blaw5 ch29

Copyright © 2004 by Prentice-Hall. All rights reserved.

PowerPoint Slides to AccompanyPowerPoint Slides to AccompanyBUSINESS LAWBUSINESS LAW

E-Commerce and Digital Law E-Commerce and Digital Law International Law and EthicsInternational Law and Ethics

55thth Edition Editionby Henry R. Cheesemanby Henry R. Cheeseman

Slides developed by

Les Wiletzky

Wiletzky and Associates, Puyallup, WA

Chapter 29Agency Formation and Termination

Chapter 29Agency Formation and Termination

Copyright © 2004 by Prentice-Hall. All rights reserved. 29 - 2

The Nature of AgencyThe Nature of Agency

Agency relationships are formed by the Agency relationships are formed by the mutual consent of a mutual consent of a principalprincipal and an and an agentagent..

AgencyAgency is the is the fiduciary relationshipfiduciary relationship “which “which results from the manifestation of consent by results from the manifestation of consent by one person to another that the other shall act one person to another that the other shall act in his behalf and subject to his control, and in his behalf and subject to his control, and consent by the other so to act.”consent by the other so to act.”


The Nature of Agency The Nature of Agency (continued)(continued)

Agency Law –Agency Law – The large body of common The large body of common law that governs agency.law that governs agency. A mixture of contract law and tort law.A mixture of contract law and tort law.

Principal –Principal – The party who employs another The party who employs another person to act on his or her behalf.person to act on his or her behalf.

Agent –Agent – The party who agrees to act on The party who agrees to act on behalf of another.behalf of another.


The Principal-Agent RelationshipThe Principal-Agent Relationship

PrincipalPrincipal

AgentAgent Third PartyThird Party

Agency Agency ContractContract

Contract with third Contract with third party on behalf of party on behalf of

principalprincipal

Principal’s Principal’s obligation to obligation to perform the perform the contractcontract


Persons Who Can Initiate an Agency Persons Who Can Initiate an Agency RelationshipRelationship Any person who has the capacity to contract Any person who has the capacity to contract

can appoint an agent to act on his or her can appoint an agent to act on his or her behalf.behalf.

Persons who lack Persons who lack contractual capacitycontractual capacity cannot appoint an agent.cannot appoint an agent. e.g., insane persons and minorse.g., insane persons and minors


Persons Who Can Initiate an Agency Persons Who Can Initiate an Agency Relationship Relationship (continued)(continued)

An agency can be created only to An agency can be created only to accomplish a lawful purpose.accomplish a lawful purpose.

Agency contracts that are created for illegal Agency contracts that are created for illegal purposes or are against public policy are void purposes or are against public policy are void and unenforceable.and unenforceable.


Kinds of Employment RelationshipsKinds of Employment Relationships

Employer-Employee Employer-Employee RelationshipRelationship

Principal-Agent Principal-Agent RelationshipRelationship

Principal-Independent Principal-Independent Contractor RelationshipContractor Relationship


Employer-Employee RelationshipEmployer-Employee Relationship

A relationship that results when an employer A relationship that results when an employer hires an employee to perform some form of hires an employee to perform some form of physical service.physical service.

An employee is not an agent unless he or An employee is not an agent unless he or she is specifically empowered to enter into she is specifically empowered to enter into contracts on the principal employer’s behalf.contracts on the principal employer’s behalf.


Principal-Agent RelationshipPrincipal-Agent Relationship

An employer hires an employee and gives An employer hires an employee and gives that employee authority to act and enter into that employee authority to act and enter into contracts on his or her behalf.contracts on his or her behalf.

The extent of this authority is governed by The extent of this authority is governed by any express agreement between the parties any express agreement between the parties and implied from the circumstances of the and implied from the circumstances of the agency.agency.


Principal-Independent Contractor Principal-Independent Contractor RelationshipRelationship Principals employ persons or businesses Principals employ persons or businesses

who are not employees to perform certain who are not employees to perform certain tasks on their behalf.tasks on their behalf. These persons and businesses are called These persons and businesses are called

independent contractorsindependent contractors.. A principal can authorize an independent A principal can authorize an independent

contractor to enter into contracts.contractor to enter into contracts. Principals are bound by the authorized Principals are bound by the authorized

contracts of their independent contractors.contracts of their independent contractors.


Principal-Independent Contractor Principal-Independent Contractor Relationship Relationship (continued)(continued)

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


Employment at WillEmployment at Will

At-Will Employees –At-Will Employees – Employees who do not Employees who do not have an employment contract.have an employment contract. Under common law, an at-will employee Under common law, an at-will employee

could be discharged by an employer at any could be discharged by an employer at any time for any reason.time for any reason.

Exceptions to the at-will doctrine:Exceptions to the at-will doctrine: Statutory ExceptionStatutory Exception Contract ExceptionContract Exception Public Policy ExceptionPublic Policy Exception


Summary: Kinds of Employment RelationshipsSummary: Kinds 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 contractor’s conduct.independent contractor’s conduct.An independent contractor is usually not an agent of the An independent contractor is usually not an agent of the principal.principal.


