29 - 1Copyright © 2004 by Prentice-Hall. All rights reserved. The Law of Agency The Law of Agency

29 - 2Copyright © 2004 by Prentice-Hall. All rights reserved. The Nature of Agency  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.”

29 - 3Copyright © 2004 by Prentice-Hall. All rights reserved. The Nature of Agency (continued)  Agency Law – The large body of common law that governs agency. A mixture of contract law and tort law. 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.

29 - 4Copyright © 2004 by Prentice-Hall. All rights reserved. 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

29 - 5Copyright © 2004 by Prentice-Hall. All rights reserved. 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 e.g., insane persons and minors

29 - 6Copyright © 2004 by Prentice-Hall. All rights reserved. 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.

29 - 7Copyright © 2004 by Prentice-Hall. All rights reserved. Formation of the Agency Relationship  The continental legal system  Agency by operation of law  Agency by appointment

29 - 8Copyright © 2004 by Prentice-Hall. All rights reserved. Formation of the Agency Relationship Express Agency Implied Agency Agency by estoppel Agency by necessity

29 - 9Copyright © 2004 by Prentice-Hall. All rights reserved. Express Agency （明示代理）  An agency that occurs when a principal and an agent expressly agree to enter into an agency agreement with each other. Exclusive agency contract Exclusive agency contract Power of attorney Power of attorney  Express agency contracts can be either oral or written unless the Statute of Frauds( 防止 欺诈法 ) stipulates that they must be written.

Copyright © 2004 by Prentice-Hall. All rights reserved. Implied Agency( 默示代理 )  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

Copyright © 2004 by Prentice-Hall. All rights reserved. Agency by Estoppel ( 不可否认的代 理） Agency by Estoppel ( 不可否认的代 理）  Agency that arises when a principal creates the appearance of an agency that in actuality does not exist.  When an agency by estoppel is established, the principal is estopped from denying the agency relationship.  It is the principal’s actions that create an agency by estoppel.

Copyright © 2004 by Prentice-Hall. All rights reserved. Agency by necessity ( 客观必须的代 理 )  Agency of necessity arises wherever a duty is imposed upon a person to act on behalf of another apart from contract, and in circumstances of emergency, in order to prevent irreparable injury.

Copyright © 2004 by Prentice-Hall. All rights reserved. Agency by Ratification （追认的代理） An agency that occurs when: 1. A person misrepresents himself or herself as another’s agent when in fact he or she is not, and 2. The purported （据称的） principal ratifies (accepts) the unauthorized act.

Copyright © 2004 by Prentice-Hall. All rights reserved. Summary: Formation of Agency Relationships (1 of 2) Type of Agency Definition Enforcement of the Contract Express Authority is expressly given to the agent by the principal. Principal and third party are bound to the contract. Implied Authority is implied from the conduct of the parties, custom and usage of trade, or act incidental to carrying out the agent’s duties. Principal and third party acts are bound to the contract.

Copyright © 2004 by Prentice-Hall. All rights reserved. Summary: Formation of Agency Relationships (2 of 2) Type of Agency Definition Enforcement of the Contract Agency by Estoppel Authority created when the principal leads a third party into believing that the agent has authority. Principal and third party are bound to the contract. Agency by Necessity a duty is imposed upon a person to act on behalf of another apart from contract, and in circumstances of emergency, in order to prevent irreparable injury Principal and third party are bound to the contract. Agency by Ratification Acts of the agent committed outside the scope of his authority. Principal and third party are not bound to the contract unless the principal ratifies the contract.

Copyright © 2004 by Prentice-Hall. All rights reserved. Agency of named principal  Where a broker contracts as agent for a principal who is named, the principal is liable to the party with whom the contract is made if the agent acted within the scope of his actual authority.

Copyright © 2004 by Prentice-Hall. All rights reserved. Agency of Unnamed Principal  The agent, disclose himself or herself as a agent, but doesn’t disclose the principal’s name, concludes a contract with a third party

Copyright © 2004 by Prentice-Hall. All rights reserved. Agent of Undisclosed Principal  When an agent concludes a contract in his/her own name with a third party, but doesn’t disclose the existence of the principal.  Right of disclose (agent)  Right of intervention (principal)  Right of choose (the third party)

Copyright © 2004 by Prentice-Hall. All rights reserved. Direct Agency  The agency concludes the contract on behalf of the principal, Principal and third party are bound to the contract

Copyright © 2004 by Prentice-Hall. All rights reserved. Indirect Agency  The agency concludes the contract with the third party in his or her own name, agent and third party are bound to the contract.

Copyright © 2004 by Prentice-Hall. All rights reserved. Duties of the agent  Notification  Performance  Loyalty  Obedience to instruction  Accounting  Remedies available to principal

Copyright © 2004 by Prentice-Hall. All rights reserved. The duties of the principal  Compensation  Reimbursement  Indemnification  Cooperation  Remedies available to agent

Copyright © 2004 by Prentice-Hall. All rights reserved. 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 Acts of the parties, or Operation of law Operation of law  Once an agency relationship is terminated, the agent can no longer represent the principal or bind the principal to contracts.

Copyright © 2004 by Prentice-Hall. All rights reserved. Termination by Acts of the Parties An agency may be terminated by the following acts of the parties: 1. Mutual agreement 2. Lapse of time 3. Purpose achieved 4. Occurrence of a specified event 5. Revocation or renunciation

Copyright © 2004 by Prentice-Hall. All rights reserved. Termination by Operation of Law An agency is terminated by operation of law, including: 1. Death of the principal or agent 2. Insanity of the principal or agent 3. Bankruptcy of the principal 4. Impossibility of performance 5. Changed circumstances 6. War between the principal’s and agent’s countries

Copyright © 2004 by Prentice-Hall. All rights reserved. Irrevocable Agency （不可撤回的代 理）  An agency coupled with an interest: Special type of agency relationship Special type of agency relationship This type of agency is irrevocable by the principal This type of agency is irrevocable by the principal Not terminated by the death or incapacity of either the principal or the agent Not terminated by the death or incapacity of either the principal or the agent Terminates only when the agent’s obligations are performed Terminates only when the agent’s obligations are performed

Copyright © 2004 by Prentice-Hall. All rights reserved. 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.