Only $2.99/month

Terms in this set (179)

The law of agency is an area of commercial law dealing with a set of contractual, quasi-contractual and non-contractual fiduciary relationships that involve a person, called the agent, that is authorized to act on behalf of another (called the principal) to create legal relations with a third party.[1] Succinctly, it may be referred to as the equal relationship between a principal and an agent whereby the principal, expressly or implicitly, authorizes the agent to work under his or her control and on his or her behalf. The agent is, thus, required to negotiate on behalf of the principal or bring him or her and third parties into contractual relationship. This branch of law separates and regulates the relationships between:

agents and principals (internal relationship), known as the principal-agent relationship;

agents and the third parties with whom they deal on their principals' behalf (external relationship); and

principals and the third parties when the agents deal.

Actual authority can be of two kinds. Either the principal may have expressly conferred authority on the agent, or authority may be implied. Authority arises by consensual agreement, and whether it exists is a question of fact. An agent, as a general rule, is only entitled to indemnity from the principal if he or she has acted within the scope of her actual authority, and may be in breach of contract, and liable to a third party for breach of the implied warranty of authority. In tort, a claimant may not recover from the principal unless the agent is acting within the scope of employment.

Express actual authority means an agent has been expressly told he or she may act on behalf of a principal.

Implied actual authority, also called "usual authority", is authority an agent has by virtue of being reasonably necessary to carry out his express authority. As such, it can be inferred by virtue of a position held by an agent. For example, partners have authority to bind the other partners in the firm, their liability being joint and several, and in a corporation, all executives and senior employees with decision-making authority by virtue of their position have authority to bind the corporation.

Apparent Authority:
Apparent authority (also called "ostensible authority") exists where the principal's words or conduct would lead a reasonable person in the third party's position to believe that the agent was authorized to act, even if the principal and the purported agent had never discussed such a relationship. For example, where one person appoints a person to a position which carries with it agency-like powers, those who know of the appointment are entitled to assume that there is apparent authority to do the things ordinarily entrusted to one occupying such a position. If a principal creates the impression that an agent is authorized but there is no actual authority, third parties are protected so long as they have acted reasonably. This is sometimes termed "agency by estoppel" or the "doctrine of holding out", where the principal will be estopped from denying the grant of authority if third parties have changed their positions to their detriment in reliance on the representations made.

Liability of agent to third party:
If the agent has actual or apparent authority, the agent will not be liable for acts performed within the scope of such authority, so long as the relationship of the agency and the identity of the principal have been disclosed. When the agency is undisclosed or partially disclosed, however, both the agent and the principal are liable. Where the principal is not bound because the agent has no actual or apparent authority, the purported agent is liable to the third party for breach of the implied warranty of authority.

Liability of agent to principal:
If the agent has acted without actual authority, but the principal is nevertheless bound because the agent had apparent authority, the agent is liable to indemnify the principal for any resulting loss or damage.

Liability of principal to agent:
If the agent has acted within the scope of the actual authority given, the principal must indemnify the agent for payments made during the course of the relationship whether the expenditure was expressly authorized or merely necessary in promoting the principal's business.
In a Partnership, two or more people share ownership of a single business. Like proprietorships, the law does not distinguish between the business and its owners. The Partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out, or what steps will be taken to dissolve the partnership when needed; Yes, its hard to think about a "break-up" when the business is just getting started, but many partnerships split up at crisis times and unless there is a defined process, there will be even greater problems. They also must decide up front how much time and capital each will contribute, etc.

Advantages of a Partnership

• Partnerships are relatively easy to establish; however time should be invested in developing the partnership agreement.
• With more than one owner, the ability to raise funds may be increased.
• The profits from the business flow directly through to the partners' personal tax return.
• Prospective employees may be attracted to the business if given the incentive to become a partner.
• The business usually will benefit from partners who have complementary skills.

Disadvantages of a Partnership

• Partners are jointly and individually liable for the actions of the other partners.
• Profits must be shared with others.
• Since decisions are shared, disagreements can occur.
• Some employee benefits are not deductible from business income on tax returns.
• The partnership may have a limited life; it may end upon the withdrawal or death of a partner.

Types of Partnerships that should be considered:

1. General Partnership
Partners divide responsibility for management and liability, as well as the shares of profit or loss according to their internal agreement. Equal shares are assumed unless there is a written agreement that states differently.

2. Limited Partnership and Partnership with limited liability
"Limited" means that most of the partners have limited liability (to the extent of their investment) as well as limited input regarding management decision, which generally encourages investors for short term projects, or for investing in capital assets. This form of ownership is not often used for operating retail or service businesses. Forming a limited partnership is more complex and formal than that of a general partnership.

