PowerPoint Slides to accompany
The Legal Environment of Business
and Online Commerce 4E,
by Henry R. Cheeseman
Chapter 13
Agency Law
Prentice Hall © 2005
1
Nature of Agency

Agency relationships are formed by the
mutual consent of a principal and an agent

Principal


Agent


The party who employs another person to act on his or
her behalf
The party who agrees to act on behalf of another
Agency

The principal-agent relationship
Prentice Hall © 2005
2
Employment Relationships

Employer-employee


Principal-agent


A relationship that results when an employer hires an
employee to perform some form of physical service
A relationship that results when an employer hires an
employee and gives that employee authority to act and
enter into contracts on his or her behalf
Principal-independent contractor

A relationship that results when a person or business that
is not an employee is employed by a principal to perform a
certain task on his or her behalf
Prentice Hall © 2005
3
Forming the Agency Relationship

Express agency


An agency that occurs when a principal and an
agent expressly agree to enter into an agency
agreement with each other
Implied agency

An agency that occurs when a principal and an
agent do not expressly create an agency, but it is
inferred from the conduct of the parties
Prentice Hall © 2005
4
Forming the Agency Relationship

Apparent agency


Agency that arises when a principal creates the
appearance of an agency that in actuality does not
exist
Agency by ratification

Agency that occurs when


A person misrepresents himself or herself as another’s
agent when in fact he or she is not
The purported principal ratifies the unauthorized act
Prentice Hall © 2005
5
Duties of Agents

Agent’s duties





Duty
Duty
Duty
Duty
Duty
of
of
of
of
of
performance
notification
loyalty
obedience
accountability
Prentice Hall © 2005
6
Duties of Principals

Principal’s duties




Duty
Duty
Duty
Duty
of compensation
of reimbursement and indemnification
of cooperation
to provide safe working conditions
Prentice Hall © 2005
7
Contract Liability of Principals and Agents to Third Parties
Fully disclosed agency
Principal is liable
Agent is not liable
unless the agent acts as
a principal or
guarantees the
performance of the
contract
Partially disclosed
agency
Principal is liable
Agent is liable unless
the third party relieves
the agent’s liability
Undisclosed agency
Principal is liable
Agent is liable
Nonexistent agency
Principal is not liable
unless the principal
ratifies the contract
Agent is liable for
breaching the implied
warranty of authority
Prentice Hall © 2005
8
Tort Liability of Principals and Agents to Third Parties
Misrepresentation by
agent
Agent is liable
Principal is liable for the
intentional and innocent
misrepresentation made
by an agent acting
within the scope of his
or her authority
Negligence by agent
Agent is liable
Principal is liable under
the doctrine of
respondeat superior if
the agent’s negligent act
was committed within
his scope of employment
Intentional tort by agent
Agent is liable
Principal is liable under
the motivation test
and/or work-related test
Prentice Hall © 2005
9
Frolic and Detour


When an agent does
something during
the course of his or
her employment to
further his or her
own interests rather
than the principal’s
Principal is generally
relieved of liability
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10
“Coming and Going” Rule

A principal is generally not liable for
injuries caused by its agents and
employees while they are on their way
to or from work
Prentice Hall © 2005
11
Dual-Purpose Mission

An errand or other act that a principal
requests of an agent while the agent is
on his or her own personal business
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12
Liability for Independent Contractor’s Torts

A principal is generally not liable for the
torts of its independent contractors,
with the following exceptions


Special risks
Negligence in the selection of an
independent contractor
Prentice Hall © 2005
13
Termination of an Agency by Acts of the Parties




Mutual agreement
Lapse of time
Purpose achieved
Occurrence of a specified event
Prentice Hall © 2005
14
Termination of an Agency by Operation of Law






Death of the principal or agent
Insanity of the principal or agent
Bankruptcy of the principal
Impossibility of performance
Change in circumstances
War between the principal’s and the agent’s
countries
Prentice Hall © 2005
15
Irrevocable Agency


An agency coupled with an interest is a
special type of agency relationship that
is created by the agent’s benefits
It is irrevocable by the principal
Prentice Hall © 2005
16
Wrongful Termination of an Agency Contract


Wrongful termination is the termination of an
agency contract in violation of the terms of
the agency contract
The nonbreaching party may recover
damages from the breaching party
Prentice Hall © 2005
17