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BL-Chapter 29 - 1 CHAPTER 29 AGENCY FORMATION AND...

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CHAPTER 29 AGENCY FORMATION AND TERMINATION Agency Relationships •Agents/Agency- allows one person to act on behalf of another Ex. A lawyer who is hired by a client to act on his behalf Agency Law – Body of common law that governs agency. Contract law and tort law -Agency law has made certain rules that make principals, agents, and independent contractors liable to third persons for contracts and tortuous conduct Agency Formed by the mutual consent of principal and agent. Agency is a fiduciary relationship “which results from the manifestation of consent by one person to another that the other shall act in his behalf and subject to his control, and consent by the other so to act.” Principal – The party who employs another person to act on his or her behalf. Agent – The party who agrees to act on behalf of another. Agency- The principal agent relationship Principals and agents owe certain duties to each other and are liable to each other for breaching these duties Who Can Initiate Agency Relationship Any person who has the capacity to contract can appoint an agent to act on his or her behalf. 1
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Persons who lack contractual capacity cannot appoint an agent. E.g., insane persons and minors Court may appoint guardian who may act as agent of such persons. Purpose of Agency Relationship An agency can be created only to accomplish a lawful purpose. Agency contracts that are created for illegal purposes or are against public policy are void and unenforceable. E.g., contract to hire agent to commit crime. Kinds of Employment Relationships Principal-Agent Relationship Formed when an employer hires employee, giving employee authority to act and enter into contracts on his or her behalf. Extent of authority governed by any express agreement between the parties and implied from the circumstances of the agency. E.g., president of corporation has authority to enter into major contracts; assembly line supervisor has authority to enter contracts to buy supplies to keep line running. Employer-Employee Relationship Formed when an employer hires an employee to perform task or service/ physical service. Employee is not an agent unless he or she is specifically empowered to enter into contracts on the principal/employer’s behalf. 2
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E.g., assembly line worker may have no authority to enter into contracts. Principal-Independent Contractor Relationship Principals employ persons or businesses that are not employees to perform certain tasks. E.g., plumbers, architects, lawyers, CPAs. These people are referred to as independent contractors Professes ional Agent- and independent contractor who is a professional; ex. a lawyer Crucial factor in determining whether employee or independent contractor is degree of control that principal has over that person.
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