3. Joint Venture
Acts like a general partnership, but is clearly for a limited period of time or a single project. If the partners in a joint venture repeat the activity, they will be recognized as an ongoing partnership and will have to file as such, and distribute accumulated partnership assets upon dissolution of the entity.
A Corporation, chartered by the state in which it is headquartered, is considered by law to be a unique entity, separate and apart from those who own it. A Corporation can be taxed; it can be sued; it can enter into contractual agreements. The owners of a corporation are its shareholders. The shareholders elect a board of directors to oversee the major policies and decisions. The corporation has a life of its own and does not dissolve when ownership changes.

Advantages of a Corporation

• Shareholders have limited liability for the corporation's debts or judgments against the corporation.
• Generally, shareholders can only be held accountable for their investment in stock of the company. (Note however, that officers can be held personally liable for their actions, such as the failure to withhold and pay employment taxes.
• Corporations can raise additional funds through the sale of stock.
• A Corporation may deduct the cost of benefits it provides to officers and employees.
• Can elect S Corporation status if certain requirements are met. This election enables company to be taxed similar to a partnership.

Disadvantages of a Corporation

• The process of incorporation requires more time and money than other forms of organization.
• Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations.
• Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible from business income; thus this income can be taxed twice.

Subchapter S Corporation

A tax election only; this election enables the shareholder to treat the earnings and profits as distributions, and have them pass through directly to their personal tax return. The catch here is that the shareholder, if working for the company, and if there is a profit, must pay his/herself wages, and it must meet standards of "reasonable compensation". This can vary by geographical region as well as occupation, but the basic rule is to pay yourself what you would have to pay someone to do your job, as long as there is enough profit. If you do not do this, the IRS can reclassify all of the earnings and profit as wages, and you will be liable for all of the payroll taxes on the total amount.

Limited Liability Company (LLC)

The LLC is a relatively new type of hybrid business structure that is now permissible in most states. It is designed to provide limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. Formation is more complex and formal than that of a general partnership.

The owners are members, and the duration of the LLC is usually determined when the organization papers are filed. The time limit can be continued if desired by a vote of the members at the time of expiration. LLC's must not have more than two of the four characteristics that define corporations: Limited liability to the extent of assets; continuity of life; centralization of management; and free transferability of ownership interests.

Federal Tax Forms for LLC

Taxed as a partnership in most cases; corporation forms must be used if there are more than 2 of the 4 corporate characteristics, as described above.

In summary, deciding the form of ownership that best suits your business venture should be given careful consideration. Use your key advisors to assist you in the process.
Consistent incompetence. If an employee just isn't able to do a competent job, and you have given the employee a reasonable opportunity to succeed, then termination will often be seen as appropriate.
Violation of company policy. If you have established clear, legal, and consistent policies, and the employee obviously has violated them in a meaningful way, then termination is appropriate. Violation of antiharassment, discrimination, or confidentiality policies are particularly actionable.
Repeated unexcused absenteeism or tardiness. Your company depends on its employees to show up for work and perform their jobs. Continual absence or tardiness jeopardizes the ability of an employee to complete important tasks. If absenteeism or tardiness is continual and unexcused, then termination may be justified. Be careful to investigate the reason for the absences. If they're the result of a medical condition, you may need to accommodate that condition, or at least attempt to do so.
Physical violence. If an employee commits or threatens physical violence, you will want to fire him or her immediately. All employees are entitled to a safe work environment, and employers have a duty to take reasonable steps to provide for that.
Drugs and alcohol. Depending on the circumstances, being under the influence at the office may be grounds for immediate suspension or termination. Some companies now offer treatment and rehabilitation counseling as an alternative to immediate firing. Conditions caused by the use of prescribed drugs may also require a more tempered response.
Illegal acts. If you find the employee committing illegal acts, such as theft or embezzlement, immediate termination is justified. Before you fire the accused employee, however, make sure you know all the facts and have heard the employee's side of the story.
Falsified information. Sometimes employees lie on their employment applications or resumes (they list fake degrees or jobs they've never held). When you discover this, and the falsification appears deliberate and material, termination of the employee is usually warranted.

8) Employment at will
A mistake is an incorrect understanding by one or more parties to a contract and may be used as grounds to invalidate the agreement. Common law has identified three different types of mistake in contract: common mistake, mutual mistake, and unilateral mistake.

A common mistake occurs when both parties hold the same mistaken belief of the facts. This is demonstrated in the case of Bell v. Lever Brothers Ltd.,[48] which established that common mistake can only void a contract if the mistake of the subject-matter was sufficiently fundamental to render its identity different from what was contracted, making the performance of the contract impossible.