Formation of the Agency RelationshipFormation of the Agency Relationship

Express Express AgencyAgency

Implied Implied AgencyAgency

Apparent Apparent AgencyAgency

Agency by Agency by RatificationRatification


Express AgencyExpress Agency

An agency that occurs when a principal and An agency that occurs when a principal and an agent expressly agree to enter into an an agent expressly agree to enter into an agency agreement with each other.agency agreement with each other. Exclusive agency contractExclusive agency contract Power of attorneyPower of attorney

Express agency contracts can be either oral Express agency contracts can be either oral or written unless the Statute of Frauds or written unless the Statute of Frauds stipulates that they must be written.stipulates that they must be written.


Implied AgencyImplied Agency

An agency that occurs when a principal and An agency that occurs when a principal and an agent do not expressly create an agency.an agent do not expressly create an agency.

The agency is implied from the conduct of The agency is implied from the conduct of the parties.the parties.

The extent of the agent’s authority is The extent of the agent’s authority is determined from the particular facts and determined from the particular facts and circumstances of the particular situation.circumstances of the particular situation. Incidental authorityIncidental authority


Apparent AgencyApparent Agency

Agency that arises when a principal creates Agency that arises when a principal creates the appearance of an agency that in actuality the appearance of an agency that in actuality does not exist.does not exist.

When an apparent agency is established, the When an apparent agency is established, the principal is principal is estoppedestopped from denying the from denying the agency relationship.agency relationship.

It is the principal’s actions that create an It is the principal’s actions that create an apparent agency.apparent agency.


Agency by RatificationAgency by Ratification

An agency that occurs when:An agency that occurs when:

1.1. A person misrepresents himself or herself A person misrepresents himself or herself as another’s agent when in fact he or she is as another’s agent when in fact he or she is not, andnot, and

2.2. The purported principal ratifies (accepts) The purported principal ratifies (accepts) the unauthorized act.the unauthorized act.


Summary: Formation of Agency Relationships Summary: Formation of Agency Relationships (1 of 2)(1 of 2)

Type of AgencyType of Agency DefinitionDefinition Enforcement of the ContractEnforcement of the Contract

ExpressExpress Authority is expressly given to Authority is expressly given to the agent by the principal.the agent by the principal.

Principal and third party are Principal and third party are bound to the contract.bound to the contract.

ImpliedImplied Authority is implied from the Authority is implied from the conduct of the parties, conduct of the parties, custom and usage of trade, custom and usage of trade, or act incidental to carrying or act incidental to carrying out the agent’s duties.out the agent’s duties.

Principal and third party acts are Principal and third party acts are bound to the contract.bound to the contract.


Summary: Formation of Agency Relationships Summary: Formation of Agency Relationships (2 of 2)(2 of 2)

Type of AgencyType of Agency DefinitionDefinition Enforcement of the ContractEnforcement of the Contract

ApparentApparent Authority created when the Authority created when the principal leads a third party principal leads a third party into believing that the agent into believing that the agent has authority.has authority.

Principal and third party are Principal and third party are bound to the contract.bound to the contract.

By RatificationBy Ratification Acts of the agent committed Acts of the agent committed outside the scope of his outside the scope of his authority.authority.

Principal and third party are not Principal and third party are not bound to the contract unless the bound to the contract unless the principal ratifies the contract.principal ratifies the contract.


Termination of an Agency and Employment Termination of an Agency and Employment ContractContract An agency contract is similar to other An agency contract is similar to other

contracts in that it can be terminated by:contracts in that it can be terminated by: Acts of the partiesActs of the parties, or, or Operation of lawOperation of law

Once an agency relationship is terminated, Once an agency relationship is terminated, the agent can no longer represent the the agent can no longer represent the principal or bind the principal to contracts.principal or bind the principal to contracts.


Termination by Acts of the PartiesTermination by Acts of the Parties

An agency may be terminated by the An agency may be terminated by the following acts of the parties:following acts of the parties:

1.1. Mutual agreementMutual agreement

2.2. Lapse of timeLapse of time

3.3. Purpose achievedPurpose achieved

4.4. Occurrence of a specified eventOccurrence of a specified event


Termination by Operation of LawTermination by Operation of Law

An agency is terminated by operation of An agency is terminated by operation of law, including:law, including:

1.1. Death of the principal or agentDeath of the principal or agent2.2. Insanity of the principal or agentInsanity of the principal or agent3.3. Bankruptcy of the principalBankruptcy of the principal4.4. Impossibility of performanceImpossibility of performance5.5. Changed circumstancesChanged circumstances6.6. War between the principal’s and agent’s War between the principal’s and agent’s

countriescountries


Irrevocable AgencyIrrevocable Agency

An agency coupled with an interest:An agency coupled with an interest: Special type of agency relationshipSpecial type of agency relationship This type of agency is irrevocable by the This type of agency is irrevocable by the

principalprincipal Not terminated by the death or incapacity of Not terminated by the death or incapacity of

either the principal or the agenteither the principal or the agent Terminates only when the agent’s obligations Terminates only when the agent’s obligations

are performedare performed


Wrongful Termination of an Agency or Wrongful Termination of an Agency or Employment ContractEmployment Contract The termination of an agency contract in The termination of an agency contract in

violation of the terms of the agency contract.violation of the terms of the agency contract. The nonbreaching party may recover The nonbreaching party may recover

damages from the breaching party.damages from the breaching party. The distinction between the The distinction between the powerpower and the and the

rightright to terminate an agency is critical.to terminate an agency is critical.

blaw5 ch29

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