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Section 18.2

Section 18.2. What You’ll Learn. How to recognize the creation of an agency relationship by agreement (p. 404) How to recognize the creation of an agency relationship by operation of law (p. 405). What You’ll Learn. How to distinguish between a general agent and a special agent (p. 402)

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Section 18.2

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  1. Section 18.2

  2. What You’ll Learn • How to recognize the creation of an agency relationship by agreement (p. 404) • How to recognize the creation of an agency relationship by operation of law • (p. 405)

  3. What You’ll Learn • How to distinguish between a general agent and a special agent (p. 402) • How to distinguish among a subagent, a coagent, and an agent’s agent • (pp. 403-404)

  4. Why It’s Important Knowing when an agency relationship has been created will help you make sound judgments in business activities.

  5. Legal Terms • general agent (p. 402) • special agent (p. 402) • agency by estoppel (p. 405) • ratification (p. 407)

  6. Section Outline Types of Agents Extent of Authority How Agents Relate to One Another

  7. Section Outline How Agency Relationships Are Created By Agreement By Operation of Law By Ratification

  8. Pre-Learning Question What are some different types of agents?

  9. Types of Agents We can distinguish between types of agents in two ways. We can examine • the extent of the agents’ authority • how the agents relate to one another

  10. Extent of Authority The two types of agents distinguished on the basis of extent of authority are general agents and special agents. General agents have more authority than special agents.

  11. General Agent A person who has been given authority to perform any act within the scope of a business is a general agent. The manager of a department store is a general agent.

  12. Special Agent A person who is employed to accomplish a specific purpose or to do a particular job is a special agent. Sales representatives are special agents.

  13. How Agents Relate to One Another Agents may be classified according to the nature of their relationships with other agents.

  14. Subagents A subagent is an agent lawfully appointed by another agent.

  15. Agent’s Agent If an agent has no power to appoint a subagent but does so anyway, he or she has appointed an agent’s agent.

  16. Coagents If the principal hires two or more agents, he or she has created a coagent situation.

  17. Pre-Learning Question How do you think agency relationships are created?

  18. How Agency Relationships Are Created Generally, any business you can transact personally can also be transacted through an agent.

  19. How Agency Relationships Are Created A principal-agent relationship can be developed • by agreement • by operation of law • by ratification

  20. By Agreement Most agency relationships are created by agreements, which are usually, but not always, contracts.

  21. By Agreement • No contract exists if an agreement does not involve consideration. • An agency agreement that does not involve a contract is called a gratuitous agency.

  22. By Operation of Law Agency relationships may be created automatically by operation of law. • Sometimes the law creates an agency relationship by circumstance. • Agency relationships can also arise through enactment of specific laws.

  23. Agency by Estoppel When the law creates an agency relationship by circumstance, it is called agency by estoppel, also known as apparent authority.

  24. Agency By Statute Sometimes a state legislature decides that certain situations justify automatic creation of agency relationships by statute.

  25. What do you call an agency that does not involve a contract?

  26. ANSWER A gratuitous agency.

  27. What is an agency by estoppel?

  28. ANSWER When the law creates an agency relationship by circumstance.

  29. By Ratification At times a person may act as an agent without the authority, or an agent who has the authority to negotiate one type of contract oversteps that authority and negotiates another type of contract.

  30. By Ratification Ratification occurs if the principal, with full knowledge of the facts, accepts the benefits of the unauthorized acts. The act is thereby approved or ratified.

  31. Describe what occurs when an agency is created by ratification.

  32. ANSWER When the principal, with full knowledge of the facts, accepts the benefits of an unauthorized act.

  33. Section 18.2Assessment Reviewing What You Learned • How are most agency relationships created?

  34. Section 18.2Assessment Reviewing What You Learned Answer By agreement.

  35. Section 18.2Assessment Reviewing What You Learned • How are agency relationships created by operation of law?

  36. Section 18.2Assessment Reviewing What You Learned Answer By estoppel and by statute.

  37. Section 18.2Assessment Reviewing What You Learned • What is the difference between a general agent and a special agent?

  38. Section 18.2Assessment Reviewing What You Learned Answer General agent: authority to carry out any act within the scope of a business. Special agent: employed to accomplish a specific purpose or to do a particular job.

  39. Section 18.2Assessment Reviewing What You Learned • What are the differences among a subagent, a coagent, and an agent’s agent?

  40. Section 18.2Assessment Reviewing What You Learned Answer A subagent is lawfully appointed by another agent, and a coagent is created when a principal hires two or more agents.

  41. Section 18.2Assessment Reviewing What You Learned Answer If an agent has no power to appoint a subagent but does so anyway, he or she has appointed an agent’s agent.

  42. Section 18.2Assessment Critical Thinking Activity Types of Agents Why is it important to be able to distinguish between a general agent and a special agent?

  43. Section 18.2Assessment Critical Thinking Activity Answer Types of Agents Answers will vary but could recognize that by knowing the difference between the two types of agents, you will understand the authority of an agent you may be dealing with.

  44. Section 18.2Assessment Legal Skills in Action Apparent Authority Tony believes that Sara is a salesperson working in the appliance department at the Alomar Brothers Department Store. It turns out that she is actually a disgruntled former employee who is now impersonating a salesperson.

  45. Section 18.2Assessment Legal Skills in Action Apparent Authority Tony gives Sara $100 as a down payment for a new DVD player, and she runs off with the money.

  46. Section 18.2Assessment Legal Skills in Action Apparent Authority Write a paragraph that explains whether the Alomar Brothers Department Store will be compelled to return the $100 to Tony.

  47. Section 18.2Assessment Legal Skills in Action Answer Apparent Authority Answers should recognize that Alomar Brothers Department Store would be liable for any loss incurred by Tony because the law would assume this to be an agency by estoppel.

  48. End of Section 18.2

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