Chapter 37Chapter 37AGENCYAGENCY

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An agency relationship is created by an express An agency relationship is created by an express or implied agreement whereby one person, the or implied agreement whereby one person, the agent, is authorized to make contracts with agent, is authorized to make contracts with third persons on behalf of and subject to the third persons on behalf of and subject to the control of another person, the principal.control of another person, the principal.

Agency RelationshipAgency Relationship

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The Agency RelationshipThe Agency Relationship

Parties tothe contract(s)

deals with third personand makes contracts on

behalf of principal

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Purpose of AgencyPurpose of Agency

The effect of a proper exercise of authority by The effect of a proper exercise of authority by an agent is to bind the principal and third an agent is to bind the principal and third person to a contract. person to a contract.

The agent, not being a party to the contract, is The agent, not being a party to the contract, is not liable in any respect under the contract. not liable in any respect under the contract.

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Agent vs. ContractorAgent vs. Contractor

An agent differs from an independent An agent differs from an independent contractor in that the principal, who controls contractor in that the principal, who controls the acts of an agent, does not have control over the acts of an agent, does not have control over the details of performance of work by the the details of performance of work by the independent contractor. independent contractor.

Likewise, an independent contractor does not Likewise, an independent contractor does not have authority to act on behalf of the other have authority to act on behalf of the other contracting party.contracting party.

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Classification of AgentsClassification of Agents

A A specialspecial agent is authorized by the principal to agent is authorized by the principal to handle a specific business transaction. handle a specific business transaction.

A A generalgeneral agent is authorized by the principal agent is authorized by the principal to transact all business affairs of the principal at to transact all business affairs of the principal at a certain place. a certain place.

A A universaluniversal agent is authorized to perform all agent is authorized to perform all acts that can be lawfully delegated to a acts that can be lawfully delegated to a representative.representative.

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AGENCY BYAPPOINTMENT

AGENCY BYCONDUCT

AGENCY BYOPERATION OF LAW

AGENCY BYRATIFICATION

Express authorization — appointed to act for or on behalf of another

Power of Attorney

Conduct of principal as to agent and third person consistent with the existence of an agency relationship

Apparent Authority

With knowledge of an agent’s act, the principal accepts or retains the benefit of the act, or brings an action to enforce legal rights based on the act, or defends the action, or fails to repudiate the act.

Courts create or find an agency when there is none.

Creating an AgencyCreating an Agency

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Scope of Agent’s AuthorityScope of Agent’s Authority

The usual method of creating an agency is by The usual method of creating an agency is by expressexpress authorization. authorization.

ApparentApparent (Appearance) Authority: agency (Appearance) Authority: agency relationship is be found to exist when the relationship is be found to exist when the principal causes or permits a third person to principal causes or permits a third person to reasonably believe that an agency relationship reasonably believe that an agency relationship exists. exists.

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Scope of Agent’s AuthorityScope of Agent’s Authority

A third party has a duty to ascertain the agent’s A third party has a duty to ascertain the agent’s authority.authority. Agent’s acts adverse to principal. Third parties Agent’s acts adverse to principal. Third parties

should ask the principal.should ask the principal.Limitations on Agent’s Authority.Limitations on Agent’s Authority.

““Obvious” Limitations.Obvious” Limitations.

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Scope of Agent’s AuthorityScope of Agent’s Authority

The third person cannot claim that apparent The third person cannot claim that apparent authority existed when that person knows that authority existed when that person knows that the agent’s conduct is adverse to the interests of the agent’s conduct is adverse to the interests of the principal or that the agent is exceeding the the principal or that the agent is exceeding the limits of his authority. limits of his authority.

An unauthorized transaction by an agent for a An unauthorized transaction by an agent for a principal may be ratified by the principal, principal may be ratified by the principal, giving it enforceability.giving it enforceability.

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A person, who is not an agent, attempts to do an A person, who is not an agent, attempts to do an unauthorized act the principal may later approve.unauthorized act the principal may later approve. Intention to Ratify.Intention to Ratify. Conditions of Ratification.Conditions of Ratification.

• Agent must have purported to act on behalf of the principal.Agent must have purported to act on behalf of the principal.• Principal must have been capable of authorizing the act.Principal must have been capable of authorizing the act.• Principal must have full knowledge of material facts.Principal must have full knowledge of material facts.

Effect of Ratification.Effect of Ratification.

