Chapter 38 Agency Twomey, Business Law and the Regulatory Environment (14th Ed.)
The Agency Relationship [38-1] PRINCIPAL THIRD PERSON AGENT deals with third person and makes contracts on behalf of principal Parties to the contract(s)
Creating an Agency [38-2] AGENCY BY APPOINTMENT AGENCY BY CONDUCT AGENCY BY OPERATION OF LAW AGENCY BY RATIFICATION 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 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
Interrelationships Among Types of Agent’s Authority [38-3] Apparent Authority Express Authority Incidental Authority Customary Authority
Agency Relationship Principal (P) Agent (A) Third Person (TP) A Deals with TP and Makes Contract on Behalf of P P Authorizes A to Contract Parties to Contract with All Rights and Obligations
Chapter 38 Summary <ul><li>When 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. In addition, notice to the general public can be given by publishing in a newspaper of general circulation in the affected geographic area a statement that the agency has been terminated. </li></ul>
<ul><li>If a notice is actually received, the power of the agent is terminated without regard to whether the method of giving notice was proper. Conversely, if proper notice is given, it is immaterial that it does not actually come to the attention of the party notified. Thus, a member of the general public cannot claim that the principal is bound on the ground that the third person did not see the newspaper notice stating that the agent’s authority had been terminated. </li></ul>Chapter 38 Summary 
<ul><li>An 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. </li></ul>Chapter 38 Summary 
<ul><li>An 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. Likewise, an independent contractor does not have authority to act on behalf of the other contracting party. </li></ul>Chapter 38 Summary 
<ul><li>A special agent is authorized by the principal to handle a specific business transaction. A general agent is authorized by the principal to transact all business affairs of the principal at a certain place. A universal agent is authorized to perform all acts that can be lawfully delegated to a representative. </li></ul>Chapter 38 Summary 
<ul><li>The usual method of creating an agency is by express authorization. However, an agency relationship may be found to exist when the principal causes or permits a third person to reasonably believe that an agency relationship exists. In such a case, the “agent” appears to be authorized and is said to have apparent authority. </li></ul>Chapter 38 Summary 
Chapter 38 Summary  An unauthorized transaction by an agent for a principal may be ratified by the principal. An agent acting with authority has the power to bind the principal. The scope of an agent’s authority may be determined from the express words of the principal to the agent; this is called express authority.
<ul><li>An agent has incidental authority to perform any act reasonably necessary to execute the authority given the agent. An agent’s authority may be implied so as to enable the agent to perform any act in accordance with the general customs or usages in a business or an industry. This authority is often referred to as customary authority. </li></ul>Chapter 38 Summary 
<ul><li>The effect of a proper exercise of authority by an agent is to bind the principal and third person to a contract. The agent, not being a party to the contract, is not liable in any respect under the contract. A third person dealing with a person claiming to be an agent has a duty to ascertain the extent of the agent’s authority and a duty to take notice of any acts that are clearly adverse to the principal’s interests. </li></ul>Chapter 38 Summary 
<ul><li>The third person cannot claim that apparent authority existed when that person has notice that the agent’s conduct is adverse to the interests of the principal. A third person who has knowledge of limitations on an agent’s authority is bound by those limitations. A third person is not bound by secret limitations. </li></ul>Chapter 38 Summary 
<ul><li>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. An agency relationship can be terminated by act of either the principal or the agent. </li></ul>Chapter 38 Summary 
Chapter 38 Summary  <ul><ul><li>However, the terminating party may be liable for damages to the other if the termination is in violation of the agency contract. </li></ul></ul><ul><ul><li>Since a known agent will have the appearance of still being an agent, notice must be given to third persons of the termination, and the agent may have the power to bind the principal and third persons until this notice is given. </li></ul></ul>
<ul><li>An agency is terminated by operation of law 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, caused, for example, by the destruction of the subject matter; or (5) war. </li></ul>Chapter 38 Summary 
<ul><li>In states that have adopted 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. In UDPAA states, the agency may also come into existence upon the “disability or incapacity of the principal.” The designation of an attorney in fact under the UDPAA must be in writing. </li></ul>Chapter 38 Summary 
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