Twomey  Jennings
Anderson’s Business Law and the Legal Environment, Comprehensive 20e
Anderson’s Business Law and the Legal Environment, Standard 20e
Business Law: Principles for Today’s Commercial Environment 2e
Chapter 37
Agency
Copyright © 2008 by West Legal Studies in Business
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Nature of the 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
Parties to
the contract(s)
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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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Employee vs. Contractor
• An employee differs from an independent
contractor in that the principal, who
controls the acts of his employee, 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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Classification 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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Agency Coupled
with an Interest
• Agency has an interest in the authority
when consideration has been given or
paid for the right to exercise the authority.
• Agent has an interest in the subject matter
when, for consideration, she is given an
interest in the property with which she is
dealing.
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Creating the 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
AGENCY BY
OPERATION OF LAW
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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.
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Types of Agent’s Authority
Actual Authority
Express
Authority
Incidental Customar
Authority y
Authority
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.
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Creating the Agency
• Agency created by express conduct.
• Agency created by conduct creates apparent
authority.
• A person, who is not an agent, attempts to do an
unauthorized act the principal may later approve.
– Intention to Ratify.
– Conditions of Ratification.
• Agent must have purported to act on behalf of the principal.
• Principal must have been capable of authorizing the act.
• Principal must have full knowledge of material facts.
– Effect of Ratification.
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Scope of Agent’s Authority
• The usual method of creating an agency
is by express authorization.
• Apparent (Appearance) Authority:
agency relationship is 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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Scope of Agent’s Authority
• 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.
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Agent’s Authority
• 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.
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Agent’s 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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Scope of Agent’s Authority
• A third party has a duty to ascertain
the agent’s authority.
– Agent’s acts adverse to principal.
Third parties should ask the principal.
• Limitations on Agent’s Authority.
– “Obvious” Limitations.
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Duties and Liabilities
of Principal and 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 principal’s
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
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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 18
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Effect of Termination
• Agency is revoked when agent
receives notification.
– Agent looses the right to bind the
principal.
– Termination is effective without giving
notice to third persons.
• Termination of Agency.
– Notice to Third Parties.
– Agent may still have apparent authority.
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Power of Attorney
• Under 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.
• 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.
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