duty to keep and make available to the principal an account of all property and funds received and paid out on behalf of the principal.
* This includes gifts from third parties in connection wtih the agency.
Accounting
37
* Compensation
* Reimbursement
* Idemnification
* Cooperation
* Safe working conditions
Principal's Duties to the Agent
38
In general, when a principal requests services from an agent, the agent reasonably expects payment. The principal also has a duty to pay that compensation in a timely manner.
* Unless the agency is gratuitous and the agent does not act in exchange for payment, the principal must pay the agreed-on value for the agent's services.
* If no amount has been agreed on, the principal owes the agent the customary compensation for such services.
Compensation
39
Whenever an agent disburses funds at the requests of the principal or to pay for necessary expenses in the reasonable performance of his or her agency duties, the principal has a duty to reimburse the agent for these payments.
* Agents cannot recover for expenses incurred through their own misconduct or negligence
Reimbursement
40
Subject to the terms of the agency agreement, the principal has a duty to compensate (indemnify) and agent for liabilities incurred because of authorized acts and transactions.
* Principal must indemnify the agent for the value of benefits that the agent confers on the principal.
* Applies to acts by gratuitous agents as well
Indemnification
41
The principal has a duty to cooperate with the agent to assist the agent in performing his or her duties. The principal must do nothing to prevent that performance.
Cooperation
42
A principal is required to provide safe working premises, equipment, and conditions for all agents and employees.
* Has a duty to inspect the working conditions and warn agents and employees about any hazards.
Safe Working Conditions
43
* Express authority
* Implied authority
* Apparent authority
* Ratification
* If an agent contracts outside the scope of his or her authority, the principal may still become liable by ratifying the contract.
Agent's Authority
44
Authority declared in clear, direct, and definite terms. Can be given orally or in writing.
* Equal dignity rule
* Power of attorney
Express Authority
45
A rule requring that an agent's authority be in writing if the contract to be made on behalf of the principal must be in writing.
* Failure to do so can make the contract voidable at the option of the principal. The law regards the contract at that point as a mere offer.
Equal Dignity Rule
46
* An executive officer of a corporation normally is not required to obtain written authority from the corporation to conduct ordinary business transactions.
* When an agent acts in the presence of a principal
* When an agent's act of signing is merely perfunctory (routine).
Exceptions to the Equal Dignity Rule
47
Authorization for another to act as one's agent or attorney either in specified circumstances (special) or in all situations (general).
* Normally a written document and is usually notarized.
* Can be special or general
Power of Attorney
48
A public official authorized to attest to the authenticity of signatures.
Notary Public
49
Permitting the agent to do specified acts only.
Special Power of Attorney
50
Permitting the agent to transact all business for the principal.
* Should be used with great caution
General Power of Attorney
51
Ordinarily, a power of attorney termins on the ____ or ____ of the person giving the power.
Incapacity or Death
52
Doing what is reasonably necessary to carry out his or her express authority an accomplish the objectives of the agency.
* Can also be by custom or inferred from the position the agent occupies.
Implied Authority
53
Authority that is only apparent, not real. This agent's authority arises when the principal causes a third party to believe that the agent has authority, even though she or he does not.
* If the third party changes his or her position in reliance on the principal's representations, the principal may be estopped (prevented) from denying that the agent had authority.
* Usually comes into existence through a principal's pattern of conduct over time.
Apparent Authority
54
Occurs when the principal affirms an agent's unauthorized act. When this occurs, the principal is bound to the agent's act, and the act is treated as if it had been authorized by the principal from the outset.
* Can be express or implied
* If the principal does not ratify the contract, they are not bound, and the third party's agreement with the agent is viewed merely as an unaccepted offer. The third party can revoke the offer at any time, without liability, before the principal ratifies the contract.
Ratification
55
1. The agent must have acted on behalf of an identified principal who subsequently ratifies the action.
2. The principal must know of all material facts involved in the transaction. If a principal ratifies a contract without knowing all of the facts, the principal can rescind (cancel) the contract.
3. The principal must affirm the agent's act in its entirety.
4. The principal must have the legal capacity to authorize the transaction at the time the agent engages n the act and at the time the principal ratifies. The third party must also have the legal capacity to engage in the transaction.
5. The principal's affirmation must occur before the third party withdraws from the transaction.
6. The principal must observe the same formalities when approving the act done by the agent as would have been required to authorize it initially.
Requirements for Ratification
56
* Liability for contracts
* disclosed principal
* Partially disclosed principal
* Undisclosed principal
* Liability for torts and crimes
Liability in Agency Relationships
57
Depends on how the principal is classified and on whether the actions of the agent were authorized or unauthorized.
