AFM231 Chapter Notes - Chapter 13: Apparent Authority, Insurance Broker, Uberrima Fides
Agency: a relationship that exists when one party represents another party in the formation of legal
relations
Agent: a person who is authorized to act on behalf of another
Principal: a person who has permitted another to act on their behalf
Agency Defined
• Outsider: the part with whom the agent does business on behalf of the principal
• Law of agency: the law governing the relationship where one part, the agent, acts on behalf of
another, the principal
Agency by agreement
• Principal authorizes an agent to act on their behalf and the agent agreeing to do some for a fee or
renumeration
• Usually occurs through a contract written for that single purpose
• Power of attorney: an agency agreement in writing and under seal
The Concept of Authority
• Determines whether there is a contract between the principal and the outsider
• Actual authority: the power of an agent that derives from either express or implied agreement
o Express authority is the written or oral authority granted by the principal to the agent and is
an authority the agent actually has
o Implied authority is authority an agent has but it is present by implication only
• Inferred from the agent's position
• Necessary to carry out or implement the agent's express authority
• Arises by virtue of a well-recognized custom in a particular, trade, industry or
profession
• Apparent authority: the power an agent appears to have to an outsider because of conduct or
statements of the principal
o As long as an agent is acting within apparent authority, the principal will be bound by the
transaction unless the third party know about the limitation of authority
Agency by estoppel: agency relationship created when the principal acts so the third parties reasonably
conclude that an agency relationship exists
• Principal is bound by the contract, must live with the consequences of acting like someone is their
agent
• Agency relationship can be created by estoppel if the principal indicates another is their agent
even if no agency relationship exists
• Agency by estoppel may operate if an agency relationship is terminated or an agent's authority is
curtailed
• Responsibility is on the principal to inform the outsider when a person is no longer their agent
o Must also inform outsiders about any limitation on the agent's usual authority
Agency by ratification: agency relationship created when one party adopts a contract entered into their
behalf by another who at the time acted without authority
• Agent has no authority to do what they are doing
• Principal may make a decision of whether or not they wish to accept the contract
A principal can only ratify a contract if