Book Opener

CHAPTERASSESSMENTSection 18.1 Agency Relationships● An agency relationship is one in which a personrepresents another person in some sort of businesstransaction with a third party. Agencyrelationships let us act through other people toaccomplish things that might be difficult orimpossible to do on our own. The party forwhom an agency acts is known as the principal.● A servant is a person whose conduct in theperformance of a task is subject to the control ofanother person, called the master. In contrast, anindependent contractor works for, but is notunder the control, of a proprietor. The only controlthat the proprietor has over the contractor is theright to specify a particular outcome. Determiningthe distinction between a servant and a contractoris essential to determining liability. When determiningif a party is a servant or contractor, thecourt will ask the following questions: (1) Doesthe hiring person supply the tools for the worker?(2) Is the worker paid by the hour? (3) Does thehiring person set the worker’s hours? (4) Is theworker employed only by the person responsiblefor hiring? (5) Is the business of the workerthe same as the business of the hiring person?(6) Does the worker lack authority to hire or fireother workers (7) Does the worker perform hisor her tasks in a highly supervised environment?and (8) Is very little skill required to perform theworker’s job? The more questions that require“yes” answers, the more likely it is that a masterservantrelationship exists.● A principal is generally bound to the terms of thecontract made by an agent unless the agent hasno authority to enter the contract. An independentcontractor would have no power to bind theproprietor to a contract unless expressly permittedto do so by the proprietor. This is true even ifthe contract benefits the proprietor or is needed●to carry out the independent contractor’sassigned task.The doctrine of respondeat superior, whichmeans let the master respond, makes a masterresponsible for the acts of the servant. Becausea master has the right to control the physicalconduct of a servant, the person who hires thetortfeasor is vicariously liable if he or she is in amaster-servant relationship. However, when thetort was committed, the worker must have beenperforming the task for which he or she was hired.Section 18.2 Creation and Types of Agents● Most agency relationships are created by agreement.These agreements are usually, but notalways, contracts. As a result, they follow therules of contracts.● A agency relationship may be created by operationof law if the circumstances are such that a partyis reasonably believed to be an agent by a thirdparty. This situation is known as agency byestoppel, or apparent authority.● A general agent is a person who has been giventhe authority to perform any duties within thescope of running a business. General agents havemore authority than special agents. A specialagent is employed to accomplish a specificpurpose or to do a particular job.● A subagent is an agent lawfully appointed byanother agent. If an agent has no power toappoint a subagent but does so anyway, he hasappointed an agent’s agent. If the principal doesnot want to honor the agreement made betweenthe agent and agent’s agent, the responsibility ofhonoring the agreement falls upon the agent’sshoulders. An unauthorized act is ratified if theprincipal, with full knowledge of the facts, acceptsthe benefit of that act. A principal who hiresmore than two agents creates a coagent situation.408 Unit 4: Being an Agent and Getting a Job