Agency relationships are formed by the mutual consent of a principal and an agent .
Agency is the fiduciary relationship “which results from the manifestation of consent by one person to another that the other shall act in his behalf and subject to his control, and consent by the other so to act.”
The Nature of Agency (continued)
Agency Law – The large body of common law that governs agency.
A mixture of contract law and tort law.
Principal – The party who employs another person to act on his or her behalf.
Agent – The party who agrees to act on behalf of another.
The Principal-Agent Relationship Principal Agent Third Party Agency Contract Contract with third party on behalf of principal Principal’s obligation to perform the contract
Persons Who Can Initiate an Agency Relationship
Any person who has the capacity to contract can appoint an agent to act on his or her behalf.
Persons who lack contractual capacity cannot appoint an agent.
e.g., insane persons and minors
Persons Who Can Initiate an Agency Relationship (continued)
An agency can be created only to accomplish a lawful purpose.
Agency contracts that are created for illegal purposes or are against public policy are void and unenforceable.
The crucial factor in determining whether a person is an employee or an independent contractor is the degree of control that the principal has over that person.
Employment at Will
At-Will Employees – Employees who do not have an employment contract.
Under common law, an at-will employee could be discharged by an employer at any time for any reason.
Exceptions to the at-will doctrine:
Public Policy Exception
Summary: Kinds of Employment Relationships The principal has no control over the details of the independent contractor’s conduct. An independent contractor is usually not an agent of the principal. Principal-Independent Contractor The agent has the authority to act on behalf of the principal as authorized by the principal and implied from the agency. An employee is often the agent of his employer. Principal-Agent The employer has the right to control the physical conduct of the employee. Employer-Employee Description Type of Relationship
Formation of the Agency Relationship Express Agency Implied Agency Apparent Agency Agency by Ratification
An agency that occurs when a principal and an agent expressly agree to enter into an agency agreement with each other.
Exclusive agency contract
Power of attorney
Express agency contracts can be either oral or written unless the Statute of Frauds stipulates that they must be written.
An agency that occurs when a principal and an agent do not expressly create an agency.
The agency is implied from the conduct of the parties.
The extent of the agent’s authority is determined from the particular facts and circumstances of the particular situation.
Agency that arises when a principal creates the appearance of an agency that in actuality does not exist.
When an apparent agency is established, the principal is estopped from denying the agency relationship.
It is the principal’s actions that create an apparent agency.
Agency by Ratification
An agency that occurs when:
A person misrepresents himself or herself as another’s agent when in fact he or she is not, and
The purported principal ratifies (accepts) the unauthorized act.
Summary: Formation of Agency Relationships (1 of 2) Principal and third party acts are bound to the contract. Authority is implied from the conduct of the parties, custom and usage of trade, or act incidental to carrying out the agent’s duties. Implied Principal and third party are bound to the contract. Authority is expressly given to the agent by the principal. Express Enforcement of the Contract Definition Type of Agency
Summary: Formation of Agency Relationships (2 of 2) Principal and third party are not bound to the contract unless the principal ratifies the contract. Acts of the agent committed outside the scope of his authority. By Ratification Principal and third party are bound to the contract. Authority created when the principal leads a third party into believing that the agent has authority. Apparent Enforcement of the Contract Definition Type of Agency
Termination of an Agency and Employment Contract
An agency contract is similar to other contracts in that it can be terminated by:
Acts of the parties , or
Operation of law
Once an agency relationship is terminated, the agent can no longer represent the principal or bind the principal to contracts.
Termination by Acts of the Parties
An agency may be terminated by the following acts of the parties:
Lapse of time
Occurrence of a specified event
Termination by Operation of Law
An agency is terminated by operation of law, including:
Death of the principal or agent
Insanity of the principal or agent
Bankruptcy of the principal
Impossibility of performance
War between the principal’s and agent’s countries
An agency coupled with an interest:
Special type of agency relationship
This type of agency is irrevocable by the principal
Not terminated by the death or incapacity of either the principal or the agent
Terminates only when the agent’s obligations are performed
Wrongful Termination of an Agency or Employment Contract
The termination of an agency contract in violation of the terms of the agency contract.
The nonbreaching party may recover damages from the breaching party.
The distinction between the power and the right to terminate an agency is critical.