Business 18: Introduction to Business Law

Chapter 35: AGENCY Outline of Lecture Notes Instructor Sandra Spencer De Anza College

AGENCY An agency relationship arises when one person (the agent) acts for the benefit of and under the direction of another (the principal). In general, agency law divides into two categories: 1. Legal Relations between the principal and the agent. (Chapter 35) 2. Legal Relations between 3rd parties and the principal & agent. (Chapter 36)

Legal Relations between the principal and the agent address the following: Rules governing the formation of an agency The duties principals and agents owe each other Ways an agency can be terminated Legal Relations between 3rd parties and the principal & agent address: The liability of the principal and the agent on contracts made by the agent The principals liability for the torts of the agent Chapter Outline I. II. III. Creation of an Agency & Related Subjects Agency Concepts, Definitions, and Types Duties a. Agent to Principal b. Principal to Agent IV. Termination of Agency

I. Creation of an Agency & Related Subjects Formation Formation Summary: Test Creation of an Agency Is one party (agent) acting: For the benefit of AND Under the control of another (principal)? Look at the parties words, actions, and the surrounding circumstances. Generally, none are required: No contract is necessary Agreement may be oral or written Agent need not be compensated Agency may exist even though parties express intent NOT to create one No legal capacity necessary to serve as an agent (some regulatory exceptions) Incapacitated agent may avoid agency agreement Any person with legal capacity may be a principal. Agent may do anything the principal could do (w/some exceptions Nondelegable

Evidence Formalities

Capacity

Power

Obligations). II. Agency Concepts, Definitions, and Types Distinguish between the following: o Authority Actual Authority 1. Express 2. Implied Apparent Authority

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General & Special Agents Gratuitous Agents Subagents Employees & Independent Contractors

III. Duties Agent to Principal o Duties normally are defined in the contract (if any) or from the common law of agency. The following duties exist at CL even if the agreement is silent as to duties. Fiduciary Duties: Duty of Loyalty Duty to obey instructions Duty to exercise care & skill Duty to communicate information Duty to account for funds & property.

Principal to Agent o Duties normally are defined in the contract (if any) or from the common law of agency. The following duties are generally imposed at CL even if the agreement is silent as to duties. Duty to Compensate Duty to Reimburse & indemnify

IV. Termination T by Will/Act of the Parties o Specified time or occurrence of event o Specified result accomplished o Mutual agreement of Parties o At option of either party Revocation if by Principal Renunciation if by Agent T by Operation of Law o Death of principal or agent o Ps permanent loss of capacity o As loss of capacity to perform agency business o Changes in value of agency property/subject matter o Changes in business conditions o Loss or destruction of agency property/subject matter o Changes affecting agency legality o Principals or Agents bankruptcy o Impossibility of performance by agent o Serious breach of agents duty of loyalty o Outbreak of war Agency Coupled w/ an Interest o Exception to the general rule that either party has the power to terminate the agency. Agency is NOT terminated by: Principals revocation Loss of capacity of P or A Death of Agent or Principal (usually)

o Agency DOES terminate when principal performs his obligation Effect of Termination on Agents Authority o Once an agency terminates by any of the above means, the agents express and implied authority end. A former agent may retain apparent authority to bind their former principals Apparent Authority ends where: Termination was caused by: Death of Principal Principals loss of capacity Impossibility OR when Notice given to Third Parties Actual Notice (Required for those parties who have dealt w/agent) Constructive Notice (For all other parties)

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