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MAN-3Erlan Bakiev, Ph. D.

Agency Formation and Duties

MAN-3Erlan Bakiev, Ph. D.

Agency Formation and Duties

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IntroductionIntroduction

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.

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]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.

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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Agency is a “fiduciary” relationship based on trust and confidence.

Distinguish Employee vs. Independent Contractor Relationships.

§ 1: Agency Relationships§ 1: Agency Relationships

EmployerEmployer

EmployeeEmployee IndependentContractorIndependentContractor

Creating an Agency Relationship

Creating an Agency Relationship

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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.

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.

Copyright © 2004 by Prentice-Hall. All rights

reserved.

Formation of the Agency Relationship

Formation of the Agency Relationship

Express Express AgencyAgency

Implied Implied AgencyAgency

Apparent Apparent AgencyAgency

Agency by Agency by RatificationRatification

Principal-Independent Contractor Relationship

Principal-Independent Contractor Relationship

The crucial factor in determining whether a person is an employee or an independent contractor is the degree of controldegree of control that the principal has over that person.

The crucial factor in determining whether a person is an employee or an independent contractor is the degree of controldegree of control that the principal has over that person.

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Kinds of Employment RelationshipsKinds of Employment Relationships

Type of RelationshipType of Relationship DescriptionDescription

Employer-EmployeeEmployer-Employee The employer has the right to control the physical conduct of The employer has the right to control the physical conduct of the employee.the employee.

Principal-AgentPrincipal-Agent The agent has the authority to act on behalf of the principal The agent has the authority to act on behalf of the principal as authorized by the principal and implied from the agency.as authorized by the principal and implied from the agency.An employee is often the agent of his employer.An employee is often the agent of his employer.

Principal-Independent Principal-Independent ContractorContractor

The principal has no control over the details of the The principal has no control over the details of the independent contractorindependent contractor’’s conduct.s conduct.An independent contractor is usually not an agent of the An independent contractor is usually not an agent of the principal.principal.

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Employer LiabilityEmployer LiabilityDetermining 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).

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

§2: Formation of the Agency Relationship

Consensual Agreement.No consideration required.Principal needs contractual capacity, Agent does

not.For any legal purpose.

Consensual Agreement.No consideration required.Principal needs contractual capacity, Agent does

not.For any legal purpose.

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Types of AgenciesTypes of Agencies

Agency by Agreement.Agency by Ratification.Agency by Estoppel. Agency by Operation of Law.

Necessaries for family. Emergency.

Agency by Agreement.Agency by Ratification.Agency by Estoppel. Agency by Operation of Law.

Necessaries for family. Emergency.

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Agency By AgreementAgency By Agreement

Formed through express consent (oral or written) or implied by conduct.

Formed through express consent (oral or written) or implied by conduct.

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Agency by RatificationAgency by Ratification

Principal either by act or by agreement ratifies conduct of a person who is not in fact an agent.

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 EstoppelAgency 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.

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 LawAgency 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.

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 Agent’s Duties to Principal

Performance: reasonable diligence and skill (special skills).

Notification to P.Loyalty (no conflict of interest). Obedience. Accounting.

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 AgentPrincipal’s Duties to Agent

Compensation (Express or Implied).Reimbursement and Indemnification.Cooperation.Provide safe working conditions.

Compensation (Express or Implied).Reimbursement and Indemnification.Cooperation.Provide safe working conditions.

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§ 4: Rights and Remedies of Agents and Principals

§ 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.

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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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

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

Rights and Remedies of Agents and Principals

Rights and Remedies of Agents and Principals

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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.”

“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.”