agency relationships chapter 10: agents. understanding business and personal law agency...

Agency Relationships Agency Relationships Chapter 10: AGENTSChapter 10: AGENTS

Understanding Business and Personal Law

Agency Relationships Agency Relationships Section 18.1Section 18.1

Creation of an Agency

Section 18.1Section 18.1Agency Relationships Agency Relationships

Section 18.2Section 18.2Creation and Types of Agents Creation and Types of Agents

1818ChapterChapter Creation of an AgencyCreation of an Agency




What You’ll Learn

How to explain the nature of an agency How to explain the nature of an agency relationship (p. 392)relationship (p. 392)

How to distinguish between a servant How to distinguish between a servant and an independent contractor (p. 394)and an independent contractor (p. 394)




What You’ll Learn

How to explain the nature of contract How to explain the nature of contract liability (p. 396)liability (p. 396)

How to explain the legal doctrine of How to explain the legal doctrine of respondeat superiorrespondeat superior in relation to tort in relation to tort liability (p. 397)liability (p. 397)




Why It’s Important

Identifying the nature of an agency Identifying the nature of an agency relationship will help you know your rights relationship will help you know your rights and duties in such a situation. and duties in such a situation.





Understanding the doctrine of Understanding the doctrine of respondeat respondeat superiorsuperior will help you protect yourself against will help you protect yourself against tort liability in a variety of situations.tort liability in a variety of situations.




Legal Terms

agency (p. 392)agency (p. 392)agent (p. 392)agent (p. 392)principal (p. 392)principal (p. 392)master (p. 394)master (p. 394)




Legal Terms

servant (p. 394)servant (p. 394)independent contractor (p. 394)independent contractor (p. 394)respondeat superior respondeat superior (p. 397)(p. 397)




Agency and Similar Relationships Principal-Agent RelationshipMaster-Servant RelationshipProprietor-Independent Contractor Relationship

Section OutlineSection Outline




Why Are These Distinctions Important?

Contractual LiabilityTort Liability





Pre-Learning Question Pre-Learning Question

What is an agency relationship?




An An agencyagency relationship lets us act relationship lets us act through other people to accomplish through other people to accomplish tasks that might be difficult or tasks that might be difficult or impossible to do on our own.impossible to do on our own.

Agency and Similar Relationships Agency and Similar Relationships




The term The term agencyagency describes a describes a relationship in which one person, relationship in which one person, called an called an agentagent, represents another , represents another person, called a person, called a principalprincipal, in some , in some sort of business transaction with a sort of business transaction with a third party.third party.

Agency and Similar Relationships Agency and Similar Relationships




18.118.1

Principal-Agent RelationshipPrincipal-Agent Relationship




The principal-agent relationship is a The principal-agent relationship is a true agency relationship.true agency relationship.

Legally, we distinguish an agent from Legally, we distinguish an agent from other types of representatives by other types of representatives by noting that the agent has the power to noting that the agent has the power to transact business for the principal.transact business for the principal.

Principal-Agent Relationship Principal-Agent Relationship




A A mastermaster is a person who has the is a person who has the right to control the conduct of another right to control the conduct of another who is performing a task for the who is performing a task for the benefit of the master.benefit of the master.

Master-Servant Relationship Master-Servant Relationship




A A servantservant is a person whose conduct is a person whose conduct in the performance of a task is subject in the performance of a task is subject to the control of another.to the control of another.

Master-Servant Relationship Master-Servant Relationship




An An independent contractorindependent contractor works for works for but is not under the control of a but is not under the control of a proprietor. proprietor.

Proprietor-Independent Contractor Proprietor-Independent Contractor




The proprietor is a person who The proprietor is a person who chooses to have someone perform a chooses to have someone perform a task on his or her behalf but has no task on his or her behalf but has no control over the way that task is control over the way that task is carried out.carried out.

Proprietor-Independent Contractor Proprietor-Independent Contractor




True or False

1.1. An agent is a person who has the An agent is a person who has the right to control the conduct of right to control the conduct of another who performs a task for another who performs a task for the agent’s benefit.the agent’s benefit.




2.2. A principal is someone A principal is someone represented by an agent.represented by an agent.

3.3. An independent contractor works An independent contractor works for but is not under the control of a for but is not under the control of a proprietor.proprietor.




