Agency

Question 1

Define Agency

Answer 1

Agency is a consensual fiduciary relationship in which one party, an agent, agrees to act on behalf of and under the control of another, known as the principal. The principal is the person for whom an action is to be taken and the agent is the person who is to act. Either of the parties to the relationship may be a natural person, a partnership, or a corporation.

Question 2

General Agent

Answer 2

Authorized to conduct a series of transactions involving a continuity of service.

Question 3

Special Agent

Answer 3

Conducts a single transaction or a series of transactions not involving continuity of service.

Question 4

Master

Answer 4

A principal who has control of (or the right to control) an agent’s physical conduct.

Question 5

Servant

Answer 5

An agent whose physical conduct in the performance of his or her duties is subject to the principal’s control or right of control.

Question 6

Broker

Answer 6

An agent empowered to make or procure contracts on his or her principal’s behalf (i.e., real estate brokers and stockbrokers).

Question 7

Factor (commission merchant)

Answer 7

Entrusted with possession and control of the principal’s goods for purposes of sale.

Question 8

Del Credere Agent

Answer 8

A factor who sells goods on credit and then guarantees to the principal the purchaser’s solvency and the purchaser’s performance of the contract. In other words, the del credere agent acts as a surety, liable to the principal if the purchaser defaults.

Question 9

Duties Owed by Agents to Principals

Answer 9

An agent owes the following duties to a principal:

Loyalty

Obedience

Question 10

A principal owes the following duties to an agent

Answer 10

Compensation

Indemnity

Protection

Question 11

Duties Imposed by the Principal on the Agent

Answer 11

Duty of Obedience

Duty to Act as Authorized

Duty to Keep and Render Accounts

Duty to Give Information

Duty of Care and Skill

Question 12

Duty of Obedience

Answer 12

The agent has a duty to obey all reasonable instructions from the principal regarding the manner of performing the agency. The extent of obedience required and the manner of the agent’s performance are determined by the agency contract or by the character of the agency. In master-servant relationships, for example, the master usually closely controls and supervises the servant’s activities. In other agencies, however, certain customary aspects of the agent’s performance are left to the agent’s discretion. For example, clients usually can not interfere in the specific details of their attorney’s performance, including the conduct of court proceedings.

Question 13

Duty to Act as Authorized

Answer 13

Principles of “authority” determine when principal and agent are liable on contracts made by the agent with third parties. An agent has a duty to act only as authorized by the principal, and not to act on the principal’s behalf after her authority is terminated. An agent breaches this duty by making an unauthorized contract for which the principal is liable or by improperly delegating her authority.

Question 14

Duty to Keep and Render Accounts

Answer 14

The agent must keep and render accurate accounts of money or property received or disbursed on the principal’s behalf. The duty extends to the amounts of receipts or payments and other relevant information such as the persons involved and the dates of transactions. The extent of the duty to account varies with the nature of the agency and business custom. For example, a traveling salesperson has more extensive accounting duties than a store clerk.

Question 15

Duty to Keep Information

Answer 15

The agent is required to keep the principal informed of important facts acquired during the course of the agency that may affect the principal’s interests. The duty to disclose such information is particularly important because notice or knowledge acquired by an agent during the course of his employment may be imputed to the principal, whether or not actually communicated.

Question 16

Duty of Care & Skill

Answer 16

The agent also has a duty to exercise reasonable care and skill in the performance of work, and in addition, to exercise any special skill he or she may have. Under this duty, for example, the principal may recover for an agent’s negligent destruction of the principal’s goods. A client may recover from an attorney whose negligent failure to file a lawsuit in a timely fashion, or to be aware of changes in the law, causes loss to the client. The principal also may sue the agent for conduct that subjects the principal to tort liability to third parties.

Question 17

In fulfilling duty of loyalty, the agent must:

Answer 17

Not act for their personal benefit or for the benefit of a third party, and must fully disclose all information material to the agency relationship.

Account for all profits arising out of the agency, including incidental or unusual profits, whether or not received in a breach of the agent’s duty.

Not commingle the principal’s property with their own.
Not compete with the principal concerning matters within the scope of the agency.

Not use the information (i.e., specialized business practices or trade secrets, customer lists, the principal’s intention to buy or sell property, issue securities, declare dividends, or merge with another business) for their own benefit or disclose it to a competitor of the principal.

Question 18

Duties of Principal to Agent

Answer 18

Duty of Compensation

Duty of Indemnity

Duty of Protection

Question 19

Duty of Compensation

Answer 19

The agent is entitled to compensation for work performed on the principal’s behalf. If no specific amount is stated in the agency agreement, the agent is entitled to the fair value of the services performed.

Question 20

Duty of Indemnity

Answer 20

The principal is required to indemnify, or reimburse, the agent for expenses reasonably and properly incurred on the principal’s behalf in the conduct of the agency. The principal also must reimburse the agent for losses incurred through no fault of the agent in transactions the principal authorizes.

Question 21

Duty of Protection

Answer 21

The principal owes a general duty to use reasonable care to prevent agents from being injured during their performance of the agency.

Question 22

Termination of Agency Powers can be upon:

Answer 22

Actual authority.

Apparent authority.

Question 23

What creates an Agent’s Actual Authority?

Answer 23

The principal’s manifestation of consent to an agent creates the agent’s actual authority.

Question 24

Events that terminate a Principal/ Agent Relationship

Answer 24

Effect of Subsequent Events

Effect of Death or Incapacity

Termination by Act of the Parties

Agency for Agreed Term

Agency for Indefinite Term-Employment at Will Doctrine

Question 25

Effect of Subsequent Events

Answer 25

The principal’s intent to terminate the agency may be inferred from the original authorization in light of subsequent events. An agent’s authority also may terminate due to a substantial change in circumstances from which the agent reasonably should infer termination. Under this rule, an agent’s authority can terminate upon:

Loss, destruction, or substantial change in value of the subject matter.
A substantial change in business conditions.
Loss of (or failure to acquire) a license or other qualification by either principal or agent.
A change in law that makes it illegal to carry out an authorized act.
A serious breach of the duty of loyalty by the agent.

Question 26

Effect of Death or Incapacity

Answer 26

An agency terminates automatically by operation of law upon the death or incapacity of either the principal or agent.

Question 27

Termination by Act of the Parties

Answer 27

As agency is a consensual relationship, it is terminated when either or both parties withdraw their consent.

Question 28

Agency for Agreed Term

Answer 28

In many cases, the principal and agent contractually agree that the agency will continue for a fixed term.

Question 29

Agency for Indefinite Term-Employment at Will Doctrine

Answer 29

If the parties have not agreed to a specific term, their relationship is described as an “agency at will.” Generally, either party may terminate an agency at will by providing notice of the termination to the other.