8 Questions
What is the primary characteristic of an agency relationship?
The principal has the right to control the agent's actions.
What type of agency is created when the principal implicitly grants authority to the agent through their actions or circumstances?
Implied Agency
What is the primary duty of an agent to their principal?
Loyalty
What is the consequence of an agent renouncing their authority?
The agency relationship is terminated.
What is the primary duty of a principal to their agent?
Compensation
What type of agency is created when the principal appears to have granted authority to the agent, even if they have not explicitly done so?
Apparent Agency
What is the result of the death of either the principal or agent?
The agency relationship is terminated.
What is the term for the agent's duty to keep accurate records and account for all transactions?
Accounting
Study Notes
Agency and Principal
Definition
- Principal: The person or entity that grants authority to another party to act on their behalf.
- Agent: The person or entity that acts on behalf of the principal.
Characteristics
- Agency relationship: The relationship between the principal and agent, where the agent acts on behalf of the principal.
- Authority: The agent has the power to bind the principal to agreements and contracts.
- Control: The principal has the right to control the agent's actions.
Types of Agency
- Express Agency: The principal explicitly grants authority to the agent through a written or oral agreement.
- Implied Agency: The principal implicitly grants authority to the agent through their actions or circumstances.
- Apparent Agency: The principal appears to have granted authority to the agent, even if they have not explicitly done so.
Duties and Responsibilities
-
Duties of the Agent:
- Loyalty: Act in the best interests of the principal.
- Care: Exercise reasonable care and skill in performing duties.
- Obedience: Follow the principal's instructions.
- Accounting: Keep accurate records and account for all transactions.
-
Duties of the Principal:
- Compensation: Pay the agent for their services.
- Indemnification: Protect the agent from losses incurred while acting on behalf of the principal.
Termination of Agency
- Termination by Agreement: The principal and agent agree to end the agency relationship.
- Termination by Revocation: The principal revokes the agent's authority.
- Termination by Renunciation: The agent renounces their authority.
- Termination by Operation of Law: The agency relationship is terminated due to death, insanity, or bankruptcy of either party.
Agency and Principal
Definition
- A Principal is a person or entity that grants authority to another party to act on their behalf.
- An Agent is a person or entity that acts on behalf of the principal.
Characteristics
- An Agency Relationship exists between the principal and agent.
- The agent has Authority to bind the principal to agreements and contracts.
- The principal has Control over the agent's actions.
Types of Agency
- Express Agency: The principal explicitly grants authority to the agent through a written or oral agreement.
- Implied Agency: The principal implicitly grants authority to the agent through their actions or circumstances.
- Apparent Agency: The principal appears to have granted authority to the agent, even if they have not explicitly done so.
Duties and Responsibilities
Agent's Duties
- Loyalty: Act in the best interests of the principal.
- Care: Exercise reasonable care and skill in performing duties.
- Obedience: Follow the principal's instructions.
- Accounting: Keep accurate records and account for all transactions.
Principal's Duties
- Compensation: Pay the agent for their services.
- Indemnification: Protect the agent from losses incurred while acting on behalf of the principal.
Termination of Agency
- Termination by Agreement: The principal and agent agree to end the agency relationship.
- Termination by Revocation: The principal revokes the agent's authority.
- Termination by Renunciation: The agent renounces their authority.
- Termination by Operation of Law: The agency relationship is terminated due to death, insanity, or bankruptcy of either party.
Understand the roles and characteristics of principals and agents in a business setting, including the agency relationship, authority, and control.
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