Book Opener

CHAPTERASSESSMENTSection 19.1 Authority and Duties● Express authority includes all of the orders,commands or directions that a principal directlymakes to an agent when the agency relationshipis created. These instructions may be general orspecific. Mentioning every act that the agent isallowed to perform is cumbersome and unnecessary.The law allows some actual authority to beunderstood from the express terms that create theagency relationship. The powers that can reasonablybe derived from the express terms of anagency agreement constitute an agent’s impliedauthority. Implied authority is a form of actualauthority because it also arises from the instructionsthat the principal communicates to the agent.● Actual authority is the real power a principalgives to an agent to act on his or her behalf. Incontrast, when the principal has led a third partyto believe that a nonagent is an agent or thatan agent has a power that he or she does notreally have, the principal has created apparentauthority. Apparent authority is also referred toas agency by estoppel.● The five duties that an agent owes to a principalare obedience, good faith, loyalty, an accountingof the principal’s money handled by the agent,and the exercising of judgment and skill in performingthe assigned work. The duty of obediencerequires the agent to obey all reasonable ordersand instructions within the scope of the agencyagreement. To have good faith, an agent mustdeal honestly with the principal and harbor nointent to seek advantage or defraud. To be loyal,agents must not work for others who arecompeting with their principals, nor may theymake deals to their own advantage at the expenseof their principals. The duty to account meansthat the agent must keep a record of all of themoney collected and paid out and must reportthis to the principal. Agents must also use all of●the judgment and skill that they have whenperforming work for principals.The law imposes specific duties on a principal indealing with an agent. These duties includecompensation, reimbursement, indemnification,and cooperation. Compensation is payment givenby the principal to the agent in return for theagent’s services. Reimbursement is repaymentthat an agent receives when he or she spends hisor her own money for the principal’s benefit.Similarly, if an agent suffers any loss as a resultof the principal’s instruction, he or she is entitledto indemnification, or repayment of the amountlost. Cooperation refers to the principal’s duty torefrain from interfering with the agent’s duties.Section 19.2 Termination of AgencyRelationships● An agency relationship may be terminated byoperation of law in the case of the death of eitherparty. Other circumstances such as bankruptcy,impossibility of performance, or subsequentdeclaration of illegality of the act may alsoterminate the agency relationship.● Most commonly, agency relationships areterminated when the parties have fully carriedout their duties. The parties may also terminatetheir relationship by mutual consent before thecontract is fully performed. An agent may alsoquit his or her job or give up the agency, or aprincipal may fire the agent, all of which wouldresult in termination of the agency relationship.● Actual notice of the termination of an agencyrelationship must be given to those third partieswho have extended credit to the principalthrough the agent.● Notice of the termination of an agency relationshipmay be given by publication to those thirdparties who have conducted business with theagent without extending credit.428 Unit 4: Being an Agent and Getting a Job