This is the prescribed textbook for your course. Available NOW at your campus bookstore! Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 5e by Margaret Barron Slides prepared by Simone Bingham

Principal and agent Chapter 18

Agency A relationship that exists between one person (the principal) and another person (the agent) The agent undertakes to do certain acts on the principal’s behalf The purpose is to bring a third party into a contractual relationship with the principal Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 5e by Margaret Barron Slides prepared by Simone Bingham

Creation of an agency Expressly created agency (written or verbal) Impliedly created agency Agency of necessity Co-habitation Agency by estoppel Agency by status Agency by ratification Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 5e by Margaret Barron Slides prepared by Simone Bingham

Agency of necessity A person must be entrusted with the property of another person. An immediate expense is required to preserve the property. The owner of the property is virtually impossible to contact. The person entrusted with the property (agent) must act in the best interests of the owner (principal). Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 5e by Margaret Barron Slides prepared by Simone Bingham

Agency by ratification Required when: No authority to act as agent Agent exceeds authority given by principal Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 5e by Margaret Barron Slides prepared by Simone Bingham

Agency distinguished from other relationships Agency is a fiduciary relationship—exercising rights and powers, in good faith, for the benefit of another. Employee is under control and supervision of employer. Independent contractor decides how their work is carried out. Trustee holds property on behalf of another person. Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 5e by Margaret Barron Slides prepared by Simone Bingham

Categories of agents Special—appointed for a particular task. General—appointed for all normal matters. Universal—appointed for all acts principal can do, e.g. Power of Attorney. Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 5e by Margaret Barron Slides prepared by Simone Bingham

Authority of an agent Actual authority Express (written/spoken) Implied (by action) Apparent authority (ostensible authority) Authority agent has from the viewpoint of the third party, with whom the agent is dealing Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 5e by Margaret Barron Slides prepared by Simone Bingham

Duties of an agent To follow the principal’s instructions To act personally To exercise reasonable skill and diligence To act in principal’s best interest Not to make a secret profit Not to divulge confidential information To keep proper accounts Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 5e by Margaret Barron Slides prepared by Simone Bingham

Rights of an agent To receive remuneration for work performed To be indemnified against all losses and expenses incurred while carrying out principal’s lawful instructions To a lien (i.e. a right to retain possession of principal’s property) until liabilities satisfied To stoppage in transit (before received by principal) Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 5e by Margaret Barron Slides prepared by Simone Bingham

Liability of agent to principal If agent fails to follow instructions acts in a negligent matter If a loss is incurred Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 5e by Margaret Barron Slides prepared by Simone Bingham

Liability of agent to third party Name &/or existence of principal disclosed Acts outside authority (i.e. breach of warranty) Acts on behalf of someone who has not given authority (unless ratified), or Exceeds authority (unless ratified) Non-existent/unascertainable principal Agent agrees to be liable Usage/custom make agent liable Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 5e by Margaret Barron Slides prepared by Simone Bingham

Liability of agent to third party (cont.) Existence of principal not disclosed Agent bound Torts committed while acting within actual or apparent authority Tort committed by an agent acting outside the actual or apparent authority Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 5e by Margaret Barron Slides prepared by Simone Bingham

Doctrine of undisclosed principal If the agent acts as if he or she is the owner (by not disclosing agency) then the principal can later reveal the agency agreement and sue to enforce the contract. If third party discovers there was an agency agreement, he or she can then sue the principal (as well as the agent) for breaches of the contract. Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 5e by Margaret Barron Slides prepared by Simone Bingham

Termination of agency By the acts of the parties By performance of the agency With frustration of the agency agreement By mutual agreement By revoking the authority of the agent (ineffective to third parties until advised) By the operation of law By death of either party By bankruptcy of principal By bankruptcy of agent By insanity of either party Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 5e by Margaret Barron Slides prepared by Simone Bingham

Types of agents (statute law) Factors/mercantile agents—goods in agent’s possession to sell or use for borrowing Del Credere agent—guarantees payment for goods sold (therefore higher commission) Partners—principals/agents for each other Broker—buys/sells goods without possession Real estate agent—sells/leases vendor’s land; finds property for sale/lease Travel agent—sells principal’s products; receives commission based on sales; organises principal’s travel arrangements Company director—agent of company Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 5e by Margaret Barron Slides prepared by Simone Bingham