Chapter 39: Agency

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• Chapter 39 Agency

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Agency Relationship

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

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The Agency Relationship
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Purpose of Agency

• The effect of a proper exercise of authority by
  an agent is to bind the principal and third
  person to a contract.
• The agent, not being a party to the contract, is
  not liable in any respect under the contract.

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Agent vs. Contractor

• An agent differs from an independent contractor
  in that the principal, who controls the acts of
  an agent, does not have control over the details
  of performance of work by the independent
  contractor.
• Likewise, an independent contractor does not have
  authority to act on behalf of the other
  contracting party.

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Creating an Agency
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Types of Agents

• A special agent is authorized by the principal to
  handle a specific business transaction.
• A general agent is authorized by the principal to
  transact all business affairs of the principal at
  a certain place.
• A universal agent is authorized to perform all
  acts that can be lawfully delegated to a
  representative.

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Creation of Agency

• The usual method of creating an agency is by
  express authorization.
• However, an agency relationship may be found to
  exist when the principal causes or permits a
  third person to reasonably believe that an agency
  relationship exists.
• In such a case, the agent appears to be
  authorized and is said to have apparent
  authority.

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Limits on Apparent Authority

• The third person cannot claim that apparent
  authority existed when that person knows that the
  agents conduct is adverse to the interests of
  the principal or that the agent is exceeding the
  limits of his authority.
• An unauthorized transaction by an agent for a
  principal may be ratified by the principal,
  giving it enforceability.

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Scope of Agents Authority

• An agent acting with authority has the power to
  bind the principal.
• The scope of an agents authority may be
  determined from the express words of the
  principal to the agent this is called express
  authority.
• An agent has incidental authority to perform any
  act reasonably necessary to execute the authority
  given the agent.

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Customary Authority

• An agents authority may be implied so as to
  enable the agent to perform any act in accordance
  with the general customs or usage's in a business
  or an industry.
• This authority is often referred to as customary
  authority.

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Types of Agents Authority
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Duties of Agent

• While the agency relationship exists, the agent
  owes the principal the duties of
• (1) being loyal,
• (2) obeying all lawful instructions,
• (3) exercising reasonable care,
• (4) accounting for all property or money
  belonging to the principal, and
• (5) informing the principal of all facts relating
  to the agency that are relevant to the
  principals interests.

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Termination of Agency

• An agency relationship can be terminated by act
  of either the principal or the agent.
• The terminating party may be liable for damages
  to the other if the termination is in violation
  of the agency contract.
• An agency is automatically terminated upon
• (1) the death of the principal or agent
• (2) insanity of the principal or agent
• (3) bankruptcy of the principal or agent
• (4) impossibility of performance or
• (5) war.

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Notice of Termination

• When the law requires the giving of notice in
  order to end the power of the agent to bind the
  principal, individual notice must be given or
  mailed to all persons who had prior dealings with
  the agent.
• Notice to the general public can be given by
  publishing the announcement in a newspaper of
  general circulation in the affected geographic
  area.

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Power of Attorney

• In states that have adopted the Uniform Durable
  Power of Attorney Act (UDPAA), an agency may be
  created that is not affected by subsequent
  disability or incapacity of the principal.
• In UDPAA states, the agency may also come into
  existence upon the disability or incapacity of
  the principal.
• The designation of an attorney in fact under the
  UDPAA must be in writing.