4.4. A proprietor is someone who hires A proprietor is someone who hires a servant.a servant.




ANSWERANSWER

1.1. FalseFalse2.2. TrueTrue3.3. TrueTrue4.4. FalseFalse





Why is the true nature of the business relationship important?




Finding out the true nature of a Finding out the true nature of a relationship can be crucial in relationship can be crucial in determining liability.determining liability.

Why Are These Why Are These Distinctions Important? Distinctions Important?




A principal is generally bound to the A principal is generally bound to the terms of a contract made by an agent terms of a contract made by an agent unless the agent has no authority to unless the agent has no authority to enter the contract.enter the contract.

Contractual Liability Contractual Liability




Unless a servant is also an agent, he Unless a servant is also an agent, he or she has no authority to negotiate or she has no authority to negotiate contracts for the master. contracts for the master.





Likewise, a contractor has no power to Likewise, a contractor has no power to bind the proprietor to a contract, bind the proprietor to a contract, unless expressly permitted to do so.unless expressly permitted to do so.





All people are responsible for their All people are responsible for their own tortious conduct. own tortious conduct.

Sometimes, however, the person who Sometimes, however, the person who hired the tortfeasor may also be held hired the tortfeasor may also be held liable.liable.

Tort Liability Tort Liability




This situation is known as vicarious This situation is known as vicarious liability, and it is founded on the liability, and it is founded on the principle of principle of respondeat superiorrespondeat superior, or , or “let the master respond”.“let the master respond”.

Tort Liability Tort Liability




Reviewing What You Learned

1. What is an agency relationship?

Section 18.1 Assessment





The term agency describes a relationship in which one person, the agent, represents another person, the principal, in some sort of business transaction with a third party.


Answer





2. What is the difference between a servant and an independent contractor?






A master controls or has the right to control the activities of a servant. An independent contractor is not controlled by the proprietor who has hired that independent contractor.


Answer





3. What is the nature of contract liability?






When a principal appoints an agent to carry out business transactions that agent has the power to create contractual liability between the principal and a third party.


Answer





4. What is the legal doctrine of respondeat superior?






The legal doctrine of respondeat superior will extend tort liability from the servant (employee) to the master (employer).


Answer





Critical Thinking ActivityTort Law Why does the law permit an injured party to bring a tort law case against both an employee and his or her employer?





Critical Thinking Activity AnswerTort Law Because of the principle of respondeat superior. The master may be held liable for the tortious conduct of the servant if the servant was acting within the scope of authority or course of employment.





Legal Skills in Action AgencyYour friend, Louis, has just hired Franco as his delivery driver. One afternoon while he is supposed to be making a delivery on the west side of town, Franco decides to take a 15-mile detour to the east side to pick up his dry cleaning.





Legal Skills in Action AgencyWhile entering the parking lot of the dry cleaners, Franco makes an illegal turn and collides with a police car.





Legal Skills in Action AgencyLouis fears he will be liable not only for Franco’s traffic ticket but also for all damages to the police cruiser.





Legal Skills in Action AnswerAgencyLetters will vary, but should include that Franco, the driver of the delivery truck, was off on personal business and was, therefore, not operating within the scope of his employment.

Agency Relationships Agency Relationships End of Section 18.1End of Section 18.1




What You’ll Learn

How to recognize the creation of an How to recognize the creation of an agency relationship by agreement (p. 404)agency relationship by agreement (p. 404)

How to recognize the creation of an How to recognize the creation of an agency relationship by operation of law agency relationship by operation of law (p. 405)(p. 405)




What You’ll Learn

How to distinguish between a general How to distinguish between a general agent and a special agent (p. 402)agent and a special agent (p. 402)

How to distinguish among a subagent, a How to distinguish among a subagent, a coagent, and an agent’s agent coagent, and an agent’s agent (pp. 403-404)(pp. 403-404)





Knowing when an agency relationship has Knowing when an agency relationship has been created will help you make sound been created will help you make sound judgments in business activities.judgments in business activities.




Legal Terms

general agent (p. 402)general agent (p. 402)special agent (p. 402)special agent (p. 402)agency by estoppel (p. 405)agency by estoppel (p. 405)ratification (p. 407)ratification (p. 407)




Types of Agents Extent of AuthorityHow Agents Relate to One Another





How Agency Relationships Are Created

By AgreementBy Operation of LawBy Ratification






What are some different types of agents?




