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Understanding Agency and Its Legal Implications

Learn about agency relationships, the roles of principals and agents, creation of authority, fiduciary duties, and the liabilities of principals and agents in contracts. Discover the importance of confidentiality, loyalty, and accountability in agency relationships.

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Understanding Agency and Its Legal Implications

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  1. What is Agency? • Agency-relationship in which one person represents another in making contracts. • Principal-one who authorizes an agent to make contracts • Agent-the person authorized to alter a legal relationship • Third Party- a person who works through an agent to reach an agreement that binds a principal. • Scope of Authority-the range of acts authorized by the principal. • Fiduciary Duties-require that the agent serve the best interests of the principal.

  2. Who Can Be a Principal? • Minors and others who lack contractual capacity. • Warranty of the Principal’s Capacity-a warranty imposed by law on the agent so that if the principal injured the third party, the third party could recover from the agent.

  3. Who Can Be An Agent? • Minors and others who lack contractual capacity.

  4. How Is Agency Authority Created? • Four Ways: • 1) Express grant of authority • 2) Implied grant of authority • 3) Apparent authority • 4) Ratification

  5. Terminology Gratuitous Agency-agency relationship in which the agent receives no consideration. Express Authority-the oral or written power to do anything directly communicated by the principal to the agent. Power of Attorney-any writing that appoints someone as an agent.. Implied Authority-the power to do anything that is reasonably necessary or customary to carry out the duties expressly authorized. Apparent Authority-created when a principal leads the third party to reasonably believe that a particular person has agency authority. Ratification-Approval of a voidable contract; also, approval of a previously unauthorized act `

  6. What Are An Agent’s Fiduciary Duties? • 1) Loyalty and Obedience • 2) Reasonable Care and Skill • 3) Confidentiality • 4) Accounting

  7. Terminology Duty of Loyalty-Requires that agents must place the interests of their principal’s above the interests of all others. Duty of Obedience-the agent must obey the instructions of the principal. Duty of Reasonable Care and Skill-requires the agent to exercise the degree of care and skill that a reasonably prudent person would use in a similar situation. Duty of Confidentiality-requires the agent to treat information about the principal with great caution. Duty of Accounting-requires an agent must account to the principal for all money and property of the principal that comes into the agent’s possession. Commingling-mixing the funds or property of the agent with those of the principal.

  8. What Duties Does A Principal Owe An Agent? • A principal owes many of the same obligations to an agent that an employer owes to an ordinary employee.

  9. When Is A Principal Liable To Third Persons? • 1) Contractual Liability to the Third Person • 2) Liability for Fraud, Torts, and Crimes

  10. When Is An Agent Liable To Third Persons? • 1) Agent Acts Outside the Scope of Authority • 2) Principal Lacks Capacity • Undisclosed principal-a principal whose identity is kept secret from the third party by the agent

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