Wiley CPAexcel Exam Review 2014 Focus Notes: Regulation

Module 32: Agency

AGENCY

The Agency Relationship

Agent works on behalf of the principal

Agent owes fiduciary duty to the principal to act in the principal's best interests; fiduciary duties include duty of

• Loyalty
• Obedience
• Due care

Liability

Generally, principals can be held liable for the actions of their agents, but principals are not responsible for the actions of independent contractors.

Contract Liability

If the third party is suing the principal/agent for breach of contract, then consider what authority the agent had to enter into the contract and the disclosure status of the principal.

Tort Liability

• If agent commits a tort while in the scope of the principal's employment, then the third party holds the principal liable, or the agent liable, or both the principal and agent liable; this is joint and several liability.
• If agent commits a tort outside the scope of employment, then only the agent is liable.

Terminating Agent's Authority

Authority of agent terminates in certain cases

• Agreement—Principal and agent agree to end of authority
• Unilateral—Principal dismisses agent or agent resigns
  • Actual authority terminated even if in breach of contract
• Operation of law—Death, insanity, incapacity, or illegality of subject matter of agency

Apparent authority can still exist, unless authority was terminated by operation of law, then all authority is terminated

Principal can ...