section 18.2

Creation and Types of Agents Creation and Types of Agents Section 18.2Section 18.2

Understanding Business and Personal Law


Creation of an Agency

What You’ll Learn

How to recognize the creation of an How to recognize the creation of an agency relationship by agreement (p. 404)agency relationship by agreement (p. 404)

How to recognize the creation of an How to recognize the creation of an agency relationship by operation of law agency relationship by operation of law (p. 405)(p. 405)




What You’ll Learn

How to distinguish between a general How to distinguish between a general agent and a special agent (p. 402)agent and a special agent (p. 402)

How to distinguish among a subagent, a How to distinguish among a subagent, a coagent, and an agent’s agent coagent, and an agent’s agent (pp. 403-404)(pp. 403-404)




Why It’s Important

Knowing when an agency relationship has Knowing when an agency relationship has been created will help you make sound been created will help you make sound judgments in business activities.judgments in business activities.




Legal Terms

general agent (p. 402)general agent (p. 402)special agent (p. 402)special agent (p. 402)agency by estoppel (p. 405)agency by estoppel (p. 405)ratification (p. 407)ratification (p. 407)




Types of Agents Extent of AuthorityHow Agents Relate to One Another

Section OutlineSection Outline




How Agency Relationships Are Created

By AgreementBy Operation of LawBy Ratification

Section OutlineSection Outline




Pre-Learning Question Pre-Learning Question

What are some different types of agents?




We can distinguish between types of We can distinguish between types of agents in two ways. We can examine agents in two ways. We can examine

Types of Agents Types of Agents

1.1. the extent of the agents’ authoritythe extent of the agents’ authority2.2. how the agents relate to one how the agents relate to one

anotheranother




The two types of agents distinguished The two types of agents distinguished on the basis of extent of authority are on the basis of extent of authority are general agents and special agents. general agents and special agents.

General agents have more authority General agents have more authority than special agents.than special agents.

Extent of Authority Extent of Authority




A person who has been given A person who has been given authority to perform any act within the authority to perform any act within the scope of a business is a scope of a business is a general general agentagent. .

The manager of a department store is The manager of a department store is a general agent.a general agent.

General Agent General Agent




A person who is employed to A person who is employed to accomplish a specific purpose or to do accomplish a specific purpose or to do a particular job is a a particular job is a special agentspecial agent. .

Sales representatives are special Sales representatives are special agents.agents.

Special Agent Special Agent




Agents may be classified according to Agents may be classified according to the nature of their relationships with the nature of their relationships with other agents.other agents.

How Agents Relate How Agents Relate to One Another to One Another




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

Subagents Subagents




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

Agent’s Agent Agent’s Agent




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

Coagents Coagents




Pre-Learning Question Pre-Learning Question

How do you think agency relationships are created?




Generally, any business you can Generally, any business you can transact personally can also be transact personally can also be transacted through an agent. transacted through an agent.

How Agency Relationships How Agency Relationships Are Created Are Created




A principal-agent relationship can be A principal-agent relationship can be developed developed

How Agency Relationships How Agency Relationships Are Created Are Created

by agreementby agreementby operation of lawby operation of lawby ratification by ratification




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

By Agreement By Agreement




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

By Agreement By Agreement




Agency relationships may be created Agency relationships may be created automatically by operation of law. automatically by operation of law.

By Operation of Law By Operation of Law

Sometimes the law creates an Sometimes the law creates an agency relationship by agency relationship by circumstance.circumstance.Agency relationships can also arise Agency relationships can also arise through enactment of specific laws.through enactment of specific laws.




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

Agency by Estoppel Agency by Estoppel




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

Agency By Statute Agency By Statute




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




ANSWERANSWER

A gratuitous agency.




What is an agency by estoppel?




ANSWERANSWER

When the law creates an agency relationship by circumstance.




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

By Ratification By Ratification




RatificationRatification occurs if the principal, occurs if the principal, with full knowledge of the facts, with full knowledge of the facts, accepts the benefits of the accepts the benefits of the unauthorized acts. unauthorized acts.

The act is thereby approved or The act is thereby approved or ratified.ratified.

By Ratification By Ratification




Describe what occurs when an agency is created by ratification.




ANSWERANSWER

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




Reviewing What You Learned

1. How are most agency relationships created?

Section 18.2 Assessment





By agreement.


Answer





2. How are agency relationships created by operation of law?






By estoppel and by statute.


Answer





3. What is the difference between a general agent and a special agent?






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.


Answer





4. What are the differences among a subagent, a coagent, and an agent’s agent?






A subagent is lawfully appointed by another agent, and a coagent is created when a principal hires two or more agents.


Answer





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


Answer





Critical Thinking ActivityTypes of Agents Why is it important to be able to distinguish between a general agent and a special agent?





Critical Thinking Activity AnswerTypes 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.





Legal Skills in ActionApparent 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.





Legal Skills in ActionApparent Authority Tony gives Sara $100 as a down payment for a new DVD player, and she runs off with the money.





Legal Skills in ActionApparent Authority Write a paragraph that explains whether the Alomar Brothers Department Store will be compelled to return the $100 to Tony.





Legal Skills in Action AnswerApparent 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.

Creation and Types of Agents Creation and Types of Agents End of Section 18.2End of Section 18.2

section 18.2

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