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Chapter 17: AgencyI. Creating an Agency Relationship.A. Introduction.1.It is virtually impossible to run a business without using agents. 2.But using an agent dramatically increases the risk of liability–in both contract and tort.3.It is important to understand agency law because it affects virtually everyone at some point in their lives.B. In an agency relationship, someone (the agent) agrees to perform a task for, and under the control of, someone else (the principal). C. To create an agency relationship, there must be:1.A principal and2.An Agent3.Who mutually consent that the agent will act on behalf of the principal and4.Be subject to the principal’s control,5.Thereby creating a fiduciary relationship.D. Consent.1.To establish consent, the principal must ask the agent to do something, and the agent must agree. 2.Example: You ask a neighbor to walk your dog, and she agrees. E. Control.1.Principals are liable for an agent’s acts because they exercise control over that person. 2.If principals direct their agents to commit an act, it seems fair to hold the principal liable when that act causes harm. 1
F. Fiduciary Relationship.1.Agents have a fiduciary duty to their principals. 2.A fiduciary relationship is one of trust: A trustee acts for the benefit of the beneficiary, always putting the interests of the beneficiary before his own. 3.The fiduciary is obligated to act in good faith and candor, doing what is best for the beneficiary. II. Duties of Agents to Principals.A. Duty of Loyalty.1.An agent has a fiduciary duty to act loyally for the principal’s benefit in all matters connected with the agency relationship.2.Outside Benefits: An agent may not receive profits unless the principal knows and approves. 3.Confidential Information.a.The ability to keep secrets is important in any relationship, but especially a fiduciary relationship. b.Agents can neither disclose nor use for their own benefit any confidential information they acquire during their agency. 4.Competition with the Principal: Agents are not allowed to compete with their principalin any matter within the scope of the agency business. 5.Conflict of Interest Between Two Principals: Unless otherwise agreed, an agent may not act for two principals whose interests conflict. 6.Secretly Dealing with the Principal: If a principal hires an agent to arrange a transaction, the agent may not become a party to the transaction without the principal’spermission. 7.Appropriate Behavior: An agent may not engage in inappropriate behavior that reflectsbadly on the principal. This rule applies even to off-dutyconduct. B. Other Duties of an Agent.2
1.Duty to Obey Instructions: An agent must obey her principal’s instructions unless the principal directs her to behave illegally or unethically.