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 If unauthorized agent works on your behalf, you have two options: Charge agent with fraud (agent is liable to the third party) 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.