We can distinguish between types of We can distinguish between types of agents in two ways. We can examine agents in two ways. We can examine

Types of Agents Types of Agents

1.1. The extent of the agents’ authority.The extent of the agents’ authority.2.2. How the agents relate to one How the agents relate to one

another.another.




The two types of agents distinguished The two types of agents distinguished on the basis of extent of authority are on the basis of extent of authority are general agents and special agents. general agents and special agents.

General agents have more authority General agents have more authority than special agents.than special agents.

Extent of Authority Extent of Authority




A person who has been given A person who has been given authority to perform any act within the authority to perform any act within the scope of a business is a scope of a business is a general general agentagent. .

The manager of a department store is The manager of a department store is a general agent.a general agent.

General Agent General Agent




A person who is employed to A person who is employed to accomplish a specific purpose or to do accomplish a specific purpose or to do a particular job is a a particular job is a special agentspecial agent. .

Sales representatives are special Sales representatives are special agents.agents.

Special Agent Special Agent




Agents may be classified according to Agents may be classified according to the nature of their relationships with the nature of their relationships with other agents.other agents.

How Agents Relate How Agents Relate to One Another to One Another




A subagent is an agent lawfully A subagent is an agent lawfully appointed by another agent.appointed by another agent.

Subagents Subagents




If an agent has no power to appoint a If an agent has no power to appoint a subagent but does so anyway, he or subagent but does so anyway, he or she has appointed an agent’s agent.she has appointed an agent’s agent.

Agent’s Agent Agent’s Agent




If the principal hires two or more If the principal hires two or more agents, he or she has created a agents, he or she has created a coagent situation.coagent situation.

Coagents Coagents





How do you think agency relationships are created?




Generally, any business you can Generally, any business you can transact personally can also be transact personally can also be transacted through an agent. transacted through an agent.

How Agency Relationships How Agency Relationships Are Created Are Created




A principal-agent relationship can be A principal-agent relationship can be developed developed

How Agency Relationships How Agency Relationships Are Created Are Created

By agreementBy agreementBy operation of lawBy operation of lawBy ratification By ratification




Most agency relationships are created Most agency relationships are created by agreements, which are usually, but by agreements, which are usually, but not always, contracts.not always, contracts.

By Agreement By Agreement




No contract exists if an agreement No contract exists if an agreement does not involve consideration.does not involve consideration.An agency agreement that does not An agency agreement that does not involve a contract is called a involve a contract is called a gratuitous agency.gratuitous agency.

By Agreement By Agreement




Agency relationships may be created Agency relationships may be created automatically by operation of law. automatically by operation of law.

By Operation of Law By Operation of Law

Sometimes the law creates an Sometimes the law creates an agency relationship by agency relationship by circumstance.circumstance.Agency relationships can also arise Agency relationships can also arise through enactment of specific laws.through enactment of specific laws.




Sometimes a state legislature decides Sometimes a state legislature decides that certain situations justify automatic that certain situations justify automatic creation of agency relationships by creation of agency relationships by statute.statute.

Agency By Statute Agency By Statute




What do you call an agency that does not involve a contract?




ANSWERANSWER

A gratuitous agency.




What is an agency by estoppel?




ANSWERANSWER

When the law creates an agency relationship by circumstance.




At times a person may act as an agent At times a person may act as an agent without the authority, or an agent who without the authority, or an agent who has the authority to negotiate one type has the authority to negotiate one type of contract oversteps that authority of contract oversteps that authority and negotiates another type of and negotiates another type of contract.contract.

By Ratification By Ratification




RatificationRatification occurs if the principal, occurs if the principal, with full knowledge of the facts, with full knowledge of the facts, accepts the benefits of the accepts the benefits of the unauthorized acts. unauthorized acts.

The act is thereby approved or The act is thereby approved or ratified.ratified.

By Ratification By Ratification




Describe what occurs when an agency is created by ratification.




ANSWERANSWER

When the principal, with full knowledge of the facts, accepts the benefits of an unauthorized act.





1. How are most agency relationships created?






By agreement.


Answer





2. How are agency relationships created by operation of law?






By estoppel and by statute.


Answer





3. What is the difference between a general agent and a special agent?






General agent: authority to carry out any act within the scope of a business.

Special agent: employed to accomplish a specific purpose or to do a particular job.


