Section 18.1

1. Section 18.1

2. Chapter Creation of an Agency 18 Section 18.1 Agency Relationships Section 18.2 Creation and Types of Agents

3. What You’ll Learn • How to explain the nature of an agency relationship (p. 392) • How to distinguish between a servant and an independent contractor (p. 394)

4. What You’ll Learn • How to explain the nature of contract liability (p. 396) • How to explain the legal doctrine of respondeat superior in relation to tort liability (p. 397)

5. Why It’s Important Identifying the nature of an agency relationship will help you know your rights and duties in such a situation.

6. Why It’s Important Understanding the doctrine of respondeat superior will help you protect yourself against tort liability in a variety of situations.

7. Legal Terms • agency (p. 392) • agent (p. 392) • principal (p. 392) • master (p. 394)

8. Legal Terms • servant (p. 394) • independent contractor (p. 394) • respondeat superior (p. 397)

9. Section Outline Agency and Similar Relationships Principal-Agent Relationship Master-Servant Relationship Proprietor-Independent Contractor Relationship

10. Section Outline Why Are These Distinctions Important? Contractual Liability Tort Liability

11. Pre-Learning Question What is an agency relationship?

12. Agency and Similar Relationships An agency relationship lets us act through other people to accomplish tasks that might be difficult or impossible to do on our own.

13. Agency and Similar Relationships The term agency describes a relationship in which one person, called an agent, represents another person, called a principal, in some sort of business transaction with a third party.

14. 18.1 Principal-Agent Relationship

15. Principal-Agent Relationship The principal-agent relationship is a true agency relationship. Legally, we distinguish an agent from other types of representatives by noting that the agent has the power to transact business for the principal.

16. Master-Servant Relationship A master is a person who has the right to control the conduct of another who is performing a task for the benefit of the master.

17. Master-Servant Relationship A servant is a person whose conduct in the performance of a task is subject to the control of another.

18. Proprietor-Independent Contractor An independent contractor works for but is not under the control of a proprietor.

19. Proprietor-Independent Contractor The proprietor is a person who chooses to have someone perform a task on his or her behalf but has no control over the way that task is carried out.

20. True or False • An agent is a person who has the right to control the conduct of another who performs a task for the agent’s benefit.

21. A principal is someone represented by an agent. • An independent contractor works for but is not under the control of a proprietor.

22. A proprietor is someone who hires a servant.

23. ANSWER • False • True • True • False

24. Pre-Learning Question Why is the true nature of the business relationship important?

25. Why Are These Distinctions Important? Finding out the true nature of a relationship can be crucial in determining liability.

26. Contractual Liability A principal is generally bound to the terms of a contract made by an agent unless the agent has no authority to enter the contract.

27. Contractual Liability Unless a servant is also an agent, he or she has no authority to negotiate contracts for the master.

28. Contractual Liability Likewise, a contractor has no power to bind the proprietor to a contract, unless expressly permitted to do so.

29. Tort Liability All people are responsible for their own tortious conduct. Sometimes, however, the person who hired the tortfeasor may also be held liable.

30. Tort Liability This situation is known as vicarious liability, and it is founded on the principle of respondeat superior, or “let the master respond”.

31. Tort Liability Typically, respondeat superior applies to master-servant relationships because the master has the right to control the physical conduct of the servant. In contrast, a proprietor usually doesn’t have that right with an independent contractor.

32. 18.1 Respondeat Superior Was servant acting within scope of authority or course of employment?

33. Tort Liability The court will ask many questions to determine whether there is a master-servant or proprietor-independent contractor a relationship in order to determine tort liability.

34. Questions the Court Asks • Does the hiring person supply the tools for the worker? • Does the hiring person set the worker’s hours?

35. Questions the Court Asks • Is the worker employed by the person responsible for the hiring? • Is the business of the worker the same as the business of the hiring person?

36. Questions the Court Asks • Does the worker lack authority to hire or fire other workers? • Does the worker perform his or her tasks in a highly supervised environment?

37. Questions the Court Asks • Is very little skill required to perform the worker’s job?

38. Questions the Court Asks The more questions that require “yes” answers, the more likely it is that a master-servant relationship exists, and the master could be liable for the servant’s tortious conduct.

39. Tort Liability A master may escape vicarious liability, if the servant was not acting within the scope of employment. When the tort was committed, the worker must have been performing the task for which he or she was hired.

40. Section 18.1Assessment Reviewing What You Learned • What is an agency relationship?

41. Section 18.1Assessment Reviewing What You Learned Answer The term agency describes a relationship in which one person, the agent, represents another person, the principal, in some sort of business transaction with a third party.

42. Section 18.1Assessment Reviewing What You Learned • What is the difference between a servant and an independent contractor?

43. Section 18.1Assessment Reviewing What You Learned Answer A master controls or has the right to control the activities of a servant. An independent contractor is not controlled by the proprietor who has hired that independent contractor.

44. Section 18.1Assessment Reviewing What You Learned • What is the nature of contract liability?

45. Section 18.1Assessment Reviewing What You Learned Answer When a principal appoints an agent to carry out business transactions that agent has the power to create contractual liability between the principal and a third party.

46. Section 18.1Assessment Reviewing What You Learned • What is the legal doctrine of respondeat superior?

47. Section 18.1Assessment Reviewing What You Learned Answer The legal doctrine of respondeat superior will extend tort liability from the servant (employee) to the master (employer).

48. Section 18.1Assessment Critical Thinking Activity Tort Law Why does the law permit an injured party to bring a tort law case against both an employee and his or her employer?

49. Section 18.1Assessment Critical Thinking Activity Answer Tort Law Because of the principle of respondeat superior. The master may be held liable for the tortious conduct of the servant if the servant was acting within the scope of authority or course of employment.

50. Section 18.1Assessment Legal Skills in Action Agency Your friend, Louis, has just hired Franco as his delivery driver. One afternoon while he is supposed to be making a delivery on the west side of town, Franco decides to take a 15-mile detour to the east side to pick up his dry cleaning.