Bài giảng Business Law - Chapter 35: The Agency Relationship

Learning Objectives Know how an agency relationship is created and terminated Distinguish employees from nonemployee agents Recognize when an agent risks breaching a fiduciary duty

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Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin8The Agency RelationshipThird-Party Relations of the Principal and the AgentAgency LawPARTThe Agency RelationshipPAETRHC35I’ve got an ego and all that, but I know I need help. So I go and hire the very best people.H. Ross Perot, EDS founderInc. magazine (Jan. 1989)Learning ObjectivesKnow how an agency relationship is created and terminatedDistinguish employees from nonemployee agentsRecognize when an agent risks breaching a fiduciary dutyAgency is a two-party relationship in which one party (agent) is authorized to act on behalf of and under the control of another party (principal)Anybody may be an agent or principal, but the agreement is voidable by minors and the mentally incapacitatedOverviewAn agent can bind his principal only when the agent has authority to do soTwo forms: actual or apparent authorityActual authority is express or impliedExpress authority is created by the principal’s actual words (written or oral)Example: “I want to hire you as my real estate agent to sell my house.”Agency AuthorityAgent has implied authority to do whatever it is reasonable to assume that the principal wanted the agent to do given principal’s statements and surrounding circumstancesExample: a person hired as general manager in a restaurant will have broad authority to run the business while a person hired as a cashier will have limited authorityImplied AuthorityApparent authority arises when principal’s conduct leads a third party to believe that an agent (who lacks actual authority) is authorized to act a certain way and the third party reasonably relies on the appearance (cloak) of authorityTo protect third parties, agency law allows agents to bind a principal on the basis of apparent authorityApparent AuthorityAn agency-based case may depend on whether a person who contracts with the principal is an employee (servant) or independent contractorNo clear distinction, but the “Reid” factors (listed in Eisenberg v. Advance Relocation & Storage, Inc.) aid in decision making: right to control physical details of the work, skill required, source of tools, location, schedule control, duration of relationship, payment method, benefits, tax treatment of hired party, uniqueness of workEmployee or Independent Contractor?Since agency is a fiduciary relationship of trust and confidence, an agent has a duty of loyalty to the principalAgent must (1) avoid conflicts of interest with the principal, (2) maintain confidentiality of information received from the principalThe duty of confidentiality survives agencyDuties of Agent to PrincipalConflicts of interest include self-dealing, competition with the principal, or acting for another partyAgents must obey the principal’s reasonable instructions for agency business, exercise the degree of care and skill standard for the job, promptly communicate to the principal matters reasonably relevant or material to the agency business, and duty to accountDuties of Agent to PrincipalA written agency contract normally states the duties the principal owes the agent, but law implies certain duties on the principal:To compensate the agentTo reimburse the agent for money spent in the principal’s serviceTo indemnify the agent for losses suffered in conducting the principal’s businessDuties of Principal to AgentTermination by act of the parties includes:At a time or event stated in the agreementWhen agency was created to achieve a special purpose and the purpose was achievedBy mutual agreement of the partiesAt the option of either partyTermination of AgencyTermination by operation of law includes:Serious breach of the agent’s duty of loyaltyPrincipal’s permanent loss of capacity or agent’s loss of capacity to perform agency businessChange in value of agency property or subject matter (including loss or destruction)Changes in law making the agency illegalChanged business conditions or outbreak of warTermination of AgencyAfter agency terminates, agent’s express and implied authority endsCaution: ex-agents may retain apparent authority that could bind a former principalPrincipals should reduce risk of liability for third parties relying on ex-agent’s apparent authority by actual or constructive notice to third parties about agency terminationEffect of Agency TerminationThought QuestionsHave you been an agent or a principal? Do you think the agency rules of liability are fair? What are the ethical issues involved in an agency relationship?
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