Section 19.1 Authority and Duties
BELL QUIZ ON CHAPTER 18
1.
2.
3.
4.
Name one thing an agent can negotiate.
What is a servant?
Who has more authority than special agents?
If the principal hires two or more agents, what
has he/she created?
5. When does ratification occur?
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
ANSWERS TO BELL QUIZ
1. Deals, contracts, and perform other business
tasks.
2. A person whose conduct in the performance of
a task is subject to the control of another.
3. General agents.
4. Coagent situation
5. If the principal accepts the benefits of the
unauthorized acts.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1
Authority and Duties
Section 19.1 Authority and Duties
Agents and Principals
NOTES: It is important to understand
the nature of agency authority, the
duties and rights that exist between
agents and principals, the
responsibilities that extend to third
parties, and the ways that agency
relationships can end.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Types of Agency Authority
NOTES: Agents act within the scope
of their authority and contract with a
third party on behalf of the principal.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Types of Agency Authority
The agent’s authority in negotiating
the contracts with the third party may
be
actual
apparent
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Actual Authority
NOTES: Actual authority is the real
power a principal gives to an agent to
act on the principals’ behalf.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Actual Authority
Such actual authority may be
expressed in words
implied from the nature of the
relationship or the conduct of the
parties
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Express Authority
Express authority includes all of the
orders, commands, or directions a
principal directly states to an agent
when the agency relationship is first
created. These instructions may be
general or specific.
Example 1
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Implied Authority
The law allows some actual authority
to be implied or understood from the
express terms that create the agency
relationship, which constitutes an
agent’s implied authority.
Example 2
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Going Beyond Implied Authority
Sometimes a dispute arises over what
powers can be implied from the
express authority given to the agent.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Going Beyond Implied Authority
NOTES: The court draws the line by
saying that implied authority must be
“reasonably derived from the express
power.”
Example 3
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Apparent Authority
NOTES: Apparent authority exists
when the principal has somehow led a
third party to believe that a nonagent
is an agent, or that an agent has a
power that he or she does not truly
have.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Apparent Authority
Apparent authority is sometimes
referred to as agency by estoppel
because the principal cannot deny
that the nonagent acted on his or her
behalf.
Example 4
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Agent’s Duties to the Principal
An agent owes a principal the
following five duties:
1. obedience
2. good faith
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Agent’s Duties to the Principal
3. loyalty
4. accounting for all the principal’s
money handled by the agent
5. exercising judgment and skill in the
performance of the assigned work
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Obedience
An agent owes the principal the duty
of obedience, which means the agent
must obey all reasonable orders and
instructions within the scope of the
agency agreement.
Example 5
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Good Faith
To have good faith simply means to
deal honestly with another party with
no intent to seek advantage or to
defraud.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Good Faith
NOTES: Good faith also requires an
agent to notify the principal of all
matters pertaining to the agency
relationship.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Loyalty
NOTES: Agents may not work for
others who are competing with their
principals, nor may they make deals to
their own advantage at the expense of
their principals.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Duty to Account
The duty to account means the
agent must keep a record of all the
money collected and paid out and
must report this to the principal.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Judgment and Skill
Example 6
Agents:
must use all of the skill and
judgment that they have when
performing work for principals
NOTE: are not held liable for honest
mistakes if they have performed to
the best of their ability.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Principal’s Duties to the Agent
The principal has four duties to the
agent by law.
1.
2.
3.
4.
compensation
reimbursement
indemnification
cooperation
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Compensation
NOTES: An agent who is working on
behalf of a principal is entitled to be
paid for services rendered, unless he
or she is a gratuitous agent.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Reimbursement
and Indemnification
Agents are entitled to
reimbursement, or repayment, when
they spend their own money for the
principal’s benefit.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Reimbursement
and Indemnification
In addition, if an agent suffers any loss
as a result of the principal’s
instructions, he or she is entitled to
indemnification; that is, he or she is
entitled to repayment of the amount
lost.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Cooperation
The duty of cooperation means
working together toward a common
end.
If the principal makes the agent’s job
difficult or impossible, he or she has
breached the duty of cooperation.
