Agency: The Inside Relationship

1. Click your mouse anywhere on the screen to advance the text in each slide. After the starburst appears, click a blue triangle to move to the next slide or previous slide. CHAPTER 28 Agency: The Inside Relationship

2. Quotes of the Day “If you want something done right, do it yourself.” “Many hands make light work.” -- Anonymous folk sayings

3. Creating an Agency Relationship • Agency is a relationship in which the agent agrees to perform a task for, and under the control of, the principal. • To create an agency, there must be: • A principal, • An agent, • Who mutually consent that the agent will act on behalf of the principal, and • Be subject to the principal’s control, • Thereby creating a fiduciary relationship.

4. Requirements for Agency • Consent, control and a fiduciary relationship are required. • Elements not required for an agency relationship include: • A written agreement (unless the business of the agent requires a written contract). • A formal agreement (acting like agent and principal is enough to establish agency). • Consideration (an agent does not have to be paid).

5. Duties of Agent to Principal • Duty of Loyalty-- The agent: • must act for the benefit of the principal. • may not receive outside benefits without approval of the principal. • can neither disclose nor use for her own benefit any confidential information. • is not allowed to compete with his principal within the scope of the agency business. • may not act for two principals whose interests conflict. • may not become a party to a transaction without the principal’s permission. • may not engage in inappropriate behavior that reflects badly on the principal.

6. Other Duties of an Agent • An agent must obey her principal’s instructions, unless illegal or unethical. • Agent must act with reasonable care. • An agent with special skills is held to a higher standard because she is expected to use those skills. • Agent must give accurate information. • An agent has a duty to provide the principal with all information in her possession that she has reason to believe the principal wants to know.

7. Principal’s Remedies When the Agent Breaches a Duty • The principal can recover damages caused by the agent’s breach. • The agent must refund any profits made from the agency, if he breaches his duty of loyalty. • The principal may rescind a transaction with an disloyal agent.

8. Duties of Principal to Agent • Duty to Reimburse the Agent for Reasonable Expenses • A principal must also indemnify an agent for an unauthorized purchase if the agent reasonably believed he was authorized and the principal received a benefit. • Torts Committed by the Agent • A principal must indemnify an agent for tort claims brought by a third party if the principal authorized the agent’s behavior and the agent did not realize he was committing a tort.

9. Duties: Principal to Agent(cont’d) • Contracts Entered into by the Agent • The principal must indemnify the agent for liability she incurs as a result of a contract on the principal’s behalf, including attorney’s fees and reasonable settlements. • Duty to Cooperate • Cannot unreasonably interfere with the agent’s ability to accomplish his task. • Unless the contract provides otherwise, the principal may compete with her agent. • Principal must perform her part of the contract.

10. Terminating Agency • There are five basic ways an agency relationship is terminated by the parties: • By completion of the agreed term. • By completion of the agreed purpose. • Mutual agreement, no matter what the previous agreement was. • In an agency at will, either party can terminate at any time, for any reason. • Wrongful termination – either party can terminate relationship, but the wrongful party may have to pay damages.

11. Other Causes of Agency Termination • Principal or Agent Can No Longer Perform Required Duties • Loss of Qualification, Bankruptcy, Death or Incapacity of the Principal or Agent, Disloyalty of Agent • Change of Circumstances • Loss or Destruction of Subject Matter, Change of Law

12. Effect of Termination • Termination of the agency ends the agent’s power to act on behalf of the principal. • Principal’s duty to reimburse expenses of the agent ends with the end of the agency. • Confidential information remains confidential and unusable, even after the end of the agency.

13. “Once again, the subject is tradeoffs. You can accomplish more if other people do things for you. On the other hand, you may face liability for their actions.”

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