Agency-Principle Notes

Agent Principle Relationship

Law of Agency

 What is an Agent and Principle

Agency is a 2 party relationship in which the agent is authorized to act on behalf of the principal


Agency Law’s most important social function is to stimulate commercial activity


–          Rules governing the formation of the agency

–          The duties the principle and agent owes each other

–          Way agency can be terminated


Creation of an Agency


Formation – agency is created through the manifested agreement of 2 parties that the agent will act for the benefit of the principal under the principal’s direction

Agency contract can be oral



A principal or agent that lacks mental capacity when the agency is formed can release himself at his own option

Example: minors, mental problem


Nondelegable options

Some duties must be done personally and cannot be switched off to an agent

-statements under oath

-voting in public elections

-professional fields like doctors



Agency Concepts, Definitions and Types



Principle is not always liable for agent’s actions

Authority- ability for an agent to affect his principal’s legal liabilities

Must be communicated to principle

-Actual Authority: express authority and implied authority

Express authority is created by principal’s actual words (written or oral)

Implied authority  – to do what is reasonable and is likely expected

Apparent Authority: when principle’s behavior causes a 3rd party to believe reasonably

that an agent is authorized to act in a certain way’


pg 858 is Euclid Plaza Associates v African American Law Firm


General Agent- continuously employed to conduct a series of transactions

Special Agent- employed to conduct a single transaction

Gratuitous Agents – receives no compensation

Subagents- agent of an agent

 Agent Principle Relationship

Employees and Independent Contractors

Most important distinction is the right to control the details of the work

pg 859 is Eisenberg c Advance Relocation Storage


Duties of Agent to Principal

Agent must perform as according to terms

Fiduciary duties that the agent owes the principle

Gratuitous Agent – doesn’t need to perform as promised.

–          Is liable for failing to perform as promised if principle relies on them to undertake certain acts and the principle suffers a loss because he refrained from doing the act thinking it would be done


Agent’s Duty of Loyalty

Agent must subordinate his personal concerns y avoiding conflicts of interest with principle and not disclosing confidential info

-Agent cannot deal with himself

-cannot compete with principle

Cannot act on behalf of party without permission


Agent’s Duty to Obey Instructions

Have to obey reasonable instructions

Gratuitious does not have to obey and remain and agent

Does not have to obey and break law

Duty to clarify instructions if unclear


Agent’s Duty to Act with Care and Skill

Exercise the degree of care and skill


Agents duty to notify the principle

Must give principle info that relates to their business and would be material

Must refuse info if it is confidential

Pg 863 iw Olsen V Vail Associates


Agent’s Duties to Account

Must give principle any money or property received in course of agency business


Duties of Principle to Agent


Compensate agent

Reimburse agent

Indemnify the agent for losses suffered

Not required to indemnify losses for: unauthorized acts or negligence


Termination of agency

Termination by act of parties

Termination by operation of law


By act of party

When stated event is completed

When a result has been accomplished

Mutual agreement

Option of either party

–          Revocation when done by the principle

–          Renunciation when done by agent

May not have to perform any more, but still liable for damages


By operation of law

Death of principle

Death of agent

Loss of capacity

Changes in value of the agency property

Changes in business conditions

Loss of agency property or principle’s interest

Changes in law that turns business illegal


Can’t do job

Breach of loyalty



Termination of Agency Powers Given As Security

Exception to some of the rules above pg 868


Effect of termination on agents authority pg 869


ch 36

must be rules to decide when the principle and the agents are liable on the agents contract


Contract Liability of the Principal

Principle is normally liable on a contract made by his agent if the agent had express, implied or apparent authority

Express is by words

Implied is to do what is reasonable

Apparent- when principles behavior suggests agent is authorized to act in a way

Pg 875  is opp v Wheaton van Lines


Agent’s Notification and Knowledge

Impacts principle’s contract liability

If a third party gives notification to an agent with authority to receive it, principle is bound pg 877


Ratification- process whereby a principle binds himself to an unauthorized act

Express ratification-  words used to express ratification

Implied ratification- actions suggests intent to ratify


More than words or behavior needed: act ratified must have been valid at the time it was performed (cant be illegal)

Principle must have been in existence when agent acted

Must have indicated that was acting on behalf of principle

Legally competent

Knowledge of material facts

Ratify entire contract

Same formalities

Ph 877


Events to cancel out power to ratify

Third partys withdraw from contract

Death or loss of capacity

Failure to ratify during reasonable time

Changed circumstances


Contracts made by subagents

Principle bound

Agent bound


Contracts Liability of the Agent

Depends on nature of principal



Disclosed Principal

–          If third party knows

  • Agent is acting for principal
  • Principal’s identity

–          Not liable in these events


Partially Disclosed

If-        knows agent is acting for principle

–          Lacks knowledge of principle identity

  • Therefore depends on agent’s statements
  • Partially liable


Agent liable


Nonexistent principles

Agent liable


Implied Warranty of Authority

Liable if he contracts without authority

Not liable if

–          Third party actually knows the agent lacks authority

–          Principle ratifies the contract

–          3rd party is notified he does not have authority

Reed v National Foundation Life pg 881


Contract Suits Against Principal and Agent

Pg 882


Tort Liability of Principal

Agent may commit torts for principal


Respondeat Superior Liability

Principal who is an employer is liable for torts committed by agents who are employees and who commit the tort while acting within their employment responsibilities

–          Rule of imputed or vicarious liability

  • Bases liability on relationship with employee
    • Economic burdens of employee torts can be borne by employers
    • Employers can protect themselves with insurance
    • Cost is passed on to customers


Scope of Employment

Action is of the kind that the employee was paid to do

Done within authorized time

Done at right location

Motivation comes from serving employer


Direct Liability

Give agent unclear instructions

Failure to enforce regulations

Hiring unsuitable agents

Failing to fire unsuitable agent

Giving improper tools

Carelessly supervising agent


Millan V Dean Witter pg 884


Liability for torts of independent contractors

Principal generally not liable

Only liable when:

Hiring incompetent contractor

–          Failure to perform a nondelegable duty (duty whose performance is so important it shouldn’t be contracted away)

–          Taking no special precautions when contracting people to highly dangerous jobs

Liability for Agent’ Misrepresentations

Principle is directly liable if principle intended the agent make misrepresentations

Negligently allowed it to happen

If agent had authority


Pg 886 is an outline of the principal’s tort liability


Tort Liability of the Agent

Can escape liability if exercising a privilege of the principal

Privileged to take actions in defense of person or property the same way principal would

Misrepresentation ok if not aware it was wrong

Defective tools

Agent Principle Relationship



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