Post on 18-Jan-2016
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?
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
NOTES: Agents act within the scope of their authority and contract
with a third party on behalf of the principal.
Types of Agency Authority
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
The agent’s authority in negotiating the contracts with the third
party may be
Types of Agency Authority
actual
apparent
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
NOTES: Actual authority is the real power a principal gives to an
agent to act on the principals’ behalf.
Actual Authority
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
Such actual authority may be
Actual Authority
expressed in words
implied from the nature of the relationship or the conduct of
the parties
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
Sometimes a dispute arises over what powers can be implied from
the express authority given to the agent.
Going Beyond Implied Authority
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
An agent owes a principal the following five duties:
Agent’s Duties to the Principal
1. obedience
2. good faith
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
To have good faith simply means to deal honestly with another
party with no intent to seek advantage or to defraud.
Good Faith
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
NOTES: Good faith also requires an agent to notify the principal of
all matters pertaining to the agency relationship.
Good Faith
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
The principal has four duties to the agent by law.
Principal’s Duties to the Agent
1. compensation
2. reimbursement
3. indemnification
4. cooperation
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
Agents are entitled to reimbursement, or repayment, when they
spend their own money for the principal’s benefit.
Reimbursement
and Indemnification
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
Agency relationships can be terminated either by operation of law
or by the acts of the parties involved.
Terminating the Relationship
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
NOTES: The death of either the principal or agent will terminate
the agency relationship.
Death of the Principal or Agent
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
Bankruptcy of the principal terminates an agency relationship
because it cancels all of the principal’s ordinary contracts.
Bankruptcy
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
Most agency relationships are terminated by
By Acts of the Parties
performance
mutual agreement
agent’s withdrawal
agent’s discharge
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
2. When the third party has never given credit but has done a
cash business with the agent,
Type of Notice
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
3. When the third party has never heard of the agency
relationship, no notice of any kind is required.
Type of Notice
Understanding Business and Personal Law
Authority and Duties Section 19.1
Agency Relationships and Their Termination
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