Chapter 32 Flashcards
Agency
A relationship between two parties in which one party (the agent) agrees to represent for act for the other (the principal)
Principal
Has the right to control the agents conduct in matters entrusted to the agent
Fiduciary
A person having a duty created by his or her undertaking to act primarily for another’s benefit in matters connected with the undertaking.
- a relationship founded on trust and confidence
Laws that prohibit employment discrimination do not apply to
An independent contractor
Independent contractor
One who works for and receives payment from an employer but whose working conditions and methods are not controlled by the employer. An independent contractor is not an employee but may be an agent
- may or may not involve an agency relationship
Determination of employee status
- How much control does the employer exercise over details of the work?
- Is the worker engaged in an occupation distinct from that of the employer?
- Is the work done under the employers direction?
- Does the employer supply the tools?
- How long is the person employed?
- What is the method of payment- time period or completion of the job
- What degree of skill is required of the worker?
What is the most important factor to the IRS in determining employee status
The degree of control the business exercises over the worker
Does an agency agreement have to be in writing?
No and consideration is not required
4 ways an agency relationship can arise
- Agreement of the parties
- Ratification
- Estoppel
- Operation of law
Agency by estoppel
When the principal’s actions have created the appearance of an agency that does not in fact exist
- 3rd party’s reliance must be reasonable
- created by the principals conduct
By agreement
Formed through express consent (oral or written) or implied by conduct
By ratification
The principal either by act or agreement ratifies the conduct of a person who is not in fact an agent
By operation of law
The agency relationship is based on social or legal duty or formed in emergency situations when the agent is unable to contact the principal and failure to act outside the scope of the agents authority would cause the principal substantial loss
Agents duties to the principal
- Performance
- Notification
- Loyalty
- Obedience
- Accounting
Performance
- reasonable standard of care
- gratuitous agents (without payment) are not liable for breach of contract bc there is no contract
Notification
An agent is required to notify the principal of all matters concerning the agency
Loyalty
- maintain confidentiality
- actions must benefit the principal
Obedience
When acting on behalf of the principal an agent has to follow all lawful and clearly stated instructions
Accounting
The agent must keep and make available to the principal an account of all property and funds received and paid out on the principals behalf (unless agreed otherwise)
Principals duties to the agent
- Compensation
- Reimbursement and indemnification (compensate)
- Cooperation
- Safe working conditions
Exclusive agency
An agency in which a principal grants an agent an exclusive territory and does not allow another agent to compete in that territory
Agents rights and remedies against the principal
- normal contract and tort remedies
- can withhold further performance and demand the principal give an accounting
- when the relationship is not contractual the agent has no right to specific performance. They can recover for past services and future damages but cannot force the principal to allow them to continue acting as an agent
Principals rights and remedies against the agent
- Constructive trust- if an agent secretly retains benefits or profits that belong to a principal (bad)
- Avoidance - the right to avoid a contract w/ this agent if they breach
- Indemnification - if a third party sues the principal for the agents actions, they can collect damages from the agent