Example 7
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Agent’s Liability to Third Parties
Principals may or may not wish to
disclose their relationship in a
contractual arrangement between an
agent and a third party.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Agent’s Liability to Third Parties
NOTES: If the agent represents a
disclosed principal, one whose
existence and identity are known to
the third party, the agent assumes no
contractual liability for the resulting
contract.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
When the Principal is Not Disclosed
or Wrongfully Exceed Authority
NOTES: Agents may be held responsible
for contracts negotiated for the principal
when the agents do not disclose the
identity or the existence of the principal, or
when agents wrongfully exceed their
authority.
Examples 8 - 10
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Section 19.2 Terminating the
Relationship
NOTES: Because many agency
relationships involve contractual
arrangements, the usual rules that
apply to the termination of contracts
are applicable.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Terminating the Relationship
Agency relationships can be
terminated either by operation of law
or by the acts of the parties involved.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
By Operation of Law
NOTES: When a significant change of
circumstances alters the original
reason for the agency relationship, a
court may hold the agency
relationship terminated.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Death of the Principal or Agent
NOTES: The death of either the
principal or agent will terminate the
agency relationship.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Bankruptcy
Bankruptcy of the principal
terminates an agency relationship
because it cancels all of the principal’s
ordinary contracts.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Bankruptcy
Bankruptcy of the agent will terminate
the agency relationship if the agent
has used his or her own funds to
conduct the principal’s business.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Impossibility of Performance
NOTES: An agency relationship is
terminated when the essential subject
matter is destroyed or the incapacity
of the agent makes performance
impossible.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Agent’s Objective Becomes Illegal
NOTES: If, after an agency
agreement has been entered, the
purpose of the agency is declared
illegal, then the agency is terminated
by operation of law.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
By Acts of the Parties
Most agency relationships are
terminated by
performance
mutual agreement
agent’s withdrawal
agent’s discharge
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Performance
When the parties have fully carried out
their duties, the agency relationship is
terminated.
NOTES: In other words, when the job
is done, the agency ends.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Mutual Agreement
NOTES: The principal and the
agent may mutually agree to
terminate the agency.
Termination may result from the
passing of a preset time period.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Agent’s Withdrawal
NOTES: An agent may terminate the
agency at any time.
However, if termination involves a
breach of contract, the agent may be
liable for any damages suffered by the
principal.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Agent’s Discharge
NOTES: The principal may terminate
an agency relationship at any time by
firing the agent.
There are some limits on the authority
of the principal to fire an agent,
however.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Agent’s Discharge
When an agent has an interest in the
subject matter of the agency, he or
she is said to have an irrevocable
agency, which cannot be discharged
by the principal.
Example 11
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Notice to Third Parties
NOTES: Third parties who have done
business with the principal through an
agent or who know of the agency
relationship are entitled to notice of its
termination.
Example 12
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Notice to Third Parties
NOTES: A principal who fails to notify
third parties when an agency has
ended may be liable for future acts of
the agent.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Type of Notice
The type of notice given to a third
party depends on how the former
business relations were carried out.
There are three situations to consider
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Type of Notice
1. When the third party has given
credit to the principal through the
agent, the third party is entitled to
actual notice.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Type of Notice
1. (continued) Notice by certified mail
is perhaps the best way to give
actual notice, because receipt of the
notice can be obtained from the
post office.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Type of Notice
2. When the third party has never
given credit but has done a cash
business with the agent,
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Type of Notice
2. (continued) or knows that other
persons have dealt with the
principal through the agent, notice
by publication in a newspaper is
sufficient.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Type of Notice
3. When the third party has never
heard of the agency relationship, no
notice of any kind is required.
Understanding Business and Personal Law
Agency Relationships and Their Termination
Section 19.1 Authority and Duties
Type of Notice
3. (continued) The third party who is
dealing with an agent for the first
time has a duty to investigate and
determine the exact extent of the
agent’s authority.
Understanding Business and Personal Law
Agency Relationships and Their Termination
19.2 19.1 Authority and Duties
Section
How Liability Is Determined after
Termination of an Agency
Understanding Business and Personal Law
Agency Relationships and Their Termination