Answer





4. What are the differences among a subagent, a coagent, and an agent’s agent?






A subagent is lawfully appointed by another agent, and a coagent is created when a principal hires two or more agents.


Answer





If an agent has no power to appoint a subagent but does so anyway, he or she has appointed an agent’s agent.


Answer





Critical Thinking ActivityTypes of Agents Why is it important to be able to distinguish between a general agent and a special agent?





Critical Thinking Activity AnswerTypes of Agents Answers will vary, but could recognize that by knowing the difference between the two types of agents, you will understand the authority of an agent you may be dealing with.





Legal Skills in ActionApparent Authority Tony believes that Sara is a salesperson working in the appliance department at the Alomar Brothers Department Store. It turns out that she is actually a disgruntled former employee who is now impersonating a salesperson.





Legal Skills in ActionApparent Authority Tony gives Sara $100 as a down payment for a new DVD player, and she runs off with the money.





Legal Skills in ActionApparent Authority Write a paragraph that explains whether the Alomar Brothers Department Store will be compelled to return the $100 to Tony.





Legal Skills in Action AnswerApparent Authority Answers should recognize that Alomar Brothers Department Store would be liable for any loss incurred by Tony because the law would assume this to be an agency by estoppel.




Section 19.1Section 19.1Authority and Duties Authority and Duties

Section 19.2Section 19.2Termination of Agency Relationships Termination of Agency Relationships

1919ChapterChapter Agency Relationships Agency Relationships and Their Terminationand Their Termination




What You’ll Learn

How to define express and implied How to define express and implied authority (p. 415)authority (p. 415)

How to define actual and apparent How to define actual and apparent authority (pp. 415-416)authority (pp. 415-416)




What You’ll Learn

How to identify the duties owed by an How to identify the duties owed by an agent to the principal (p. 417)agent to the principal (p. 417)

How to identify the duties owed by a How to identify the duties owed by a principal to the agent (p. 419)principal to the agent (p. 419)





Knowing the extent of agency authority and Knowing the extent of agency authority and the nature of agency duties will help you the nature of agency duties will help you know your rights and duties when you enter know your rights and duties when you enter such a relationship. such a relationship.





Understanding an agent’s liability to third Understanding an agent’s liability to third parties will protect you in a variety of parties will protect you in a variety of situations.situations.




Legal Terms

express authority (p. 415)express authority (p. 415)implied authority (p. 415)implied authority (p. 415)obedience (p. 417)obedience (p. 417)good faith (p. 418)good faith (p. 418)




Agent’s Duties to the Principal ObedienceGood FaithLoyaltyDuty to AccountJudgment and Skill





Principal’s Duties to the Agent CompensationReimbursement and IndemnificationCooperation





Agent’s Liability to Third Parties When the Principal Is Not DisclosedWhen Agents Wrongfully Exceed Their Authority






What are some aspects of the agent-principal relationship you should understand?




It is important to understand the It is important to understand the nature of agency authority, the duties nature of agency authority, the duties and rights that exist between agents and rights that exist between agents and principals, the responsibilities that and principals, the responsibilities that extend to third parties, and the ways extend to third parties, and the ways that agency relationships can end.that agency relationships can end.

Agents and Principals Agents and Principals





How would you explain the different types of agency authority?





What duties do you think an agent owes to the principal?




An agent owes a principal the An agent owes a principal the following five duties:following five duties:

Agent’s Duties to the Principal Agent’s Duties to the Principal

1.1. ObedienceObedience2.2. Good faithGood faith




3.3. LoyaltyLoyalty4.4. Accounting for all the principal’s Accounting for all the principal’s

money handled by the agentmoney handled by the agent5.5. Exercising judgment and skill in the Exercising judgment and skill in the

performance of the assigned work performance of the assigned work

Agent’s Duties to the Principal Agent’s Duties to the Principal




An agent owes the principal the duty An agent owes the principal the duty of of obedienceobedience, which means the agent , which means the agent must obey all reasonable orders and must obey all reasonable orders and instructions within the scope of the instructions within the scope of the agency agreement.agency agreement.

Obedience Obedience




To have To have good faithgood faith simply means to simply means to deal honestly with another party with deal honestly with another party with no intent to seek advantage or to no intent to seek advantage or to defraud. defraud.

