Business Law - Types of Agency Relationships

Hey, thanks for joining me for this lecture. We're going to be talking about the creation of agency relationships. In our past video, we explored sort of an introduction to agency law, as well as some of the important elements of it. So we're going to be building upon that and focusing more specifically on how do we sort of create these agency relationships.

So the first thing let's do is a little bit of review. Let's talk about agency law. So in a nutshell, agency law governs the relationships where one party known as the agent acts on behalf of another party or the principal to create a legal relationships with third parties. So this legal framework ensures some sort of accountability helps to delegate authority as well as a kind of smooth functioning of various types of transactions.

Now there are few different types of agency relationships. The first one that we're going to explore is what is known as express authority. Now express authority is granted explicitly, either verbally or in writing, by the principal to the agent. And it outlines the specific powers and limitations of the agent and creates a clear framework for their actions.

So an example of this could be a business hires an advertising and promotion agency and creates a detailed contract which specifies the scope of marketing services. They are expressly giving authority in writing, which is important for not only establishing the relationship, but also navigating the relationship in the future. The next type of agency relationship is what is known as implied authority. Now implied authority on the other hand is not explicitly stated, but is reasonably understood to be necessary for the agent to fulfill their duties.

Now this often arises in the nature of agency relationships and certain tasks that are required. An example of this is in an employer employee relationship, if you had an executive assistant who would be the agent in this scenario is implicitly authorized to make routine decisions on behalf of the CEO. So while each individual decision or task isn't specifically outlined, there's a general assumption that it's implied that an executive assistant will have to make certain routine decisions over the course of acting as the agent in this particular scenario. So whether it's making a decision related to ordering lunch and it's not specifically stated what that looks like, certain things are of course implied by the relationship.

Or if it's handling travel transactions and having to make decision with regards to which airline to book, it wouldn't make sense to outline the relationship so much that you had that in writing. It's assumed that they have the ability to make those particular decisions. And then of course the principle is of course bound by those decisions as well. Now the last way to create or last type of agency relationship, I should say, is what's known as apparent authority.

Now apparent authority is actually a pretty interesting concept. And even if the agent doesn't have expressed or implied authority, if the principle's actions lead a third party to believe that the agent has authority, then the principle may actually be bound by the agent's actions. So a great example of this in a retail context could be a store manager who is the agent on behalf of the company would appear to have the authority to negotiate discounts. And so if there's a discussion related to that, customers believe that they have the power to do so.

And so as a result, they could make an argument that the agent, the store manager had apparent authority. And then that discount should be offered in that case, even if someone higher up along the rank says it's not from a consumer standpoint, the optics of it are that they have apparent authority to be able to make those decisions. And then of course, our bound by that as well. And this is a very tricky concept within business law because it deals with the perception of the public.

And so it's always really important from an employer employee relationship to have specifically outlined the things that the employee has the ability to do and to bind the employer to otherwise apparent authority could come into play. The final way that a agency relationship can be created is through what we call ratification. So sometimes agency relationships are created after the fact through what we call ratification. So this occurs when a person acts as an agent without prior authorization.

But the principle later approves or accepts the actions taken on their behalf. Now, an example of this could be where an employee makes a purchase on behalf of the company without prior approval. But the company later ratifies the transaction, meaning that after the fact they say that they agree to that particular transaction. And so then you could have an agency relationship through ratification in this instance.

Now, as we wrap up this video, I want you to remember that agency relationships are dynamic, meaning that they're constantly changing. They are shaped by consent. They're shaped by the different types of authority, as well as the nature of the tasks involved in understanding how these relationships are created is extremely important for anyone navigating the legal landscape of business transactions. Thanks for watching this video.

I hope you enjoyed it and we'll see you next time.