Agency by RatificationAgency by Ratification

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Agent’s AuthorityAgent’s Authority

An agent acting with authority has the power to An agent acting with authority has the power to bind the principal. bind the principal.

The scope of an agent’s authority may be The scope of an agent’s authority may be determined from the express words of the determined from the express words of the principal to the agent; this is called principal to the agent; this is called expressexpress authority. authority.

An agent has An agent has incidentalincidental authority to perform authority to perform any act reasonably necessary to execute the any act reasonably necessary to execute the authority given the agent.authority given the agent.

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Agent’s AuthorityAgent’s Authority

An agent’s authority may be An agent’s authority may be impliedimplied so as to so as to enable the agent to perform any act in enable the agent to perform any act in accordance with the general customs or usage's accordance with the general customs or usage's in a business or an industry. in a business or an industry.

This authority is often referred to as This authority is often referred to as customarycustomary authority. authority.

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ExpressAuthority

Actual Authority

IncidentalAuthority

CustomaryAuthority

Express Authority: Principal tells agentto perform a certain act.

Buy new office furniture and sell specified used furniture.

Incidental Authority: An act reasonablynecessary to perform the act expresslyauthorized.

Buy furniture on credit when funds notmade available to pay for items.

Customary Authority: An act that,according to the custom of similarbusinesses in the community, usuallyaccompanies the act performed underexpress authority.

Issue receipts for used furniture sold.

ApparentAuthority

No Authority

Apparent Authority: Principal leads thirdparty to believe that agent has authority.

Principal was present when third partypurchased furniture from agent and did not stop the unauthorized transaction.

Types of Agent’s AuthorityTypes of Agent’s Authority

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While the agency relationship exists, the agent owes While the agency relationship exists, the agent owes the principal the duties of: the principal the duties of: (1) being loyal, (1) being loyal, (2) obeying all lawful instructions, (2) obeying all lawful instructions, (3) exercising reasonable care,(3) exercising reasonable care, (4) accounting for all property or money belonging to the (4) accounting for all property or money belonging to the

principal, and principal, and (5) informing the principal of all facts relating to the (5) informing the principal of all facts relating to the

agency that are relevant to the principal’s interests. agency that are relevant to the principal’s interests.

Duties and Liabilities Duties and Liabilities of Principal and Agentof Principal and Agent

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Termination of AgencyTermination of Agency

An agency relationship can be terminated by act of An agency relationship can be terminated by act of either the principal or the agent. either the principal or the agent. The terminating party may be liable for damages to the other The terminating party may be liable for damages to the other

if the termination is in violation of the agency contract.if the termination is in violation of the agency contract.An agency is automatically terminated upon:An agency is automatically terminated upon:

(1) the death of the principal or agent; (1) the death of the principal or agent; (2) insanity of the principal or agent; (2) insanity of the principal or agent; (3) bankruptcy of the principal or agent; (3) bankruptcy of the principal or agent; (4) impossibility of performance; or (4) impossibility of performance; or (5) war.(5) war.

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Notice of TerminationNotice of Termination

When the law requires the giving of notice in When the law requires the giving of notice in order to end the power of the agent to bind the order to end the power of the agent to bind the principal, individual notice must be given or principal, individual notice must be given or mailed to all persons who had prior dealings mailed to all persons who had prior dealings with the agent. with the agent.

Notice to the general public can be given by Notice to the general public can be given by publishing the announcement in a newspaper of publishing the announcement in a newspaper of general circulation in the affected geographic general circulation in the affected geographic area. area.

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Effect of TerminationEffect of Termination

Agency is revoked when agent receives Agency is revoked when agent receives notification.notification. Agent looses the Agent looses the rightright to bind the principal. to bind the principal. Termination is effective without giving notice Termination is effective without giving notice

to third persons.to third persons.Termination of Agency.Termination of Agency.

Notice to Third Parties.Notice to Third Parties. Agent may still have apparent authority.Agent may still have apparent authority.

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Power of AttorneyPower of Attorney

Under the Uniform Durable Power of Attorney Under the Uniform Durable Power of Attorney Act (UDPAA), an agency may be created that is Act (UDPAA), an agency may be created that is not affected by subsequent disability or incapacity not affected by subsequent disability or incapacity of the principal. of the principal.

The agency may also come into existence upon the The agency may also come into existence upon the “disability or incapacity of the principal.” “disability or incapacity of the principal.”

The designation of an attorney in fact under the The designation of an attorney in fact under the UDPAA must be in writing.UDPAA must be in writing.