Good Faith Good Faith




Good faith also requires an agent to Good faith also requires an agent to notify the principal of all matters notify the principal of all matters pertaining to the agency relationship.pertaining to the agency relationship.

Good Faith Good Faith




Agents may not work for others who Agents may not work for others who are competing with their principals, are competing with their principals, nor may they make deals to their own nor may they make deals to their own advantage at the expense of their advantage at the expense of their principals.principals.

Loyalty Loyalty




The The duty to accountduty to account means the means the agent must keep a record of all the agent must keep a record of all the money collected and paid out, and money collected and paid out, and must report this to the principal.must report this to the principal.

Duty to Account Duty to Account




The agent must:The agent must:


Keep the principal’s money safe Keep the principal’s money safe and separate it from others’ money.and separate it from others’ money.Turn the principal’s money over to Turn the principal’s money over to the principal. the principal.




If the agent mixes the principal’s If the agent mixes the principal’s money with his or her own funds to money with his or her own funds to the extent that it is impossible to the extent that it is impossible to determine whose money is whose, the determine whose money is whose, the agent loses all claim to the money.agent loses all claim to the money.





Agents Agents

Judgment and Skill Judgment and Skill

Must use all of the skill and Must use all of the skill and judgment that they have when judgment that they have when performing work for principals.performing work for principals.Are not held liable for honest Are not held liable for honest mistakes if they have performed to mistakes if they have performed to the best of their ability.the best of their ability.




Fill in the blanks.

1.1. _____ authority is the real power a _____ authority is the real power a principal gives to an agent. principal gives to an agent.




ANSWERANSWER

Actual




2.2. _____ authority is actual authority _____ authority is actual authority that is implied or understood from that is implied or understood from the express terms that create the the express terms that create the agency relationship.agency relationship.




ANSWERANSWER

Implied




3.3. _____ authority exists when the _____ authority exists when the principal has somehow led a third principal has somehow led a third party to believe that a nonagent is party to believe that a nonagent is an agent.an agent.




ANSWERANSWER

Apparent




4.4. _____ authority includes all of the _____ authority includes all of the orders, commands, or directions a orders, commands, or directions a principal directly states to an agent.principal directly states to an agent.




ANSWERANSWER

Express





What duties do you think a principal owes to the agent?




The principal has four duties to the The principal has four duties to the agent by law. agent by law.

Principal’s Duties to the Agent Principal’s Duties to the Agent

1.1. CompensationCompensation2.2. ReimbursementReimbursement3.3. IndemnificationIndemnification4.4. CooperationCooperation




An agent who is working on behalf of An agent who is working on behalf of a principal is entitled to be paid for a principal is entitled to be paid for services rendered, unless he or she is services rendered, unless he or she is a gratuitous agent.a gratuitous agent.

Compensation Compensation




Agents are entitled to Agents are entitled to reimbursementreimbursement, or repayment, when , or repayment, when they spend their own money for the they spend their own money for the principal’s benefit.principal’s benefit.

Reimbursement Reimbursement and Indemnification and Indemnification




In addition, if an agent suffers any loss In addition, if an agent suffers any loss as a result of the principal’s as a result of the principal’s instructions, he or she is entitled to instructions, he or she is entitled to indemnificationindemnification; that is, he or she is ; that is, he or she is entitled to repayment of the amount entitled to repayment of the amount lost.lost.

Reimbursement Reimbursement and Indemnification and Indemnification




The duty of The duty of cooperationcooperation means means working together toward a common working together toward a common end. end.

If the principal makes the agent’s job If the principal makes the agent’s job difficult or impossible, he or she has difficult or impossible, he or she has breached the duty of cooperation.breached the duty of cooperation.

Cooperation Cooperation





What is the agent’s liability to third parties?




Principals may or may not wish to Principals may or may not wish to disclose their relationship in a disclose their relationship in a contractual arrangement between an contractual arrangement between an agent and a third party. agent and a third party.

Agent’s Liability to Third Parties Agent’s Liability to Third Parties




If the agent represents a disclosed If the agent represents a disclosed principal, one whose existence and principal, one whose existence and identity are known to the third party, identity are known to the third party, the agent assumes no contractual the agent assumes no contractual liability for the resulting contract.liability for the resulting contract.