* Disclosed
* Partially Disclosed
* Undisclosed
Liability for Contracts
58
A principal whose identity is known to a third party at the time the agent makes a contract with the third party.
Disclosed Principal
59
A principal whose identity is unknown by a third party, but the third party knows that the agent is or may be acting for a principal at the time the agent and the third party form a contract.
Partially Disclosed Principal
60
A principal whose identity is unknown by a third party, and that person has no knowledge that the agent is acting for a principal at the time the agent and the third party form a contract.
Undisclosed Principal
61
If an agent acts within the scope of her or his authority, normally the principal is obligated to perform the contract regardless of whether the principal was disclosed, partially disclosed, or undisclosed. Whether the agent must also be held liable under the contract depends on the status of the principal.
Authorized Acts
62
Principal is liable to a third party for a contract made by an agent who is acting within the scope of her or his authority.
* Disclosed- An agent has no contractual liability for the nonperformance of the principal or the third party.
* Partially disclosed- in most states the agent is also treated as a party to the contract, and the third party can hold the agent liable for contractual nonperformance.
Authorized Acts- Disclosed or Partially Disclosed Principal
63
Principal is bound to perform just as if the principal had been fully disclosed at the time the contract was made.
* Agent is also liable as a party to the contract.
* If agent is forced to pay the third party, the agent is entitled to indemnification by the principal. The principal had a duty to perform, and failure to do so would make the principal ultimately liable.
* Once identity of principal is revealed, the third party can elect to hold either the principal or the agent liable on the contract. At the same time, the undisclosed principal can require the third party to fulfill the contract.
Authorized Acts- Undisclosed Principal
64
1. The undisclosed principal was expressly excluded as a party to the contract.
2. The contract is a negotiable instrument signed by the agent with no indication of signing in a representative capacity.
3. The performance of the agent is personal to the contract, allowing the third party to refuse the principal's performance.
Exceptions- Undisclosed Principal Requiring the Third Party to Fulfill the Contract
65
If an agent has no authority but nevertheless contract with a third party, the principal cannot be held liable on the contract. It does not matter whether the principal was disclosed, partially disclosed, or undisclosed.
* If the principal is disclosd or partially disclosed, the agent is liable to the third party only if the third party relied on the agency status. The agents liability is based on the breach of an implied warranty of authority.
* If the third party knows at the time the contract is made that the agent does not have authority- or if the agent expresses to the third party uncertainty as to the extent of her or his authority- then the agent is not personally liable.
Unauthorized Acts
66
Any person, including an agent, is liable for his or her own torts and crimes. Whether a principal can be held liable for an agent's torts and crimes depends on several factors. In some situations, a principal may be held liable for the torts of an agent.
Liability for Torts and Crimes
67
A principal conducting an activity through an agent may be liable for harm resulting from the principal's own negligence or recklessness. Thus a principal may be liable for giving improper instrutions, authorizing the use of improper materials or tools, or establishing improper rules that resulted in the agent's committing a tort.
Principal's Tortious Conduct
68
A principal who authorizes an agent to commit a tort may be liable to persons or property injured thereby, because the act is considered to be the principal's.
* An agent acting at the principal's direction can be liable as a tortfeasor along with the principal, for committing the tortious act even if the agent was unware of the wrongfulness of the act.
Principal's Authorization of Agent's Tortious Conduct
69
A principal is exposed to tort liability whenever a third person sustains a loss due to the agent's misrepresentation.
* Principal's liability depends on whether the agent was actually or apparently authorized to make representations and whether the representations were made within the scope of the agency.
* The principal is always directly responsible fo ran agent's misrepresentation made within the scope of the agent's authority.
Liability for Agent's Misrepresentation
70
* Respondeat superior
* Vicarious liability
* When an agent commits a negligent act, both the agent and the principal are liable.
Liability for Agent's Negligence
71
A doctrine under which a principal or an employer is held liable for the wrongful acts committed by agents or employees while acting within the course and scope of their agency or employment.
* Latin for "let the master respond"
* Imposes vicarious liability
Respondeat Superior
72
Indirect liability imposed on a supervisory party (such as an employer) for the actions of a subordinate (such as an employee) because of the relationship between the two parties.
Vicarious Liability
73
1. Whether the employee's act was authorized by the employer.
2. The time, place, and purpoe of the act.
3. Whether the act was one commonly performed by employees on behalf of their employers.
4. The extent to which the private interest was advanced by the act.
5. Whether the employer furnished the means or instrumentality by which the injury was inflicted.
6. Whether the employer had reason to know that the employee would do the act in question and whether the employee had ever done it before.
