- A clip from a movie/TV show where one party acts as an agent for a principal. Explain the type and scope of authority (actual or apparent) of that agency. This does not have to be a complicated agency relationship. It can be as simple as one person asking someone else to do something for them, whether paid or unpaid for that service. Provide the link for the clip.
- Draw a diagram to illustrate the assignment/delegation in the clip and label each person involved using the correct legal terms.
- A print media article about an employer that an injured party has tried to hold liable for a tort committed by one of the employer’s employees.
2/20/21 1 BUSINESS LAW 1 FIN 280, SOUTHERN ILLINOIS UNIVERSITY PROFESSOR TRACY PROSSER MODULE 7 CHS. 32, 33, & 37 OF BUSINESS LAW: TEXT AND CASES, CLARKSON, MILLER & CROSS 1 MODULE 7 OBJECTIVES •Describe a fiduciary relationship. •Describe an agency relationship. • Explain how to differentiate between an employee and an independent contractor. • Explain and apply the concept of respondeat superior. •Describe the ways an agency relationship can be formed and the ways it can be terminated. • Explain an agent’s duties to the principal and a principal’s duties to an agent. 2 MODULE 7 OBJECTIVES • Explain an agent’s remedies against the principal and a principal’s remedies against an agent. • Explain the difference between an agent’s actual express and actual implied authority. • Explain when an agent has apparent authority. • Explain when an agent can bind a principal without authority. •Describe the three levels of principal disclosure. •Describe circumstances where an agent is be liable for a contract it made for a principal. 3 2/20/21 2 MODULE 7 OBJECTIVES •Describe circumstances where an agent is be liable for a contract it made for a principal. •Describe circumstances where a principal may not be liable for a contract an agent made for it. • Identify the hallmarks of a partnership. • Explain how a partnership can be created. • Identify the rights, duties, and liabilities of partners in a general partnership. • Explain the tax treatment of partnerships. 4 MODULE 7 OBJECTIVES •Describe what happens on dissociation and dissolution of a partnership. • Explain the main difference between a general partnership, an LLP, and an LP. 5 LECTURE 7.1: AGENCY GENERALLY 6 2/20/21 3 NOTETAKING TIPS ER = employer EE = employee ET = employment IC = independent contractor A = agent P = principal 7 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP Agency: a fiduciary relationship where one party, the agent, acts on behalf of another, the principal •Essential to conduct business operations • Includes: •Corporate officers and directors • Employees • Sometimes independent contractors 8 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP Fiduciary relationship: one party acts on behalf of and for the benefit of another Fiduciary duty: duty arising from the trust and confidence placed in a fiduciary by the party the fiduciary is acting for •To act in the principal’s interest in the matter 9 2/20/21 4 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP Certified Financial Planner Board of Standards, Codes and standards: The fiduciary obligation, https://www.youtube.com/watch?v=q4-M0CLW9s4 10 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP “The Fiduciary Rule” in the news. . . • Broadly interprets “investment advice fiduciary” • Vacated: Chamber of Commerce of U.S. v. U.S. Dep’t of Labor, 885 F.3d 360 (5th Cir. 2018), found DOL exceeded its regulatory authority •New rule package published for comment in July 2020; https://www.regulations.gov/document?D=EBSA-2020- 0005-0001 11 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP •Principal must manifest consent for agent to act on principal’s behalf subject to principal’s control •Agent must manifest consent to represent or act for principal subject to principal’s control 12 2/20/21 5 LECTURE 7.2: EMPLOYEES AND INDEPENDENT CONTRACTORS 13 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: EMPLOYER/EMPLOYEE An employee is considered an agent of the employer when dealing with third parties. •Employment relationship governed by common law and federal and state employment statutes • Employment laws do not apply to independent contractors 14 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: EMPLOYER/EMPLOYEE An independent contractor contracts with an employer to do work for the employer, but the employer does not control the independent contractor or the details of the performance • Is not an employee •May or may not be an agent of the employer 15 2/20/21 6 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: EMPLOYER/EMPLOYEE Consequences of whether worker is employee and independent contractor: • Taxes • Employment conditions and benefits • Employer liability •Copyright ownership 16 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: EMPLOYER/EMPLOYEE Distinguishing between employee and independent contractor, consider: 1. Degree of employer’s control of details 2. Type of business of employer and worker 3. Whether work usually done under employer’s direction or by a specialist without supervision 17 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: EMPLOYER/EMPLOYEE Distinguishing between employee and independent contractor, consider: 4. Who supplies tools at the workplace 5. How long is worker engaged to work 6. Time of payment 7. Degree of skill required for job 18 2/20/21 7 LECTURE 7.3: AGENCY FORMATION 19 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: FORMATION Agency relationships generally: •Require voluntary consent •Do not require consideration •Require principal to have contractual capacity •No requirement for agent •Can be created for any legal purpose 20 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: FORMATION Agency relationships are created by: •Agreement •Ratification •Estoppel •Operation of law 21 2/20/21 8 