Chapter 35 - The agency relationship. When you finish this chapter, you should: know how an agency relationship is created and terminated, distinguish employees from nonemployee agents, recognize when an agent risks breaching a fiduciary duty. | Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8 The Agency Relationship Third-Party Relations of the Principal and the Agent Agency Law P A R T The Agency Relationship P A E T R H C 35 I’ve got an ego and all that, but I know I need help. So I go and hire the very best people. H. Ross Perot, EDS founder Inc. magazine (Jan. 1989) Learning Objectives Know how an agency relationship is created and terminated Distinguish employees from nonemployee agents Recognize when an agent risks breaching a fiduciary duty Agency is a two-party relationship in which one party (agent) is authorized to act on behalf of and under the control of another party (principal) Anybody may be an agent or principal, but the agreement is voidable by minors and the mentally incapacitated Overview MDM Group Associates, Inc. v. CX Reinsurance Company Ltd.: Agent owes a fiduciary duty to principal, but not vice versa. Insurance broker MDM contended that CX, as the . | Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8 The Agency Relationship Third-Party Relations of the Principal and the Agent Agency Law P A R T The Agency Relationship P A E T R H C 35 I’ve got an ego and all that, but I know I need help. So I go and hire the very best people. H. Ross Perot, EDS founder Inc. magazine (Jan. 1989) Learning Objectives Know how an agency relationship is created and terminated Distinguish employees from nonemployee agents Recognize when an agent risks breaching a fiduciary duty Agency is a two-party relationship in which one party (agent) is authorized to act on behalf of and under the control of another party (principal) Anybody may be an agent or principal, but the agreement is voidable by minors and the mentally incapacitated Overview MDM Group Associates, Inc. v. CX Reinsurance Company Ltd.: Agent owes a fiduciary duty to principal, but not vice versa. Insurance broker MDM contended that CX, as the insurer, was the principal in an agency relationship with MDM, owed MDM a fiduciary duty, and breached its duty by handling insurance claims improperly. The jury found for MDM and awarded damages, but CX appealed. On appeal, the court stated: “The jury was wrongly instructed that there was a fiduciary duty as a matter of law if it found that an agency relationship existed. As a matter of law, a principal is not a fiduciary of an agent.” An agent can bind his principal only when the agent has authority to do so Two forms: actual or apparent authority Actual authority is express or implied Express authority is created by the principal’s actual words (written or oral) Example: “I want to hire you as my real estate agent to sell my house.” Agency Authority Agent has implied authority to do whatever it is reasonable to assume that the principal wanted the agent to do given principal’s statements and surrounding circumstances Example: a person hired as general manager in a restaurant will
