Comprehensive Volume, 18th Edition
Chapter 39: Agency
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
deals with third person
and makes contracts on
behalf of principal
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Parties to
the contract(s)
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
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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.
Creating an Agency
AGENCY BY
APPOINTMENT
AGENCY BY
CONDUCT
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
AGENCY BY
RATIFICATION
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.
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AGENCY BY
OPERATION OF LAW
Courts create or find an agency when
there is none.
Types of Agents
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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.
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.
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In such a case, the “agent” appears to be
authorized and is said to have apparent
authority.
Limits on Apparent Authority
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The third person cannot claim that
apparent authority existed when that
person knows that the agent’s 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.
Scope of Agent’s Authority
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An agent acting with authority has the
power to bind the principal.
The scope of an agent’s 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.
Customary Authority
An agent’s 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 Agent’s Authority
Actual Authority
Express
Authority
Incidental Customar
Authority y
Authority
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No Authority
Apparent
Authority
Express Authority: Principal tells agent
to perform a certain act.
Buy new office furniture and sell specified
used furniture.
Incidental Authority: An act reasonably
necessary to perform the act expressly
authorized.
Buy furniture on credit when funds not
made available to pay for items.
Customary Authority: An act that,
according to the custom of similar
businesses in the community, usually
accompanies the act performed under
express authority.
Issue receipts for used furniture sold.
Apparent Authority: Principal leads third Principal was present when third party
purchased furniture from agent and did
party to believe that agent has authority.
not stop the unauthorized transaction.
Duties of Agent
While the agency relationship exists, the
agent owes the principal the duties of:
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(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 principal’s interests.
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:
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(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.
Notice of Termination
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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.
Power of Attorney
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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.