The PRINCIPAL is the person who employs some other person to act on his behalf. The AGENT is the person who is acting on behalf of the PRINCIPAL. A THIRD PARTY is someone who deals with the AGENT knowing that he is in effect really dealing with the PRINCIPAL.
Who can appoint an agent? Any person who has the capacity to enter into a contract, can appoint an agent to act on his, her, or its behalf. (Thus a minor, or a person who lacks mental capacity cannot appoint an agent.) In order for an agency to be valid, it must have a legal purpose. If the purpose is illegal, and agency cannot be created. (Thus, a person who is hired as an agent to sell cocaine to children, does not have a valid agency relationship.)
Can an employee be the agent for an employer? Yes, but only if the employee is specifically given such authority to act on behalf of his or her employer. The scope of the authority is governed by the agreement which the employee (agent) has with the employer (principal).
THE FOUR TYPES OF AGENCY RELATIONSHIPS 1. Express Agency This type of agency occurs when the principal and agent expressly agree to enter into an agency agreement with each other. 2.Implied Agency Sometimes, such an agency agreement is implied by the circumstances of the agency. For example, if the chef at the 29 Pines Inn routinely orders food from Sysco Systems. Sysco is entitled to rely on the chef’s implied authority to act on behalf of the 29 Pines Inn.
In an implied agency, the extent of the agent’s authority is determined from the particular facts and circumstances of the facts. Thus, the chef’s authority would include ordering food, beverages and supplies. It would not include purchasing a new vehicle for the Inn or buying furniture.
3. Agency by Ratification This type of agency occurs when someone represents that they are the agent for a principal, when in fact they are not; and the, the principal ratifies or consents to the unauthorized act. 4. Apparent Agency This type of agency occurs when the principal creates the illusion or appearance of the agency, even though there is no agency agreement with the agent. Under this circumstance the principal is “estopped” from denying the agency.
When does an agency end? An agency ends: By acts of the parties Lapse of time per the agreement Purpose achieved Specified event occurs
An Agency is also terminated by operation of law when: 1.The agent or principal dies 2.One of the parties becomes mentally incompetent 3.Performance of the purpose of the agency becomes impossible
AGENCIES COUPLED WITH AN INTEREST: An agency coupled with an interest cannot be terminated by the principal. It only ends when the agent’s obligations or rights are satisfied. An Example: Michael owns a parcel of real estate in Yucca Valley. He needs to borrow $60,000 to finance his business and approaches the bank for a loan. The bank agrees to make the loan, but it must be secured by the real property, which can be sold if Michael defaults.
The documents provide that during the loan, an independent party, Chicago Title Insurance Co. will hold title to the property but only for the purpose of exercising a power of sale if Michael is in default. Michael cannot terminate the agency given to Chicago Title (to sell the property if there is a default) until the loan is paid off.
And now a brief discussion of the timely hot topic of Employee Status vs Independent Contractor Status