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©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
CHAPTER 1
Agency Concepts and Definitions
THEME
Because agency law is so fundamental to the
transaction of business by corporations and all
other types of business organizations, this first
chapter provides an overview of agency con-
cepts and an introduction to agency law as it
relates to business organizations.
CHAPTER GOAL
The goal of this chapter is for students to be-
come familiar with the following terms and
topics concerning agency law:
• Agency, agent, and principal, and other
basic terms concerning the agency relation-
ship
• Elements of an agency agreement
• Differences between an employee and an
independent contractor
• Power-of-attorney purposes
• Agency agreement creation
• Liability of the principal for the acts of the
agent
• Agent’s liability to third parties when acting
in his or her capacity as an agent
• Agency relationship termination
• The individuals and/or entities that act as
principal(s) and agent(s) for each of the
various types of business organizations
SUGGESTED APPROACH
Class discussions concerning this chapter may
involve several examples of agency relation-
ships with which students may be familiar or
involved in. They can be asked about different
situations in which they have acted for another
or had another act on their behalf, then examine
the circumstances to determine if an agency re-
lationship existed.
LECTURE NOTES
Agency Concepts and Definitions
1. When one person acts on behalf of another
or on behalf of a business organization, an
agency relationship is formed.
2. The agent is the person acting on behalf of
the principal.
3. A general agent has authority to transact all
business of the principal, all business of a
particular kind, all business at a particular
place, or all acts connected with a particular
employment or business.
4. A special agent has authority to do one or
more specific acts in accordance with in-
structions from the principal.
5. If an employer has the right to control the
manner in which an agent performs his or
her work, that agent is likely an employee
and not an independent contractor.
6. A power of attorney is created by a written
document that authorizes another (the at-
torney in fact) to act as one’s agent. A
power of attorney is usually required to
transfer real estate on behalf of another.
7. A durable power of attorney provides that
the authority granted to the attorney in fact
will continue even after the incapacity of
the person granting the power of attorney.
Agency Creation
8. The elements of an agency relationship in-
clude the following:
• Consent of the parties
• Capacity of the parties to act
• No required written agreement
• No required exchange of
consideration
• Formation of the agency for a proper
purpose
CHAPTER 1 Agency Concepts and Definitions 3
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
9. An agency agreement can be created by the
following:
• Express agreement (either verbal or
written)
• Implied agreement (the intent and ac-
tions of the parties)
• The conduct of the principal and agent
• Ratification
• Estoppel
Agency Relationship
10. The agent’s authority is the agent’s power
to act on behalf of the principal in accord-
ance with the principal’s
consent.
11. The agent may have actual authority or
apparent authority.
12. The agent’s actual authority may be:
• Express authority
• Implied authority
• Authority incidental to express authori-
ty
• Authority implied because of emergen-
cy
13. Apparent authority to do a specific act can
be created by the actions of the principal—
either by written or spoken word, or by the
principal’s conduct.
14. The elements of apparent agency include:
(1) acts or conduct of the principal causing
a third party to believe the agent has au-
thority to act on behalf of the principal; (2)
reliance on that belief by a third party.
15. The agent and principal owe certain duties
to each other.
Principal’s Liability to Third Parties
16. The principal is usually liable for acts con-
ducted by an authorized agent.
17. The principal is liable under contracts made
on the principal’s behalf by an authorized
agent.
18. Under the doctrine of respondeat superior,
an employer is responsible for the torts
committed by his or her employee while
the employee is acting in the scope of his or
her employment by the principal.
Agent’s Liability to Third Parties
19. Agents are personally liable for their torts.
Under certain circumstances, the principal
may also be liable for torts committed by
the agent.
Agency Termination
20. The agency may be terminated pursuant to
the terms of the agency contract, the ful-
fillment of the agency purpose, by the
death or bankruptcy of either the principal
or agent, or by the act of the principal and
agent or either one of them.
Agency and Business Organizations
21. A sole proprietor may hire employees to
serve as agents.
22. In a partnership, partners act as agents for
the partnership and for each other.
23. In limited partnerships, the general partners
act as agents for the partnership and the
other partners.
24. Either members or managers are agents of
limited liability companies.
25. Officers and directors act as agents of cor-
porations.
The Paralegal’s Role
A basic understanding of agency law will bene-
fit paralegals who work in nearly every area of
law. An understanding of agency law will help
paralegals who need to understand contracts and
litigation that clients may be involved in. Some
specific tasks related to agency law that may be
assigned to corporate paralegals include review-
ing and drafting powers of attorney, employ-
ment agreements, and other contracts that may
involve an agency relationship.
