In this lecture on Agency Formation, we're going to discuss what is this concept of agency, talk about some of the most common forms of agency relationships that you'll see in our society. Now, agency is a really, really important concept when it comes to business law. It is really actually pretty simple but there's a lot of sort of nooks and crannies in this field of agency that can trip us up sometimes. So at its core, agency is nothing more than the idea that you give somebody else authority to act on your behalf. So if it could be something as business centric as, I own some stock and I can't go to the shareholders meeting and vote so I give somebody else the authority to vote my share on my behalf. That's a form of agency. There are all sorts of agencies in the world that it happens all the time frequently in the employer-employee context but not all employees are agents although some are. So it's a key differentiation between an employee and an agent has to do with the level of control that the employer or what we call the principal has over that person. We'll get to that in a little bit later. But for now, just know that in terms of agency, you have a principal and that's the person in charge basically, and you have an agent, that's the person who takes on some responsibility from the principal. There are about four types of common agency relationships. The first and by far the most common is what's called an express agency, and that's probably what you think of when you think of the concept of agency most often. So if you're a famous athlete and you hire an agent to negotiate your contract for you, that's an express agency. You affirmatively tell this person that you want them to do this on your behalf. A really, really common type of express agency is called a power of attorney. If you have an estate plan or will, a trust, something like that, and you hired a lawyer to do it, they probably recommended that you draft a power of attorney along with it. If you don't, then maybe your parents do or uncle or grandparent or something like that. They probably have a power of attorney and that just gives somebody else the right to make decisions about your healthcare or your finances in the event that you are unable to, like you are sick or incapacitated or something like that. It's a really common form of express agency relationship. Beyond the express agency, there are also implied agency relationships. Now, these are when the principal and the agent haven't specifically determined the scope of their agency relationship, but given the way they have acted towards each other, it's reasonable to assume that they would have wanted to have an agency relationship. So for instance, say you're getting sued in court and you hire a lawyer to represent you in the lawsuit, and during the course of the litigation, the other side comes to your lawyer and says, "Hey, let's discuss settlement options." Well, you haven't expressly hired the attorney to settle or negotiate the settlement but it's implied that if they're representing you in court, they have the implied authority to at least start the discussion for the settlement talks. Now, the third type of agency relationship is far less common but it's worth knowing about. It's called agency by ratification. So imagine this, here's an example to explain how agency by ratification works. Suppose you really, really want to work for a company but you're not an employee there yet, so you think, "Hey, I got this great idea. I'll go out and I'll drum up some new business for this company, and then they'll have to hire me after they see how ambitious I am and how I can- I'm such a good sales person and I can bring in new business." So you go out and you find somebody, and say, "Hey you want to do business with this company?" And they say, "Yeah, I'd love to." And then you go to the company and you say, "Hey, guess what? I got you some business." Well, you weren't there agent at that time. The company is under no obligation to honor whatever deal you might have made with somebody else because there was no agency relationship at all. But if the company says, "You know what? We actually kind of like that deal. That works for us. We want to honor that." That's basically ratifying your previous actions that were done without any agency relationship. The ratification makes whatever you did effective and they are now bound by it. The final type is called apparent agency. Apparent agency exists when a third party reasonably believes that someone is your agent even if they actually aren't. It's usually because you did something to make that third party believe that they're your agent. So consider this example, you are a manager at a company, you own the company maybe, and you bring in like an intern, not even an intern, someone just who's there to interview for a job. They're not your employee, they're not your agent, they're just there interviewing for a job, and suppose, during the course of the interview, you take them on a tour of your offices. You say, "Oh, there's the break room, here is the conference room. Oh, there's some people in the conference room. Everybody meet Joe. Hey, Joe, here's everybody." And you don't specifically say, "By the way, Joe doesn't work here, he's just on an interview." Maybe somebody in the conference room is a client, and after Joe's interview, he and the client happen to run into each other in the parking lot and they make some sort of deal on behalf of your company. Now, Joe's not your agent but you led your client to believe that he was. He was in your office, you took him around, you introduced him. Your client had a reasonable belief that he was your agent, and so, the doctrine of apparent agency could hold you liable as the principal for Joe's interactions with that third party because the third party reasonably believed, based on your actions, that Joe was your agent. So those are the common forms of agency relationships, and we'll move on to discuss some of the rights and duties of agents in this relationship with one another.