7. Whether the act involved the commission of a serious crime.
Determining the Scope of Employment- Respondeat Superior- Key is to Determining Liability of Principal fpr agent's torts
74
A useful insight into the "scope of employment" concept may be gained from the judge's classic distinction between these things.
The Distinction Between a "Detour" and a "Frolic"
75
The time an employee spends going to and from work or to and from meals is usually considered outside the scope of employment.
* If travel is part of the person's position, then travel time is normally considered within the scope fo employment unless there is a significant departure from the employer's business.
Employee Travel Time
76
The employer is charged with knowledge of any dangerous conditions discovered by an employee and pterinent to the employment situation.
Notice of Dangerous Conditions
77
Under the doctrine of respondeat superior, the employer can be liable for an employee's intentional torts that are committed within the course and scope of employment.
* An employer who knows or should know that an employee has a propensity for committing tortious acts is liable for the employee's act even if they ordinarily would not be considered within the scope of employment.
* May also be liable for permitting an employee to engage in reckless actions that can injure others.
Liability for Agent's intentional Torts
78
79
Generally, an employer is not liable for physical harm caused by a third person by the negligent act of an independent contractor in the performance of the contract.
* Exceptions: when unusually hazardous activities are involved. Strict liability is imposed on the employer-principal as a matter of law. Also, in some states, strict liability may be imposed by statute.
Liability for Independent Contractor Torts
80
An agent is liable for his or her own crimes. A principal or employer is not liable for an agent's crime even if the crome was committed within the scope of authority or employment, unless the principal participated by conspiricy or other action, in the course and scope of employment.
Liability for Agent's Crimes
81
* Lapse of time
* Purpose achieved
* Occurrence of a specific event
* Mutual agreement
* At the option of one party (recovation, if by principal; renunciation, if by agent.)
Termination of an Agency- Termination by Act of the Parties
82
Agency terminates automatically at the end of the stated time.
Lapse of Time
83
Agency terminates automatically on the completion of the purpose for which it was formed.
Purpose Achieved
84
Agency normally terminates automatically on the even't occurrence.
Purpose Achieved
85
Agency normally terminates automatically on the even't occurrence.
Occurrence of a Specific Event
86
Agency normally terminates when both parties consent to end the agency relationship.
Mutual Agreement
87
Either party normally has a right to terminate the agency relationship. Wrongful termination can lead to liability for breach of contract.
At the Option of One Party
88
Although both parties have the power to terminate an agency relationship, they may not always posses the right to do so. This can subject the canceling party to a suit for breach of contract.
Wrongful Termination
89
An angecy, created for the benefit of the agent, in which the agent has some legal right (interest) in the property that is the subject of the agency.
* The agent's position cannot be terminated until the agent's interest ends.
* Created for the agent's benefit rather than the principal's benefit.
Agency Coupled with Interest
90
No particular form is required for this to be effective. If the agent's authority is written, it normally must be revoked in writing. The principal can personally notify the agent, or the agent can learn of the termination through some other means.
* When terminated by act of the parties- principal's duty to inform any third parties who know of the existence of the agency. If the principal knows that a third party was dealt with the agent, they are expected to notify that person directly.
* Although agent's actualy authority ends, apparent authority continues until the third party recieves notice that such authority has been terminated.
Notice of Termination
91
* Death or insanity
* Impossibility
* Changed circumstances
* Bankruptcy
* War
Termination by Operation of Law
92
General rule is that the death of mental incompetence of either the principal or the agent automatically and immediately terminates an ordinary agency relationship. Knowledge of the death is not required.
Death or Insanity
93
When the specific subject matter of an angecy is destroyed or lost, the agency terminates. Also, when it is impossible for the agent to perform the agency lawfully because of a change in the law, the agency terminates.
Impossibility
94
When an event occurs that has such an unusual effect on the subject matter of the agency that the agent can reasonably infer that the principal will not want the agency to continue, the agency terminates.
Changed Circumstances
95
If either the principal or the agent petitions for bankruptcy, the agency is usually terminated. In certain circumstances, as when the agent's financial status is irrelevant to the purpose of the agency, the agency relationship may continue. Insolvency as distinguished by bankruptcy does not necessarily terminate the relationship.
Bankruptcy
96
When the principal's country and the agent's country are at war with each other, the agency is terminated. In this situation, the agency is automatically suspended or terminated because there is no way to enforce the legal rights and obligations of the parties.
War
