Chapter 37 AGENCY Agency Relationship An agency relationship

Chapter 37 AGENCY

Agency Relationship üAn 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. 2

The Agency Relationship deals with third person and makes contracts on behalf of principal Parties to the contract(s) 3

Purpose of Agency üThe effect of a proper exercise of authority by an agent is to bind the principal and third person to a contract. üThe agent, not being a party to the contract, is not liable in any respect under the contract. 4

Agent vs. Contractor üAn agent differs from an independent contractor in that the principal, who controls the acts of an agent, does not have control over the details of performance of work by the independent contractor. üLikewise, an independent contractor does not have authority to act on behalf of the other contracting party. 5

Classification of Agents üA special agent is authorized by the principal to handle a specific business transaction. üA general agent is authorized by the principal to transact all business affairs of the principal at a certain place. üA universal agent is authorized to perform all acts that can be lawfully delegated to a representative. 6

Creating an 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 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. 7

Scope of Agent’s Authority üThe usual method of creating an agency is by express authorization. üApparent (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. 8

Scope of Agent’s Authority üA third party has a duty to ascertain the agent’s authority. § Agent’s acts adverse to principal. Third parties should ask the principal. üLimitations on Agent’s Authority. § “Obvious” Limitations. 9

Scope of Agent’s Authority üThe 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. üAn unauthorized transaction by an agent for a principal may be ratified by the principal, giving it enforceability. 10

Agency by Ratification ü 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. 11

Agent’s Authority üAn agent acting with authority has the power to bind the principal. üThe scope of an agent’s authority may be determined from the express words of the principal to the agent; this is called express authority. üAn agent has incidental authority to perform any act reasonably necessary to execute the authority given the agent. 12

Agent’s Authority üAn 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. üThis authority is often referred to as customary authority. 13

Types of Agent’s Authority Actual Authority Express Authority Incidental Customary 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. 14

Duties and Liabilities of Principal and Agent ü 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. 15

Termination of Agency ü 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. ü 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 (5) war. 16

Notice of Termination üWhen 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. üNotice to the general public can be given by publishing the announcement in a newspaper of general circulation in the affected geographic area. 17

Effect of Termination üAgency is revoked when agent receives notification. § Agent looses the right to bind the principal. § Termination is effective without giving notice to third persons. üTermination of Agency. § Notice to Third Parties. § Agent may still have apparent authority. 18

Power of Attorney ü 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. ü The agency may also come into existence upon the “disability or incapacity of the principal. ” ü The designation of an attorney in fact under the UDPAA must be in writing. 19