Understanding Business and Personal Law Authority and Duties Section 19.1 Agency Relationships and...

Understanding Business and Personal Law

Authority and Duties Section 19.1

Agency Relationships and Their Termination

BELL QUIZ ON CHAPTER 181. Name one thing an agent can negotiate.

2. What is a servant?

3. Who has more authority than special agents?

4. If the principal hires two or more agents, what has he/she created?

5. When does ratification occur?




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.

Authority and Duties Authority and Duties

Section 19.1Section 19.1




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.

Agents and Principals




NOTES: Agents act within the scope of their authority and contract

with a third party on behalf of the principal.

Types of Agency Authority




The agent’s authority in negotiating the contracts with the third

party may be

Types of Agency Authority

actual

apparent




NOTES: Actual authority is the real power a principal gives to an

agent to act on the principals’ behalf.

Actual Authority




Such actual authority may be

Actual Authority

expressed in words

implied from the nature of the relationship or the conduct of

the parties




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.

Express Authority

Example 1




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.

Implied Authority

Example 2




Sometimes a dispute arises over what powers can be implied from

the express authority given to the agent.

Going Beyond Implied Authority




NOTES: The court draws the line by saying that implied authority

must be “reasonably derived from the express power.”

Going Beyond Implied Authority

Example 3




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.

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.

Apparent Authority

Example 4




An agent owes a principal the following five duties:

Agent’s Duties to the Principal

1. obedience

2. good faith




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

Agent’s Duties to the Principal




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.

Obedience

Example 5




To have good faith simply means to deal honestly with another

party with no intent to seek advantage or to defraud.

Good Faith




NOTES: Good faith also requires an agent to notify the principal of

all matters pertaining to the agency relationship.

Good Faith




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.

Loyalty




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.

Duty to Account




Agents:

Judgment and Skill

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.

Example 6




The principal has four duties to the agent by law.

Principal’s Duties to the Agent

1. compensation

2. reimbursement

3. indemnification

4. cooperation




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.

Compensation




Agents are entitled to reimbursement, or repayment, when they

spend their own money for the principal’s benefit.

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.

Reimbursement

and Indemnification




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.

Cooperation

Example 7




Principals may or may not wish to disclose their relationship in a

contractual arrangement between an agent and a third party.

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.

Agent’s Liability to Third Parties




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.

When the Principal is Not Disclosed or Wrongfully Exceed

Authority

Examples 8 - 10




NOTES: Because many agency relationships involve contractual

arrangements, the usual rules that apply to the termination of

contracts are applicable.

Section 19.2 Terminating the Relationship




Agency relationships can be terminated either by operation of law

or by the acts of the parties involved.

Terminating the Relationship




NOTES: When a significant change of circumstances alters the

original reason for the agency relationship, a court may hold the

agency relationship terminated.

By Operation of Law




NOTES: The death of either the principal or agent will terminate

the agency relationship.

Death of the Principal or Agent




Bankruptcy of the principal terminates an agency relationship

because it cancels all of the principal’s ordinary contracts.

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.

Bankruptcy




NOTES: An agency relationship is terminated when the essential

subject matter is destroyed or the incapacity of the agent makes

performance impossible.

Impossibility of Performance




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.

Agent’s Objective Becomes Illegal




Most agency relationships are terminated by

By Acts of the Parties

performance

mutual agreement

agent’s withdrawal

agent’s discharge




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.

Performance




NOTES: The principal and the agent may mutually agree to

terminate the agency.

Termination may result from the passing of a preset time

period.

Mutual Agreement




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.

Agent’s Withdrawal




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.

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.

Agent’s Discharge

Example 11




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.

Notice to Third Parties

Example 12




NOTES: A principal who fails to notify third parties when an

agency has ended may be liable for future acts of the agent.

Notice to Third Parties




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

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.

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.

Type of Notice




2. When the third party has never given credit but has done a

cash business with the agent,

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.

Type of Notice




3. When the third party has never heard of the agency

relationship, no notice of any kind is required.

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.

Type of Notice




19.2

How Liability Is Determined after Termination of an

Agency

Understanding Business and Personal Law Authority and Duties Section 19.1 Agency Relationships and...

Documents

Transcript of Understanding Business and Personal Law Authority and Duties Section 19.1 Agency Relationships and...