Chapter 19 Agency Relationships and Their Termination

Types of Agency Authority  Actual Authority Real power a principal gives to an agent to act in his/her behalf  Express Authority Includes all the orders, commands, or directions a principal directly states to an agent when the agency is first created  Implied Authority Those powers that can be understood from the express terms of an agreement.  Apparent Authority Exists when a principal has somehow led a third party to believe that a non-agent is an agent.

Agent’s Duties to the Principal  Obedience: The agent must obey all reasonable orders and instructions within the scope of the agreement.  Good Faith: To deal honestly with another party with no intent to seek advantage or to defraud.  Loyalty: Faithfulness or acting in a party’s best interest.  Duty to Account: The agent must keep record of all the money collected and paid out and must report his to the principal.  Judgment and Skill: Use the judgment and skill of which they are capable.

Principal’s Duties to the Agent  Compensation: Principal must pay the agent  Reimbursement and Indemnification: Agents are entitled to repayment when they are required to spend their own money for the principal’s benefit. Indemnification: repayment of amount lost  Cooperation : Working together toward a common end

Agent’s Liability to Third Parties

When the Principal is not Disclosed Partially Disclosed Principal: One whose identity is never revealed, even though the third party knows the agent is acting for someone else. Undisclosed Principal: When the agent has instructions not to reveal the identity or the existence of an agency relationship.

When the Agents Wrongfully Exceed Their Authority  Agents are liable when they act without authority from the principal.

Termination of Agency Relationships

By Operation of Law  When a significant change of circumstances alters the original reason for the agency relationship.

Death of Principal or Agent

Bankruptcy  Bankruptcy of the principal terminates the agency relationship.  Bankruptcy of the agent will terminate the agency relationship if the agent has to use his or her own funds to conduct business.

Impossibility of Performance  When the destruction of essential subject matter or the incapacity of the agent makes performance impossible.

Agent’s Objective Becomes Illegal  If, after the agency agreement has been entered, the purpose of the agency is declared illegal, the agency is terminated.  If only part is declared illegal, only part of the authority ends.

Termination by Acts of the Parties 1.Performance 2.Mutual Agreement 3.Agent’s Withdrawal 4.Agent’s Discharge

Notice of Termination to Third Parties  When the third party… has given credit to the principal through the agent, the third party is entitled to actual notice. has never given credit but has done a cash business with the agent or knows that the other persons have dealt with the principal through the agent (notice by publication). has never heard of the agency relationship, no notice of any kind is required.