Chapter 35: The Agency Relationship
Agency (definition and 2 examples)
- Involves two parties, where the agent is the person who acts on behalf of the principal. - Ex: Home owner and a real estate agent. The real estate agent represents the principal in the selling of his or her home. - Ex: ABC company hiring a web designer to create the company's web site.
Actual Authority (definitions and examples)
- Is expressed or implied authority. - Express authority is created by the principal's actual words. (written or oral) - Ex: "I want to hire you as my real estate agent". - Implied authority is when agent has authority to do whatever is REASONABLE to assume that the principal wanted the agent to do given principal's statements and surrounding circumstances. - Ex: A person hired as a general manager in a restaurant will have broad authority to run the business while a person hired as a cashier will have limited authority.
Duties of Agent to Principal: (what agents must do, and two additional things)
- Since agency is a fiduciary relationship of trust and confidence, agent has a duty of loyalty to the principal. - Agents must: 1) Avoid conflicts of interest with the principal. (this includes self dealing, competition, or acting for another party). 2) Maintain confidentiality of information received from the principal. ** The duty of confidentiality survives agency (keeps going).
How is the Agency Relationship Created?
- The agent must first agree to act for and under the control of the principal. Agent owes a FIDUCIARY DUTY to the principal, but not vice versa. We are looking from an objective analysis, meaning we look at whether an agency relationship was created. We look at whether the facts show or indicate that the parties created an agency relationship. - The principal must have the capacity to appoint an agent.
What are principals not allowed to ask their agent to do? (one simple answer)
- They are not allowed to ask agents to make statements on their behalf under oath.
When do agency's become terminated? (list 4)
1) At a time or event stated in the agreement. 2) When agency was created for a special purpose, and purpose was achieved. (Ex: Real estate agent sells home for principal) 3) By mutual agreement of the parties. 4) At the option of either party.
Duties Principal owes to the Agent:(name 3)
1) To compensate the agent. (pay them) 2) The reimburse the agent for money spent in the principal's service. 3) To indemnify (cover costs) the agent for losses suffered in conducting the principal's business.
Termination by operation of LAW includes:
1) serious breach of agent's duty of loyalty. 2) Principal's permanent loss of capacity or agent's loss of capacity to perform agency business. 3) Change in value of agency property or subject matter (including loss or destruction) . 4) Changes in law, making the agency illegal. 5) Changed business conditions, or outbreak of war.
TRUE OR FALSE? After agency terminates, agent's express and implied authority ends.
TRUE. However, ex-agents may retain apparent authority that could bind a former principal.
Apparent Authority
- Arises when a principal's conduct leads a third party to believe that an agent (who lacks actual authority) is authorized to act a certain way and the third party reasonably relies on the appearance (cloak) of authority. - This means, a principal is bound by the agent's actions even if the agent had no actual authority. To protect third parties, agency law allows agents to bind a principal on the basis of apparent authority. Principal can still be liable in this situation.
