Business Associations Lecture One: Agency (Part Two)

The lecture covers the core concepts of agency law, explaining how a relationship is formed when one person, the principal, authorizes another, the agent, to act on their behalf subject to their control. It details the various ways agents gain the power to bind principals, including actual authority, apparent authority, and ratification. Furthermore, the lecture outlines the fiduciary duties agents owe to principals, such as loyalty and care, and the corresponding duties principals owe agents, including compensation and indemnification. It also explores the liability of both principals and agents to outside parties for contractual and tortious acts, examines common methods for terminating agency relationships, and touches upon relevant case law and ongoing doctrinal debates within the field.

Agency is a relationship where one person (the agent) agrees to act on behalf of and under the control of another person (the principal), based on their mutual consent.

Express actual authority is authority explicitly granted by the principal, either verbally or in writing. Implied actual authority is authority that is necessary, usual, or proper to carry out the tasks that were expressly authorized.

Apparent authority is when a principal's words or actions cause a third party to reasonably believe that an agent has authority, even if they don't actually have it. The third party's reasonable belief is key.

Ratification is when a principal approves or adopts an act performed by an agent who did not have authority at the time the act occurred. This makes the principal bound as if the agent had authority initially.

The duty of loyalty requires the agent to act solely for the principal's benefit and avoid conflicts. The duty of care requires the agent to perform with normal competence and diligence. The duty of obedience requires the agent to follow the principal's lawful instructions.

The principal owes duties to compensate the agent, reimburse the agent for proper expenses, and indemnify the agent for liabilities incurred while acting lawfully within the scope of authority.

A disclosed principal is bound by a contract entered into by their agent when the agent is acting within the scope of their authority (actual or apparent).

A principal might be held liable for an employee-agent's torts under the doctrine of respondeat superior, provided the tort occurred while the employee was acting within the scope of employment.

Two events that automatically terminate agency are the death or incapacity of either the principal or the agent.

Providing notice of termination to third parties is important to prevent the agent from continuing to bind the principal under apparent authority, potentially exposing the principal to liability for unauthorized acts.