Book Opener

In the early developmentof agency law,the principal was alsoknown as the “constituent”and the “chief.”for Pittsburgh, the collection agency is an agent. However,because AIC may decide on its own how to make that collection,AIC is also an independent contractor.Why Are These DistinctionsImportant?Finding out the true nature of a relationship can be crucial in determiningliability. Recall that the labels themselves—principal-agent,master-servant, and proprietor-independent—are not controlling. Callinga servant an independent contractor does not change the relationship ifthe master still controls the servant’s conduct. Figuring out the truenature of the relationship can be crucial in determining liability.Contractual LiabilityA principal is generally bound to the terms of a contract made by anagent unless the agent has no authority to enter the contract. Furthermore,unless a servant is also an agent, he or she does not have the authorityto negotiate contracts for the master. Also, an independentcontractor would have no power to bind the proprietor to a contract, unlessexpressly permitted to do so. This rule applies even if the contractbenefits the proprietor or is needed to carry out the independent contractor’sassigned task.Example 5. In Example 3, Ronnie Hampton hired Mike Crawfordto care for his lawn. Mike decides he should reseed a portionof the lawn. He negotiates a deal with Taylor’s Treehouse topurchase several bags of grass seed on credit. He includes thecost of the seed in his bill when Ronnie pays him. Later, however,Mike fails to pay the money he owes to Taylor’s. The supplystore cannot seek payment from Ronnie, even though Mike purchasedthe seed for Ronnie’s lawn. The contract did not involvethe homeowner.Keep in mind, however, that it is possible for an independent contractorto also be an agent. This situation is illustrated in Example 4,where Pittsburgh Petroleum hired AIC to collect the overdue debt fromTransunion. Another example of an independent contractor who worksas an agent is a real estate broker.Example 6. Penelope Petrovsky, who lived in San Diego, founda new job at an advertising agency in Sacramento and had to startimmediately. Because she needed to sell her San Diego condominiumquickly, Penelope hired the Intra-California Agency(ICA) to negotiate the sale. The only direction she gave was to396 Unit 4: Being an Agent and Getting a Job