Agents may be held responsible for Agents may be held responsible for contracts negotiated for the principal contracts negotiated for the principal when the agents do not disclose the when the agents do not disclose the identity or the existence of the identity or the existence of the principal, or when agents wrongfully principal, or when agents wrongfully exceed their authority.exceed their authority.






Apparent authority: exists when the principal has somehow led a third party to believe that a nonagent is an agent or that an agent has a power that he or she does not have.


Answer





3. What are the duties owed by an agent to a principal?






4. What are the duties owed by a principal to an agent?






Compensation, reimbursement, indemnification, and cooperation.


Answer





Critical Thinking ActivityDuty Why does the law extend duties to both the principal and the agent?





Critical Thinking Activity AnswerDuty The law extends duties to both the principal and the agent so that both parties are treated fairly.





Legal Skills in ActionDuty to Account Your friend Tammy was recently hired as a salesperson in Harriet’s dress shop. One evening when closing the shop, Tammy forgot to place the day’s proceeds in the safe.





Legal Skills in ActionDuty to Account On her way home, she decided to place all of Harriet’s money in her own bank account, along with some cash of her own that she had just received for her birthday.





Legal Skills in ActionDuty to Account The next day, Tammy forgot to retrieve the money. By the time she remembered to get the money out of her account, she couldn’t recall how much of Harriet’s money she deposited.





Legal Skills in ActionDuty to Account Write an e-mail message to Tammy in which you explain why you believe she has lost all rights to the money in her bank account.





Legal Skills in Action AnswerDuty to Account Answers may vary. Students may surmise that because Tammy co-mingled her money with the money from the dress shop and did not account for how much she deposited, she loses all claim to the money in her account.




What You’ll Learn

How to recognize when an agency How to recognize when an agency relationship is terminated by operation of relationship is terminated by operation of law (p. 424)law (p. 424)

How to recognize when an agency How to recognize when an agency relationship is terminated by an act of the relationship is terminated by an act of the parties (p. 425)parties (p. 425)




What You’ll Learn

How to determine when individuals are How to determine when individuals are entitled to actual notice of an agency entitled to actual notice of an agency termination (p. 427)termination (p. 427)

How to determine when individuals are How to determine when individuals are entitled to notice by publication of an entitled to notice by publication of an agency termination (p. 427)agency termination (p. 427)





You need to know when an agency You need to know when an agency relationship has been terminated so that you relationship has been terminated so that you may determine your liability as an agent or a may determine your liability as an agent or a principal. principal.





You also need to know your rights of You also need to know your rights of notification when you are a third party who notification when you are a third party who has dealt with the agent.has dealt with the agent.




Legal Terms

bankruptcy (p. 424)bankruptcy (p. 424)actual notice (p. 427)actual notice (p. 427)notice by publication (p. 427)notice by publication (p. 427)




Terminating the Relationship By Operation of Law

Death of the Principal or AgentBankruptcyImpossibility of PerformanceAgent’s Objective Becomes Illegal





By Acts of the Parties PerformanceMutual AgreementAgent’s WithdrawalAgent’s Discharge


Notice to Third Parties





How do you think agency relationships are terminated?




Because many agency relationships Because many agency relationships involve contractual arrangements, the involve contractual arrangements, the usual rules that apply to the usual rules that apply to the termination of contracts are termination of contracts are applicable. applicable.

Terminating the Relationship Terminating the Relationship




Agency relationships can be Agency relationships can be terminated either by operation of law terminated either by operation of law or by the acts of the parties involved.or by the acts of the parties involved.

Terminating the Relationship Terminating the Relationship





How are agency relationships terminated by operation of law?




When a significant change of When a significant change of circumstances alters the original circumstances alters the original reason for the agency relationship, a reason for the agency relationship, a court may hold the agency court may hold the agency relationship terminated.relationship terminated.

By Operation of Law By Operation of Law




The death of either the principal or The death of either the principal or agent will terminate the agency agent will terminate the agency relationship.relationship.

Death of the Principal or Agent Death of the Principal or Agent




BankruptcyBankruptcy of the principal of the principal terminates an agency relationship terminates an agency relationship because it cancels all of the principal’s because it cancels all of the principal’s ordinary contracts.ordinary contracts.

Bankruptcy Bankruptcy




Bankruptcy of the agent will terminate Bankruptcy of the agent will terminate the agency relationship if the agent the agency relationship if the agent has used his or her own funds to has used his or her own funds to conduct the principal’s business.conduct the principal’s business.

