Chapter 029 - Agency Formation.pptVIP

Chapter 29 Agency Formation and Termination The Nature of Agency Agency relationships are formed by the mutual consent of a principal and an agent. Agency is the 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.” The Nature of Agency (continued) Agency Law – The large body of common law that governs agency. A mixture of contract law and tort law. 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. The Principal-Agent Relationship Persons Who Can Initiate an Agency Relationship Any person who has the capacity to contract can appoint an agent to act on his or her behalf. Persons who lack contractual capacity cannot appoint an agent. e.g., insane persons and minors Persons Who Can Initiate an Agency Relationship (continued) 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. Kinds of Employment Relationships Employer-Employee Relationship A relationship that results when an employer hires an employee to perform some form of physical service. An employee is not an agent unless he or she is specifically empowered to enter into contracts on the principal employer’s behalf. Principal-Agent Relationship An employer hires an employee and gives that employee authority to act and enter into contracts on his or her behalf. The extent of this authority is governed by any express agreement between the parties and implied from the circumstances of the agency. Principal-Independent Contractor Relationship Principals employ persons or businesses who are not employees to perform certain tasks on their behalf. These persons and businesses are called independent contractors. A principal can authorize an independent contractor to enter i