Agency Law
Objective 3.02
Understand agency law
What is agency law?
• Area of law dealing relationships created
between two parties in which the principal
gives authority to an agent to act of the
principal’s behalf in business transactions with
a third party.
Agency Definitions
• Principal
– Individual who gives authority to the agent.
• Agent
– Individual employed by principal to work with the
third party.
• Third party
– The person or company whom the agent deals
with on behalf of the Principal.
Types of Work Relationships
• Principal-Agent Relationship
– “Genuine” agency relationship
– Agent conduct business on behalf of the principal
(it is as if the principal has acted)
Types of Work Relationships
• Proprietor-Independent Contractor
– Proprietor is an individual or business that hires
someone to perform a task
– Independent contractor (plumber, electrician,
lawyer, etc.) works for the proprietor
– Independent contractor cannot act on behalf of
proprietor without expressed permission
Types of Work Relationships
• Master-Servant Relationships
– A master is a person who has the right to control
the actions of another person
– Actions include where to work, what time to
arrive at work and tasks to complete at work.
– The person performing the actions is the servant
– At times, the interactions between employeremployee are considered to be master-servant
Actual Authority
• If the principal intentionally gives express and
implied powers to the agent to act for
him/her, the agent possesses actual authority.
• Express Powers
– Responsibilities of the agent are written or spoken.
• Implied Powers
– Responsibilities created by the principal’s actions.
Apparent Authority
• Apparent Authority
– Also called, agency by estoppel.
– Created by law or circumstance.
– Occurs when a principal, intentionally or
negligently, causes or allows a third person to
believe that an agency relationship exists, when
there is no express agency.
– Principal remains liable for the agent’s actions.
Types of Agents
• General Agent
– Given authority by principal to perform a VARIETY
of tasks.
• Special Agent
– Authority restricted to certain, specific tasks.
• Subagent
– An agent appointed by another agent with the
knowledge and consent of the principal.
Types of Agents
• Agent’s Agent
– An agent appointed by another agent without the
knowledge and consent of the principal.
• Co-agents
– Two or more agents working together.
• Partially Disclosed Agent
– Given authority to work with a third party but
forbidden to reveal identity of the principal.
Types of Agents
• Gratuitous agent
– Agent that works for free
– No contract exists between agent and principal
– Agent can terminate relationship at any time
Duties of Agent to the Principal
• An agency relationship is fiduciary in nature; a
good faith relationship based on trust
• Agent must protect the interests of the
principal
Duties of Agent to Principal
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Loyalty
Confidentiality
Abide by all lawful instructions
Act with reasonable care
Account for funds
Duties of Principal to the Agent
• Compensation
– Payment for services rendered
• Reimbursement
– Payment for expenses incurred by the agent on
behalf of the principal
• Indemnification
– Payment for losses incurred by the agent on
behalf of the principal
Duties of Principal to the Agent
• Cooperation
– Principal must allow agent to perform his/her
tasks
– Principal must not make agent’s job difficult or
impossible to perform
Termination of Agency
• By operation of law:
– Death of principal or agent
– Either party becomes insane
– Bankruptcy of principal
– Destruction of subject matter
– Agent’s objective becomes illegal
Termination of Agency
• Fulfillment of the agency purpose
– The agent completes his/her task
• Mutual consent
– Both agent and principal agree to end relationship
• Expiration of time
– Only applies if the agent is contracted to perform
duties within a certain period of time