Agency relationships require both a principal and an agent. She has taught and written various introductory law courses. Agency is a business relationship where a principal gives legal authority to an agent to act on the .. Soft Skills in the Workplace · Making Legal & Ethical Business Decisions. An agent's duty to account to his principal secret profits he has made in the course of the agency continues even after the agency relationship terminates. The principal-agent relationship refers to an arrangement in which one principal and the agent is called the "agency," and the law of agency.
In wool buying industries it is customary for traders to purchase in their own names. This must be no more than necessary  Main articles: Apparent authority and Estoppel Apparent authority also called "ostensible authority" exists where the principal's words or conduct would lead a reasonable person in the third party's position to believe that the agent was authorized to act, even if the principal and the purported agent had never discussed such a relationship.
For example, where one person appoints a person to a position which carries with it agency-like powers, those who know of the appointment are entitled to assume that there is apparent authority to do the things ordinarily entrusted to one occupying such a position.
If a principal creates the impression that an agent is authorized but there is no actual authority, third parties are protected so long as they have acted reasonably. This is sometimes termed "agency by estoppel " or the "doctrine of holding out", where the principal will be estopped from denying the grant of authority if third parties have changed their positions to their detriment in reliance on the representations made.
Wills J held that "the principal is liable for all the acts of the agent which are within the authority usually confided to an agent of that character, notwithstanding limitations, as between the principal and the agent, put upon that authority.
It is sometimes referred to as "usual authority" though not in the sense used by Lord Denning MR in Hely-Hutchinson, where it is synonymous with "implied actual authority". It has been explained as a form of apparent authority, or "inherent agency power". Authority by virtue of a position held to deter fraud and other harms that may befall individuals dealing with agents, there is a concept of Inherent Agency power, which is power derived solely by virtue of the agency relation.
Even if the agent does act without authority, the principal may ratify the transaction and accept liability on the transactions as negotiated.
Law of agency - Wikipedia
This may be express or implied from the principal's behavior, e. Liability[ edit ] Liability of agent to third party[ edit ] If the agent has actual or apparent authority, the agent will not be liable for acts performed within the scope of such authority, as long as the relationship of the agency and the identity of the principal have been disclosed.
When the agency is undisclosed or partially disclosed, however, both the agent and the principal are liable.
Where the principal is not bound because the agent has no actual or apparent authority, the purported agent is liable to the third party for breach of the implied warranty of.
Liability of agent to principal[ edit ] If the agent has acted without actual authority, but the principal is nevertheless bound because the agent had apparent authority, the agent is liable to indemnify the principal for any resulting loss or damage. Liability of principal to agent[ edit ] If the agent has acted within the scope of the actual authority given, the principal must indemnify the agent for payments made during the course of the relationship whether the expenditure was expressly authorized or merely necessary in promoting the principal's business.
An agent owes the principal a number of duties. An agent can represent the interests of more than one principal, conflicting or potentially conflicting, only after full disclosure and consent of the principal.
An agent must not usurp an opportunity from the principal by taking it for himself or passing it on to a third party. In return, the principal must make a full disclosure of all information relevant to the transactions that the agent is authorized to negotiate.
Termination[ edit ] Mutual agreement also through the principal responding his authority. Through renouncing when agent hm self stop being an agent. The internal agency relationship may be dissolved by agreement. Under sections to of the Indian Contract Actan agency may come to an end in a variety of ways: Withdrawal by the agent — however, the principal cannot revoke an agency coupled with interest to the prejudice of such interest.
An agency is coupled with interest when the agent himself has an interest in the subject-matter of the agency, e. Alternatively, agency may be terminated by operation of law: If he does, he is liable to compensate the agent for the loss caused to him thereby.
The same rules apply where the agent, renounces an agency for a fixed period. Notice in this connection that want of skill, continuous disobedience of lawful orders, and rude or insulting behavior has been held to be sufficient cause for dismissal of an agent.
Further, reasonable notice has to be given by one party to the other; otherwise, damage resulting from want of such notice, will have to be paid s. The termination does not take effect as regards the agent, till it becomes known to him and as regards third party, till the termination is known to them s.
Some states opt for the partnership as no more than an aggregate of the natural persons who have joined the firm. Others treat the partnership as a business entity and, like a corporationvest the partnership with a separate legal personality.
The underlying contract, therefore, is affected significantly by the legal authority of the agent, which in turn is determined by well-established general legal rules regarding agency.
The law of agency Law that deals basically with the legal consequences of people acting on behalf of other people or organizations.
Dennis Hynes, Agency and Partnership: Cases, Materials and Problems, 2nd ed. The Michie Company,4. Agency involves three parties: The second party to this relationship is known as the agent Individual who is authorized to make contracts with a third party. It is important to note the difference between an agent who represents the insurer and a broker who represents the insured.
However, because of state insurance laws, in many states brokers are not allowed to operate unless they also obtain an agency appointment with an insurer. For details, see Etti G. Such authority may be either expressed or implied. The agent also has, by implication, whatever authority is needed to fulfill the purposes of the agency. If the principal treats a second party as if the person were an agent, then an agency is created.
Agency law and the doctrines of waiver and estoppel have serious implications in the insurance business.CA Inter - CS Executive - CMA Inter - Contract of Agency - Law Classes
Binding Authority The law of agency is significant to insurance in large part because the only direct interaction most buyers of insurance have with the insurance company is through an agent or a broker, also called a producer Another name for both agents and brokers. Laws regarding the authority and responsibility of an agent, therefore, affect the contractual relationship. One of the most important agency characteristics is binding authority. In many situations, an agent is able to exercise binding authority Authority that secures binds coverage for an insured without any additional input from the insurer.
The agreement that exists before a contract is issued is called a binder The agreement that exists before a contract is issued. If you call a GEICO agent in the middle of the night to obtain insurance for your new automobile, you are covered as of the time of your conversation with the agent. Rather than issuing a general binder of coverage, some life insurance agents may be permitted to issue only a conditional binder.
A conditional binder Agreement that implies that coverage exists only if the underwriter ultimately accepts or would have accepted the application for insurance. Thus, if the applicant dies prior to the final policy issuance, payment is made if the applicant would have been acceptable to the insurer as an insured. The general binder, in contrast, provides coverage immediately, even if the applicant is later found to be an unacceptable policyholder and coverage is canceled at that point.
Waiver The intentional relinquishment of a known right. To waive a right, a person must know he or she has the right and must give it up intentionally.
If an insurer considers a risk to be undesirable at the time the agent assumes it on behalf of the company, and the agent knows it, the principal the insurer will have waived the right to refuse coverage at a later date.
This situation arises when an agent insures a risk that the company has specifically prohibited. A business property policy, for example, may provide that the terms of the policy shall not be waived, changed, or modified except by endorsement issued as part of the policy.
Unfortunately for the insurer, however, such stipulations may not prevent a waiver by its agent. For example, the business property policy provides that coverage on a building ceases after it has been vacant for over sixty days. This point came to a head in the mids when many life insurance companies were confronted by class-action lawsuits that accused their agents of selling life insurance as a private pension When the investment portion or cash accumulation of a permanent life insurance policy is elevated to a position of a retirement account.
There were also large numbers of complaints about misrepresentation of the interest rate accumulation in certain life insurance policies called universal life, which was discussed at length in Chapter 1 "The Nature of Risk: These were dubbed vanishing premiums policies Policies that policyholders were led to believe would be paid in full after a certain period of time, and they would no longer have to make premium payments.
Though no vanishing-premium case has been tried on the merits, litigation costs and settlement proceedings have cost companies hundreds of millions of dollars.