Bankruptcy Bankruptcy




An agency relationship is terminated An agency relationship is terminated when the essential subject matter is when the essential subject matter is destroyed or the incapacity of the destroyed or the incapacity of the agent makes performance impossible.agent makes performance impossible.

Impossibility of Performance Impossibility of Performance




If, after an agency agreement has If, after an agency agreement has been entered, the purpose of the been entered, the purpose of the agency is declared illegal, then the agency is declared illegal, then the agency is terminated by operation of agency is terminated by operation of law.law.

Agent’s Objective Becomes Illegal Agent’s Objective Becomes Illegal





What acts of the parties do you think would terminate an agency relationship?




Most agency relationships are Most agency relationships are terminated by terminated by

By Acts of the Parties By Acts of the Parties

PerformancePerformanceMutual agreementMutual agreementAgent’s withdrawalAgent’s withdrawalAgent’s discharge Agent’s discharge




When the parties have fully carried out When the parties have fully carried out their duties, the agency relationship is their duties, the agency relationship is terminated. terminated.

In other words, when the job is done, In other words, when the job is done, the agency ends.the agency ends.

Performance Performance




The principal and the agent may The principal and the agent may mutually agree to terminate the mutually agree to terminate the agency.agency.Termination may result from the Termination may result from the passing of a preset time period.passing of a preset time period.

Mutual Agreement Mutual Agreement




An agent may terminate the agency at An agent may terminate the agency at any time. any time.

However, if termination involves a However, if termination involves a breach of contract, the agent may be breach of contract, the agent may be liable for any damages suffered by the liable for any damages suffered by the principal.principal.

Agent’s Withdrawal Agent’s Withdrawal




The principal may terminate an The principal may terminate an agency relationship at any time by agency relationship at any time by firing the agent. firing the agent.

There are some limits on the authority There are some limits on the authority of the principal to fire an agent, of the principal to fire an agent, however.however.

Agent’s Discharge Agent’s Discharge




When an agent has an interest in the When an agent has an interest in the subject matter of the agency, he or subject matter of the agency, he or she is said to have an irrevocable she is said to have an irrevocable agency, which cannot be discharged agency, which cannot be discharged by the principal.by the principal.

Agent’s Discharge Agent’s Discharge




Frank “the Hubcap Man” collects and sells hundreds of hubcaps at the local flea market on weekends.




He scours salvage yards for hubcaps and has an agreement with Sherman, who lives in another state, to buy hubcaps for Frank.




Frank recently found out that Sherman steals the hubcaps that he supplies to Frank. Do Frank and Sherman still have an agency relationship? Why or why not?




ANSWERANSWER

No, the agent’s objective has become illegal.




Joyce Hudson has been making jams and jellies for years and selling them to local restaurants and markets.




A regional chain of grocery stores wants to buy Joyce’s business, so Joyce has hired Dixie Zimmerman, an attorney, to represent her in the sale.




After eight weeks, the sale has been completed. Do Joyce and Dixie still have an agency relationship? Why or why not?




ANSWERANSWER

No, the agency was terminated because performance of the agreement is complete.





1. How can agency relationships be terminated by operation of law?






By the death of the principal or the agent, by the bankruptcy of the principal,


Answer





by the bankruptcy of the agent if the agent was required to use his or her own funds to carry out the objectives of the agency, and by the illegality of the agent’s objective.


Answer





2. How can agency relationships be terminated by the acts of the parties?






By performance, by mutual agreement, by the agent’s withdrawal, or by the agent’s discharge.


Answer





3. Which individuals are entitled to actual notice of an agency termination?






Individuals who have extended credit to the principal through the agent.


Answer





4. Which individuals are entitled to notice by publication of an agency termination?






Individuals who have never given credit but have done a cash business with the agent or who know other people who have dealt with the principal through the agent.


Answer





Legal Skills in ActionNotice of Termination Write a letter to Ted explaining what type of notice he must give to Morris and Sophie. In both cases, recommend a practical course of action for Ted to pursue in giving notice.





Legal Skills in Action AnswerNotice of Termination Letters will vary. Morris is entitled to an actual notice from Ted because Morris extended credit to Ted through David.

agency relationships chapter 10: agents. understanding business and personal law agency...

Documents