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Unformatted text preview: 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...
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- Fall '08