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Agency - Agency CHAPTER OUTLINE I AGENCY RELATIONSHIPS In...

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Agency C HAPTER  O UTLINE I. AGENCY RELATIONSHIPS In an agency relationship,  the parties agree that the agent  will act on behalf and  instead  of the principal  in  negotiating and  transacting business with third  persons. A. E MPLOYER -E MPLOYEE  R ELATIONSHIPS Normally,  all  employees  who   deal  with   third   parties  are  deemed  to  be  agents.  Statutes  covering  workers’ compensation  and  so on apply only to employer-employee relationships. B. E MPLOYER –I NDEPENDENT  C ONTRACTOR  R ELATIONSHIPS Those who  hire independent  contractors have no control over the de tails of their physical performance.  Independent  contractors can be agents. C. D ETERMINING  E MPLOYEE  S TATUS The greater  an  employer’s control over  the  work,  the  more  likely it is that  the  worker  is an  employee.  Another  key factor is whether  the employer  withholds  taxes from payments  to the worker  and  pays un - employment  and  Social Security taxes covering the worker. II. FORMATION  OF THE AGENCY RELATIONSHIP Consideration  is not required.  A principal  must  have  capacity  to contract, but  anyone  can be an agent. An   agency can be created  for any legal purpose. A. A GENCY   BY  A GREEMENT Normally, an  agency  must  be based  on an  agreement  that  the agent  will act for the principal. Such an  agreement  can be an express written  contract or can be implied  by conduct. B. A GENCY   BY  R ATIFICATION A person  who  is not an agent  (or who  is an agent  acting  outside  the scope of his or her authority) may   make  a contract on behalf of another  (a principal). If the principal  approves  or affirms  that  contract by  word  or by action, an agency relationship  is created  by ratification. C. A GENCY   BY  E STOPPEL 1. The Principal’s Actions When  a principal  causes  a third  person  to believe  that  another  person  is his or her  agent,  and  the  third  person  deals with the supposed  agent, the principal is estopped  to deny the agency relation. 2. The Third Party’s Reasonable Belief The third  person  must  prove  that he or she reasonably  believed  that an agency relationship  existed  and  that  the agent  had  authority—that  an ordinary, prudent  person  familiar with  business  practice  and  custom  would  have been justified in concluding  that the agent had  authority. D. A GENCY   BY  O PERATION   OF  L AW A court may find an agency relationship  in the absence of a formal agree ment. This may occur in family  relationships  or in an emergency, when  the agent’s failure to act outside  the scope of his or her author ity  would  cause the principal substantial loss.
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