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: FORMATION Creation by agreement •Agreement that agent will act for principal and principal agrees to have agent act for it •Express or implied •Written or oral 22 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: FORMATION Creation by ratification • If agent acts without authority or outside scope of authority, principal may affirm the agent’s act •By words or action showing principal’s intent to affirm 23 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: FORMATION Creation by estoppel •Principal creates the appearance of agency where there really is none •Third party reasonably relies on that appearance 24 2/20/21 9 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: FORMATION Creation by Operation of law •No formal agency agreement •Family members purchasing necessaries •Necessary to act urgently for principal 25 LECTURE 7.4: RIGHTS AND DUTIES OF AGENTS AND PRINCIPALS 26 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP Agency is the fiduciary relationship that arises when one person (a “principal”) manifests assent to another person (an “agent”) that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents so to act. Restatement (Third) of Agency § 1.01 (2006) 27 2/20/21 10 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP P, an operatic tenor, employs A as a business manager with authority to book P's performances. P directs A to book P to perform a concert in a particular concert hall owned by T. A knows that the acoustic quality of T's concert hall has recently deteriorated in quality due to an error made in remodeling. Neither the error nor the deterioration is public knowledge, and A has no reason to believe P knows of it. A books P to perform in T's concert hall without telling P about the acoustic deterioration because A hopes to obtain employment with T. A has breached A's fiduciary duty to P, even though A carried out P's literal instructions. Restatement (Third) of Agency § 1.01, ill. 2 (2006) 28 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: DUTIES OF AGENT Duties of agent to principal: 1. Performance 2. Notification 3. Loyalty 4. Obedience 5. Accounting 29 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: DUTIES OF AGENT 1. Agent’s duty of performance: •To use reasonable diligence and skill in performing work •That of reasonable person in similar circumstances •Gratuitous agents must continue to perform 30 2/20/21 11 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: DUTIES OF AGENT 2. Agent’s duty of notification: •To notify principal of matters concerning the subject of the agency •Law presumes that principal knows what agent knows 31 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: DUTIES OF AGENT 3. Agent’s duty of loyalty: •To act solely for the benefit of the principal •To maintain confidentiality of knowledge acquired in agency relationship 32 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: DUTIES OF AGENT 4. Agent’s duty of obedience: •To follow lawful and clear instructions • If instructions unclear, must act reasonably and in good faith • If emergency and principal unavailable, agency may deviate 33 2/20/21 12 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: DUTIES OF AGENT 5. Agent’s duty of accounting: •To keep an accounting of property and funds received and paid out •To maintain separate account for principal’s funds without comingling funds 34 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: DUTIES OF PRINCIPAL Duties of principal to agent: 1. Compensation 2. Reimbursement/indemnification 3. Cooperation 4. Safe working conditions 35 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: DUTIES OF PRINCIPAL 1. Principal’s duty of compensation: •To pay the amount agreed upon •Unless agent is gratuitous, to pay the customary compensation for such services •To pay in a timely manner 36 2/20/21 13 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: DUTIES OF PRINCIPAL 2. Principal’s duty to reimburse and indemnify: •To repay money spent at principal’s direction •To repay expenses reasonably necessary for agent to perform agency duties •To pay for liabilities agent incurred in performing lawful, authorized agency duties 37 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: DUTIES OF PRINCIPAL 3. Principal’s duty of cooperation: •To assist agent in performing duties •To not prevent performance 38 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: DUTIES OF PRINCIPAL 4. Principal’s duty to provide safe working conditions: •To provide safe premises, equipment, conditions •To inspect work areas and warn employees 39 2/20/21 14 LECTURE 7.5: REMEDIES OF AGENTS AND PRINCIPALS 40 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: REMEDIES Agent’s remedies against principal: •Contract or tort remedies •Accounting and withhold performance •NOT specific performance 41 AGENCY FORMATION AND DUTIES: AGENCY RELATIONSHIP: REMEDIES Principal’s remedies against agent: •Contract or tort remedied •Constructive trust •Avoidance • Indemnification 42 2/20/21 15 LECTURE 7.6: SCOPE OF AUTHORITY 43 AGENCY LIABILITY AND TERMINATION: SCOPE OF AUTHORITY A principal is liable for an agent’s acts if the agent had authority to act on the principal’s behalf. •Actual authority: express or implied •Apparent authority •“No authority” exceptions 44 AGENCY LIABILITY AND TERMINATION: SCOPE OF AUTHORITY: ACTUAL AUTHORITY: EXPRESS Express actual authority •Stated in clear, direct, definite terms •Can be oral or written •Equal Dignity Rule: if contract must be in writing, agent’s authority must be too 45 2/20/21 16 AGENCY LIABILITY AND TERMINATION: SCOPE OF AUTHORITY: ACTUAL AUTHORITY: EXPRESS •Exceptions to equal dignity rule: •Corporation’s executive officers can conduct ordinary business without written authority •When agent is in presence of principal •When agent’s signature is a mere formality 46 AGENCY LIABILITY AND