Unit C Objective 07.01 Agency Law
AGENCY Relationship in which one person, called an agent, represents another person, called a principal, in some sort of business transaction with a third party. In most cases a binding contractual agreement is formed. Principal -> Agent -> Third Party
– Example: You picked up and paid for a pizza ordered by a family member.
TYPES OF AGENTS
General Agent-given authority to perform any act within the scope of a business. Special Agent-employed to accomplish a specific purpose or to do a particular job. Subagents-appointed by another agent. Agent’s Agent-has no power to appoint a subagent but does so anyway. Coagents-two ore more agents hired by the principal.
RELATIONSHIPS ARE CREATED By agreement (contract) By law (circumstantial or specific) By statute (special interest of a state)
AGENCY RELATIONSHIPS Gratuitous Agent: agent works for free (no contract) Master: has the right to control the conduct of his or her servant Independent Contractor: agent is hired by the other party, but not controlled
AGENCY RELATIONSHIPS, Continued Partially Disclosed Agent: principal’s existence but not identity is known to the third party. Fiduciary: relationship is based on trust. Actual Authority: real power the principal gives to an agent to act on his or her behalf
AGENCY RELATIONSHIPS, Continued Apparent Authority: agency by estoppel Third Party: must be notified if an agency has been terminated Consensual: both parties of a principal/agent relationship agree or consent to relationship
AGENCY RELATIONSHIPS, Continued Agent is obligated to act in good faith (within the scope of the principal’s needs and wants). Therefore, a principal is not liable for criminal acts. When an agency is created by statute (law), the agent is known as a statutory agent.
AGENCY RELATIONSHIPS, Continued ď‚
If unauthorized agent works on your behalf, you have two options: 1. Charge agent with fraud (agent is liable to the third party) 2. Accept actions of agent (ratify)
TYPES OF AUTHORITY Actual-real power given to agent Express-all orders, commands, or directions given to agent when relationship created Implied-understood acts or powers implied from express terms
AGENT’S DUTIES TO PRINCIPAL Obedience-obey reasonable orders Good faith-deal honestly Loyalty-faithfulness or acting in best interest Duty to account-accountable for all money entrusted to him/her
PRINCIPAL’S DUTIES TO AGENT Compensation-payment for services Reimbursement-repayment for own money spent Indemnification-repayment for amount lost Cooperation-working together
TERMINATION OF RELATIONSHIP
By operation of law – Death of principal or agent – Bankruptcy – Impossibility of performance – Agent’s objective becomes illegal
TERMINATION OF RELATIONSHIP continued
Termination of acts – Performance – Mutual agreement – Agent’s withdrawal – Agent’s discharge
TERMINATION OF RELATIONSHIP continued
Notice to third parties – Credit has been given to principal. – Cash business has been done. – No notice when third party never heard of agency relationship.