Samantha Groza

Business 18
Learning Objectives Chapter 17
1 What is the difference between an employee and an independent
contractor?
Independent contractors are not employees because, by definition,
those who hire them have no control over the details of their physical
performance.
2 How do agency relationships arise?
Most agency relationships are based on an express or implied agreement
that the agent will act for the principal and that the principal agrees to
have the agent so act. An agency agreement can take the form of an
express written contract or be created by an oral agreement. They can
also be implied by conduct.
3 What duties do agents and principals owe each other?
The agent owes the principal five duties: (1) performance- the agent is
responsible for performing the work using reasonable diligence and
skill. (2) notification- an agent is required to notify the principal of all
matters that come to their attention concerning the subject matter of
the agency. (3) loyalty- the agent has the duty to act solely for the
benefit of his or her principal and not in the interest of the agent or a
third party. (4) obedience- When acting on behalf of a principal, an
agent has a duty to follow all lawful and clearly stated instructions of
the principal. Any deviation from such instructions is a violation of this
duty. (5) accounting-Unless an agent and a principal agree otherwise,
the agent has the duty to keep and make available to the principal an
account of all property and funds received and paid out on behalf of
the principal.
4 When is a principal liable for the agents actions with respect to third
parties? When is the agent liable?
Liability for contracts formed by an agent depends on how the principal
is classified and on whether the actions of the agent were authorized
or unauthorized. Principals are classified as disclosed, partially
disclosed, or undisclosed.
5 What are some of the ways in which an agency relationship can be
terminated?
1. Lapse of time. When an agency agreement specifies the time period
during which the agency relationship will exist, the agency ends when
that period expires. If no definite time is stated, the agency continues
for a reasonable time and can be terminated at will by either party.
What constitutes a reasonable time depends, of course, on the

Samantha Groza
Business 18
circum- stances and the nature of the agency relationship. 2. Purpose
achieved. If an agent is employed to accomplish a particular objective,
such as the purchase of breeding stock for a cattle rancher, the agency
automatically ends after the cattle have been purchased. If more than
one agent is employed to accomplish the same purpose, such as the
sale of real estate, the first agent to complete the sale auto- matically
terminates the agency relationship for all the others. LEARNING
OBJECTIVE 5 What are some of the ways in which an agency
relationship can be terminated? 3. Occurrence of a specific event.
When an agency relationship is to terminate on the hap- pening of a
certain event, the agency automatically ends when the event occurs. If
Posner appoints Rubik to handle her business affairs while she is away,
the agency ter- minates when Posner returns. 4. Mutual agreement.
The parties to an agency can cancel (rescind) their contract by mutually agreeing to terminate the agency relationship, even if it is for a
specific duration. 5. Termination by one party. As a general rule, either
party can terminate the agency relation- ship (the act of termination is
called revocation if done by the principal and renunciation if done by
the agent). Although both parties have the power to terminate the
agency, they may not possess the right.