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Chapter 16

SMG LA 245 Chapter Notes - Chapter 16: Independent Contractor, W. M. Keck Observatory, High Standard Manufacturing Company

Course Code
SMG LA 245
David Randall

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LA245 - Chapter 15 Agency Law
Business Law - Professor Randall
-Creating an Agency Relationship
Someone (the agent) agrees to perform a task for, and under the control of, someone
else (the principal).
-To create an agency relationship, there must be:
-A principle and
-An agent
-Who mutually consent that the agent will act on behalf of the princi-
pal and
-Be subject to the principal’s control
-Thereby creating a fiduciary relationship.
3 Elements Make Up — Agency Relationship.
Consent: the principal must as the agent to do something, and the agent must agree.
Control: principals are liable for the acts of their agents because they exercise control
over the agents.
Fiduciary Relationship: a special relationship with high standard. Beneficiary places
special confidence in the fiduciary who in turn is obligated to act in good faith and can-
dor, putting his own needs second. Purpose: for one person to benefit another. Agents
have a fiduciary duty to their principals.
In some cases may be just fiduciary duty but no control. A trustee of a trust must act for
the benefit of the beneficiaries, but the beneficiaries have no right to control the trustee.
Therefore, a trustee is not an agent of the beneficiaries.
Elements Not Required For An Agency Relationship:
A Written Agreement: an agency agreement does not have to be in writing. An oral un-
derstanding is valid, except in one circumstance— the equal dignities rule: If an agent is
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empowered to enter into a contract that must be in writing, then the appointment of the
agent must also be written.
A Formal Agreement: need not formally agree that they have an agency relationship.
Consideration: need not meet all the standard of contract law. (valid even if the agent
is not paid)
Duties of Agents to Principals (4 elements):
Duty of Loyalty—
An agent has a fiduciary duty to act loyally for the principal’s benefit
in all matter connected with the agency relationship.
CASE: Otsuka v. Polo — Ralph Lauren Corporation
Outside BenefitsAn agent may not receive profits unless the
principal knows and approves.
Confidential Information—especially in fiduciary relationship; agents
can neither disclose nor use for their own benefit any confidential information they ac-
quire during their agency.This duty continues even after the agency relationship ends.
CASE: Abko Music, Inc.v. Harrisongs Music, Ltd.
Competition with the Principal—Agents are not allowed to compete
with their principal in any matter within the scope of the agency business.
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Conflict of Interest Between Two Principals—Unless otherwise
agreed, an agent may not act for two principals whose interest conflict.
Exam Strategy 1:
Secretly Dealing with the Principal— If a principal hires an agent to
arrange a transaction, the agent may not become a party to the transaction without the
principal’s permission.
Appropriate BehaviorAn agent may not engage in inappropriate
behavior that reflects badly on the principal. (This rule applies even to off-duty conduct.)
Other Duties of an Agent—
Duty to Obey InstructionsAn agent must obey her principal’s in-
structions unless the principal directs her to behave illegally or unethically.
Duty of CareAn agent has a duty to act with reasonable care. An
agent with special skills is held to a higher standard because she is expected to use
those skills. (not being paid make employee a gratuitous agent— held to a lower stan-
dard because he is doing his principal a favor, and as the old saying goes, you get what
you pay for— up to a point. Gratuitous agents are liable if they commit gross negli-
gence, but not ordinary negligence.)
Duty to Provide InformationAn agent has a duty to provide the
principal with all information in her possession that she has reason to believe the princi-
pal wants to know. She also had a duty to provide accurate information.
Exam Strategy 2:
Principal’s Remedies when the Agent Breaches a Duty (3 Potential Remedies):
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