What is Agency?


What is Agency?

 Agency -relationship in which one person represents another in making contracts.

 Principal -one who authorizes an agent to make contracts

Agent -the person authorized to alter a legal relationship

Third Party - a person who works through an agent to reach an agreement that binds a principal.

Scope of Authority -the range of acts authorized by the principal.

 Fiduciary Duties -require that the agent serve the best interests of the principal.

Who Can Be a Principal?

 Minors and others who lack contractual capacity.

Warranty of the Principal’s Capacity

-a warranty imposed by law on the agent so that if the principal injured the third party, the third party could recover from the agent.

Who Can Be An Agent?

 Minors and others who lack contractual capacity.

How Is Agency Authority


 Four Ways:

 1) Express grant of authority

 2) Implied grant of authority

 3) Apparent authority

 4) Ratification


Gratuitous Agency -agency relationship in which the agent receives no consideration.

Express Authority -the oral or written power to do anything directly communicated by the principal to the agent.

Power of Attorney -any writing that appoints someone as an agent..

Implied Authority -the power to do anything that is reasonably necessary or customary to carry out the duties expressly authorized.

Apparent Authority -created when a principal leads the third party to reasonably believe that a particular person has agency authority.

Ratification -Approval of a voidable contract; also, approval of a previously unauthorized act `

What Are An Agent’s

Fiduciary Duties?

 1) Loyalty and Obedience

 2) Reasonable Care and Skill

 3) Confidentiality

 4) Accounting


Duty of Loyalty -Requires that agents must place the interests of their principal’s above the interests of all others.

Duty of Obedience -the agent must obey the instructions of the principal.

Duty of Reasonable Care and Skill -requires the agent to exercise the degree of care and skill that a reasonably prudent person would use in a similar situation.

Duty of Confidentiality -requires the agent to treat information about the principal with great caution.

Duty of Accounting -requires an agent must account to the principal for all money and property of the principal that comes into the agent’s possession.

Commingling -mixing the funds or property of the agent with those of the principal.

What Duties Does A Principal

Owe An Agent?

 A principal owes many of the same obligations to an agent that an employer owes to an ordinary employee.

When Is A Principal Liable

To Third Persons?

 1) Contractual Liability to the Third Person

 2) Liability for Fraud, Torts, and Crimes

When Is An Agent Liable

To Third Persons?

 1) Agent Acts Outside the Scope of


 2) Principal Lacks Capacity

– Undisclosed principal-a principal whose identity is kept secret from the third party by the agent