Agency Law
“If you want something done right,
do it yourself.”
“Many hands make light work.”
Anonymous folk sayings


Agency is a relationship in which the agent
agrees to perform a task for, and under the
control of, the principal
To create an agency, there must be:
◦ Principal: Person who has someone else acting on
him
◦ Agent: Person who acts for someone else
◦ Who mutually consent that the agent will act on
behalf of the principal
◦ Be subject to the principal’s control
◦ Creating a fiduciary relationship

Consent – Principal must ask the agent to do
something:
◦ Agent must agree

Control – Principals are liable for the acts of
their agents
◦ They exercise control over the agents

Fiduciary relationship – Trustee acts for the
benefit of the beneficiary
◦ Agents have a fiduciary duty to their principals

Elements not required for an agency
relationship include:
◦ A written agreement
 Equal dignities rule: If an agent is empowered to enter
into a contract that must be in writing, then:
 The appointment of the agent must also be written
◦ Formal agreement
◦ Compensation

Duty of loyalty - The agent:
◦ Must act for the benefit of the principal
◦ May not receive outside benefits without approval
of the principal
◦ Can neither disclose nor use for her own benefit
any confidential information
◦ Is not allowed to compete with his principal within
the scope of the agency business

Duty of loyalty - The agent:
◦ May not act for two principals whose interests
conflict
◦ May not become a party to a transaction without
the principal’s permission
◦ May not engage in inappropriate behavior that
reflects badly on the principal


An agent must obey the principal’s
instructions, unless illegal or unethical
Agent must act with reasonable care
◦ An agent with special skills is held to a higher
standard because he/she is expected to use those
skills

Agent must provide information
◦ An agent has a duty to provide the principal with all
information in her possession that:
 She has reason to believe the principal wants to know



The principal can recover damages caused by
the agent’s breach
The agent must refund any profits made from
the agency, if he breaches his duty of loyalty
The principal may rescind a transaction with a
disloyal agent

Duty to reimburse the agent for reasonable
expenses – Three categories
◦ Principal must indemnify an agent for expenses
reasonably incurred in carrying out his agency
responsibilities
◦ Principal must indemnify an agent for tort claims
brought by a third party if:
 Principal authorized the agent’s behavior and the
agent did not realize he was committing a tort

Duty to reimburse the agent for reasonable
expenses – Three categories
◦ Principal must indemnify the agent for any liability
she incurs from third parties as a result of:
 Entering into a contract on the principal’s behalf,
including attorney’s fees and reasonable settlements

Duty to cooperate
◦ Principal must furnish the agent with the
opportunity to work
◦ Principal cannot reasonably interfere with the
agent’s ability to accomplish his task
◦ Principal must perform his/her part of the contract

Termination by agent or principal
◦ Three choices in terminating the relationship
 Term agreement
 Time
 Achieving a purpose
 Mutual agreement
 Agency at will
 Wrongful termination

Principal or agent can no longer perform
required duties
◦
◦
◦
◦

Failure to obtain license
Bankruptcy
Death or incapacity of the principal or agent
Disloyalty of agent
Change in circumstances
◦
◦
Change of law
Loss or destruction of subject matter



Termination of the agency ends the agent’s
power to act on behalf of the principal
Principal’s duty to reimburse expenses of the
agent ends with the end of the agency
Confidential information remains confidential
and unusable, even after the end of the
agency

The principal is bound by the acts of an agent
if:
◦ The agent had authority
◦ The principal ratifies the acts of the agent


A principal is bound by the acts of an agent if
the agent has authority
There are three types of authority
◦ Express - Granted by words or conduct that:
 Reasonably interpreted, cause the agent to believe the
principal desires her to act
◦ Implied - Authority to conduct a transaction
includes:
 Authority to do acts that are reasonably necessary to
accomplish it
◦ Apparent - Principal can be liable for the acts of an
agent who is not acting with authority if:
 Principal’s conduct causes a third party reasonably to
believe that the agent is authorized

Ratification
◦ If a person accepts the benefit of an unauthorized
transaction or fails to repudiate it, then:
 He is as bound by the act as if he had originally
authorized it

Subagents
◦ Intermediary agent – Someone who hires subagents
for the principal
◦ When an agent is authorized to hire a subagent:
 Principal is as liable for the acts of subagent as he is
for the acts of regular agent

Fully disclosed principal
◦ An agent is not liable for any contracts

Unidentified principal
◦ Third party can recover from either the agent or the
principal

Undisclosed principal
◦ Third party can recover from either the agent or the
principal
◦ Third party is not bound to the contract with an
undisclosed principal if:
 Contract provides that the third party is not bound to
anyone other than the agent
 Agent lies about the principal because she knows the
third party would refuse to contract with him

Unauthorized agent
◦ The principal is not liable and the agent is


Employer is liable for a tort committed by its
employee acting within the scope of
employment or acting with the authority
Two kinds of agents
◦ Employees
◦ Independent contractors

Principal may be liable for the torts of an
employee but generally is not liable for the
torts of an independent contractor

Courts consider whether:
Principal supervises details of the work
Principal supplies the tools and place of work
Agents work full time for the principal
Agents receive a salary or hourly wages
Work is part of regular business of the principal
Principal and agents believe they have employeremployee relationship
◦ Principal is in business
◦
◦
◦
◦
◦
◦

The principal is liable for the torts of an
independent contractor if the principal has
been negligent in hiring or supervising her


Principals are liable only for torts that an
employee commits
An employee is acting within the scope of
employment if the act:
◦ Is one that employees are responsible for
◦ Takes place during hours that employee is
employed
◦ Is part of the principal’s business
◦ Is similar to the one the principal authorized
◦ Is one for which the principal supplied the tools
◦ Is not seriously criminal

Authorization
◦ An act is within the scope of employment if:
 Expressly forbidden
 It is of the same general nature as that authorized
 It is incidental to the conduct authorized

Abandonment
◦ The principal is liable:
 For the actions of the employee that occur while the
employee is at work
 Not for actions that occur after the employee has
abandoned the principal’s business

Principal is not liable for the intentional torts
of an employee unless:
◦ Employee is intended to serve some purpose of the
employer
◦ Employer was negligent in hiring or supervising this
employee


Physical torts – Principal is liable for the
negligent conduct of an employee that occurs
within the scope of employment
Nonphysical torts – Principal is liable if the
employee if the employee acted with express,
implied, or apparent authority


Agents are always liable for their own torts,
even if the principal is also liable
Principal and the agent are jointly and
severally liable
◦ Injured party can sue either one or both