Resources
Important resources for paralegals who are
working in areas related to agency law include
agency treatises, especially the Restatement of
4 PART I Guide for Instructors and Answers to Chapter Review Questions
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
the Law—Agency 3d. There are also several
online resources that can provide valuable in-
formation on agency law.
1. What is the difference between a general
agent and a special agent?
A general agent has the authority to
transact all business of the principal, all
business of a particular kind, all business
at a particular place, or all acts connect-
2. Suppose you give your friend some cash
and ask her to pick up a video for you at
the video rental store. Has an agency rela-
tionship been created?
Yes
Discuss each of the elements of an agency
relationship as they relate to this situation.
Consent: If you ask and your friend
have capacity to act.
3. Can an agency relationship be created
without a written agreement?
Yes
What if the agent is asked to sell a parcel of
land for the principal?
4. Can an agency relationship be created if
the principal does not pay the agent to act
on her behalf?
5. Suppose that before a horse race, the owner
of one of the horses, the trainer, and a race-
horse investor are all having a conversa-
tion. The trainer offers to sell the racehorse
to the investor for $10,000 (in the owner’s
presence, and without her objection). The
race, the owner refuses to sell, stating that
the trainer was not acting on her behalf and
had no authority to sell the horse. Is the
owner correct?
No
What type of authority, if any, does the
trainer have?
The trainer had apparent authority to
act on behalf of the owner when the
Does the investor have any right to pur-
6. What duties does an agent owe the princi-
pal?
An agent owes the principal the duty to
perform and perform with reasonable
care. The agent also owes a fiduciary du-
CHAPTER 1 Agency Concepts and Definitions 5
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
7. Under what circumstances may a principal
be liable for torts committed by her agent?
The principal may be liable under the
doctrine of respondeat superior if the
agent committed the tort while acting in
8. What is respondeat superior?
Respondeat superior is the doctrine that
provides that an employer who retains
control over the manner in which the
agent performs her duties has vicarious
9. Who are the agents for a general partner-
ship?
10. Who are the agents for a corporation?
SUGGESTED ANSWER TO PRAC-
TICAL PROBLEM
The practical problem in this chapter asks the
students to prepare a power of attorney, granting
a fictitious brother the authority to handle the
student’s affairs while the student is out of the
country for six months. Students should prepare
a general power of attorney based on the forms
provided in the text or found online specifically
for your state. You may want to provide a sam-
ple from your state if the requirements vary sig-
nificantly from those in the text.
EXERCISE IN CRITICAL
THINKING
The Exercise in Critical Thinking in each chap-
ter asks students to think beyond the materials
they have learned and consider the reasons for
certain corporate and business organization laws
and established policies procedures, and to con-
sider their possible flaws. These exercises may
be good fuel for class discussion or themes for
student essays. There will, of course, be no right
ment that is often prepared quite routinely in
corporate law offices.
Exercise:
Attorneys often prepare power-of-
attorney documents as a matter of
convenience for their clients. What
What consideration must be given
concerning the individual named as
attorney in fact?
concerning the scope of powers
granted in the power of attorney?
WORKPLACE SCENARIO
The Workplace Scenarios at the end of each
chapter ask students to put themselves in the
place of a paralegal who works for a small law
firm specializing in corporate law. Students are
asked to put to use what they have learned in the
preceding material of the chapter by completing
assignments of the type often given to corporate
paralegals. Students will complete their assign-
ments based on a set of facts given in the Work-
place
Scenario and client data information given in
Appendix B in the text. At times, students will
need to create some of their own facts in order
to complete their assignments. The purpose of
these Workplace Scenarios is for students to be-
come familiar with the type of assignments re-
6 PART I Guide for Instructors and Answers to Chapter Review Questions
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
ceived by paralegals, the proper documents and
forms to be used in their home states, and the
procedures for filing documents (when
necessary).
The Workplace Scenario for Chapter 1
asks students to prepare a special power-of-
attorney document for a new client by the name
of Bradley Harris to be given to a friend of his,
Cynthia Ann Lund, so that she may take care of
his business while he is in the hospital recover-
ing from surgery. Sample documents for several
of the Workplace Scenarios throughout the text
may be found in the appendices to this Instruc-
tor’s Manual. See Appendix A for a sample spe-
cial power of attorney for this chapter.
