Question

1. Explain the different between the 3 types of agency relationships; (1) a principal-agent relationship; (2) an employer-employee relationship; (3) a principal-independent contractor relationship. Provide an example of each one.
2. Name the 4 ways agency can be terminated and provide an example of each one.

Answer 1

solution

1 principle agent relation ship

Principal: The person or entity on whose behalf and subject to whose control an agent acts. For example, your boss at work

.Agent: A person who agrees to act on behalf of and instead of his or her principal, subject to the principal's control. A good example would be an insurance agent.Generally, in a business relationship, the principal and agent relationship requires being either an employee/employer relationship or an independent contractor.

Fiduciary: A person who undertakes to act on behalf ofand primarily for the benefit of another. For example, a trustee for a trust.

● Fiduciary Duty: A duty arising from the trust and confidence placed in a fiduciary by those on whose behalf and for whose benefit he or she acts.Person:a natural person, corporation, partnership or other recognized entity

(2 employer employee relationship)

CONTRAST: Principal/Agent: Agent works for the benefit of the principal and under its control. Agent has right to represent the principal and make contracts with 3^rd parties on behalf of principal. HUGE responsibility and duty! More on this late

Employee: One who works for, and receives payment from, an employer, whose working conditions and methods are controlled by the employer, and for whose acts and omissions occurring in the scope of employment the employer is liable. A classic agency relationship!

Now, lets compare an employee to an

3

Independent Contractor: One who does work for, and receives payment from, an employer, but whose working conditions and methods are not controlled by the employer, and for whose acts and omissions the employer is not liable. For example, a CPA is paid by a client whom the CPA audits, but the CPA is free to review the records in any fashion they wish.Also, the CPA would be liable to 3^rd parties relying on the CPAs work (but paid by the audited client!).

Whether a worker is an employee or an independent contractor may be determined by: (recall the principal is the employer)

(1)  How much direction and control the employer exercises over the details of the person's work;

(2 Whether the person is engaged in an occupation or business distinct from that of the employer;

(3)Who supplies tools used at the place of work;

(4)          What degree of skill is required of the worker; and

(5)          the Duration of employment and method of payment.

This often becomes important for various tax items, such as W-2 or 1099 income reporting. Usually people like to say an employee is an independent contractor so they dont have to pay Social security taxes on those payments (actually wages).

SIDEBAR: When you hit the real world, BE VERY CAREFUL IF YOU DECIDE TO BE AN INDEPENDENT CONTRACTOR, after all, you then have to come up with the full social security load (12.4%), Medicare, and income tax! This can be devastating particularly when you no longer have the funds!!! (after the $$$ is long since spent)

4way agency to can be terminated and orovide an anxample of each one

Agency by Agreement/Contract: An agency relationship based on an express or implied agreement that the agent will act for the principal. Obviously the most common form. In some cases, there werent enough required elements to form a contract, and thus only an agreement.

Agency by Ratification: A confirmation by the principal of an act or contract performed or entered into on his or her behalf by another, who assumed, without authority, to act as his or her agent. May be oral or written, usually cannot be rescinded, is retroactively applied back to original date the alleged contract was made.

Agency by Estoppel: If a principal (NOT THE AGENT) holds out to a third party that another is authorized to act on the principal's behalf, and the third party deals with the other person accordingly, the principal may not later deny that the other was the principal's agent for purposes of dealing with that third party. RARE!

Agency by Operation of Law: Agencies recognized by courts -- e.g., family relationships, emergency situations -- in the absence of any formal agreement, confirmation, or act or omission by the principal that implied the agent's authority. Usually deals with necessities.

�Note that marriage is not necessarily considered an agency relationship solely due to the mere fact the couple is *married*. Recall an agency relationship results from manifestation of assent and direction from one to another (dont laugh, married folks!)