A mutual mistake occurs when both parties of a contract are mistaken as to the terms. Each believes they are contracting to something different. The court usually tries to uphold such a mistake if a reasonable interpretation of the terms can be found. However, a contract based on a mutual mistake in judgment does not cause the contract to be voidable by the party that is adversely affected. See Raffles v. Wichelhaus.[49]

A unilateral mistake occurs when only one party to a contract is mistaken as to the terms or subject-matter. The courts will uphold such a contract unless it was determined that the non-mistaken party was aware of the mistake and tried to take advantage of the mistake.[50] It is also possible for a contract to be void if there was a mistake in the identity of the contracting party. An example is in Lewis v. Avery[51] where Lord Denning MR held that the contract can only be avoided if the plaintiff can show that, at the time of agreement, the plaintiff believed the other party's identity was of vital importance. A mere mistaken belief as to the credibility of the other party is not sufficient.
Any person over the age of majority and of sound mind (having appropriate mental capacity) can draft his or her own will with or without the aid of a lawyer. (Estimates of the percent of Americans who write wills before they die range from 30 percent to 50 percent.[2]) Additional requirements may vary, depending on the jurisdiction, but generally include the following requirements:

The testator must clearly identify himself as the maker of the will, and that a will is being made; this is commonly called "publication" of the will, and is typically satisfied by the words "last will and testament" on the face of the document.

The testator should declare that he revokes all previous wills and codicils. Otherwise, a subsequent will revokes earlier wills and codicils only to the extent to which they are inconsistent. However, if a subsequent will is completely inconsistent with an earlier one, the earlier will is considered completely revoked by implication.

The testator may demonstrate that he has the capacity to dispose of his property ("sound mind"), and does so freely and willingly.

The testator must sign and date the will, usually in the presence of at least two disinterested witnesses (persons who are not beneficiaries). There may be extra witnesses, these are called "supernumerary" witnesses, if there is a question as to an interested-party conflict. Some jurisdictions, notably Pennsylvania, have long abolished any requirement for witnesses. In the United States, Louisiana requires both attestation by two witnesses as well as notarization by a notary public. "Holographic" or handwritten wills generally require no witnesses to be valid.

If witnesses are designated to receive property under the will they are witnesses to, this has the effect, in many jurisdictions, of either (i) disallowing them to receive under the will, or (ii) invalidating their status as a witness. In a growing number of states in the United States, however, an interested party is only an improper witness as to the clauses that benefit him or her (for instance, in Illinois).

The testator's signature must be placed at the end of the will. If this is not observed, any text following the signature will be ignored, or the entire will may be invalidated if what comes after the signature is so material that ignoring it would defeat the testator's intentions.

One or more beneficiaries (devisees, legatees) must generally be clearly stated in the text, but some jurisdictions allow a valid will that merely revokes a previous will, revokes a disposition in a previous will, or names an executor.
The U.S. Consumer Products Safety Commission is an independent federal agency whose main purpose is to reduce injuries to consumers. The Commission issues consumer product safety alerts, and may have helpful information relative to your claim.

The Occupational Safety and Health Administration (OSHA) publishes numerous regulations and pamphlets on workplace safety and health standards, the use of industrial substances, and safety in industrial and construction operations. See OSHA FAQs to learn more.

The Environmental Protection Agency, which has the authority for air, water and pesticide standards, issues many publications on such topics. See Key Federal Environmental Laws to learn more.

The U.S. Food and Drug Administration establishes the standards for food, drugs, medical devices and cosmetics, and also has information on drug ingredients and food and drug manufacturing methods. See Food Recalls and Why Drugs Get Pulled from the Market to learn more.

The National Highway Traffic Safety Administration develops and issues safety standards for all new cars, conducts research on accident prevention, investigates motor vehicle defects and enforces notification of defects to owners of record. Numerous publications are produced by the Administration for consumers and their lawyers. See Car Safety Recalls to learn more.

The Federal Highway Administration is concerned with improving highway safety and conducts highway safety research relating to trucks and buses.

The Transportation Research Board will conduct a computerized search and furnish abstracts of all engineering articles pertaining to highway topics.
State police or highway patrols might also be able to provide information on regulations concerning the use and equipment of motor vehicles.

Most state fire marshals issue fire safety standards and basic building design and construction standards.
The United States Coast Guard sets standards, makes factory inspections and conducts investigations of consumer complaints of defective boats. The Coast Guard notifies boat owners when defects are found.