Unit C
Objective 07.01
Agency Law
AGENCY
Relationship in which one person,
called an agent, represents another
person, called a principal, in some sort
of business transaction with a third
party. In most cases a binding
contractual agreement is formed.
 Principal -> Agent -> Third Party

– Example: You picked up and paid for a
pizza ordered by a family member.
TYPES OF AGENTS





General Agent-given authority to perform
any act within the scope of a business.
Special Agent-employed to accomplish a
specific purpose or to do a particular job.
Subagents-appointed by another agent.
Agent’s Agent-has no power to appoint a
subagent but does so anyway.
Coagents-two ore more agents hired by the
principal.
RELATIONSHIPS ARE
CREATED
By agreement (contract)
 By law (circumstantial or specific)
 By statute (special interest of a state)

AGENCY
RELATIONSHIPS
Gratuitous Agent: agent works for free
(no contract)
 Master: has the right to control the
conduct of his or her servant
 Independent Contractor: agent is
hired by the other party, but not
controlled

AGENCY RELATIONSHIPS,
Continued
Partially Disclosed Agent: principal’s
existence but not identity is known to
the third party.
 Fiduciary: relationship is based on
trust.
 Actual Authority: real power the
principal gives to an agent to act on his
or her behalf

AGENCY RELATIONSHIPS,
Continued
Apparent Authority: agency by
estoppel
 Third Party: must be notified if an
agency has been terminated
 Consensual: both parties of a
principal/agent relationship agree or
consent to relationship

AGENCY RELATIONSHIPS,
Continued
Agent is obligated to act in good faith
(within the scope of the principal’s
needs and wants). Therefore, a
principal is not liable for criminal acts.
 When an agency is created by statute
(law), the agent is known as a
statutory agent.

AGENCY
RELATIONSHIPS,
Continued

If unauthorized agent works on your
behalf, you have two options:
1. Charge agent with fraud (agent is liable
to the third party)
2. Accept actions of agent (ratify)
TYPES OF AUTHORITY
Actual-real power given to agent
 Express-all orders, commands, or
directions given to agent when
relationship created
 Implied-understood acts or powers
implied from express terms

AGENT’S DUTIES TO
PRINCIPAL
Obedience-obey reasonable orders
 Good faith-deal honestly
 Loyalty-faithfulness or acting in best
interest
 Duty to account-accountable for all
money entrusted to him/her

PRINCIPAL’S DUTIES
TO AGENT
Compensation-payment for services
 Reimbursement-repayment for own
money spent
 Indemnification-repayment for amount
lost
 Cooperation-working together

TERMINATION OF
RELATIONSHIP

By operation of law
– Death of principal or agent
– Bankruptcy
– Impossibility of performance
– Agent’s objective becomes illegal
TERMINATION OF
RELATIONSHIP continued

Termination of acts
– Performance
– Mutual agreement
– Agent’s withdrawal
– Agent’s discharge
TERMINATION OF
RELATIONSHIP continued

Notice to third parties
– Credit has been given to principal.
– Cash business has been done.
– No notice when third party never heard of
agency relationship.