1. The Agent
1.1. The consensual nature of the agency relationship requires an agent to: i) Have minimal capacity; ii) Manifest assent and consent to act on the principal’s behalf; and iii) Manifest assent to be subject to the principal’s control.
1.2. Types:
1.2.1. Individual Any individual with minimal capacity (some understanding that a contract is being initiated and the general nature of its subject matter) has the requisite capacity to be an agent. Status as an agent is established by the agreement to act on behalf of, and subject to the control of, the principal.
1.2.2. Servant or employee A servant (often referred to as an employee) is an agent who is subject to the principal’s control with respect to the physical conduct of the employee’s performance. Generally, employees are paid hourly or by time periods (e.g., weekly, biweekly, monthly). Their work is an integral part of the work of the employer, tasks are generally completed under the employer’s direction, and employees are employed for long periods of time with the same employer. The more control an employer exerts over an agent’s day-to-day activities, the more likely the agent qualifies as an employee.
1.2.3. Independent contractor An agent who is not a servant/employee is referred to as an independent contractor. Courts examine several factors to determine whether an agent is an employee or an independent contractor. The most important factor is that an independent contractor is not subject to the principal’s control regarding the physical conduct (i.e., the means and method) of the agent’s performance.
1.2.3.1. An independent contractor can be identified as a person who: i) Bears the risk and benefits from good management; ii) Maintains a high level of independence; iii) Is free to work for others; iv) Agrees to be paid a fixed fee; v) Receives payment based on results; vi) Is liable for work performed; and vii) Accepts responsibility to remedy defects at her own expense.
1.2.4. Gratuitous agent A gratuitous agent is an agent who does not receive compensation. This does not prevent the creation of an agency relationship, but it generally does prevent the formation of an enforceable contract between an agent and a principal due to the lack of consideration.
1.2.5. General and special agents A general agent is an agent with broad authority over a wide variety of tasks, involving a continuity of service in a particular kind of business, without renewed authorization for each transaction or decision. General agents include store managers and purchasing agents.
1.2.6. A trustee as an agent A trustee is an agent and is subject to the control of the settlor of the trust or one or more of its beneficiaries. A trustee maintains a fiduciary relationship with and holds property for the benefit of the settlor. Restatement (Third) of Agency § 1.04(10) (2006).
1.2.7. Subagents A subagent is a person appointed by an agent to perform functions that the agent has agreed to perform on behalf of a principal. The agent is liable to the principal for the conduct of the subagent. When an appointing agent hires employees, those employees are presumed to be subagents of the appointing agent, acting on behalf of the appointing agent’s principal.
2. Contractual Liability
2.1. Agent The agent is responsible to the principal for the subagent’s conduct. Thus, the agent may be liable for a loss incurred by the principal as a consequence of the subagent’s misconduct.
2.2. Principal A principal is bound by the subagent’s acts to the same extent as if the agent had undertaken the acts. Notice received by a subagent is treated as notice to the principal; knowledge possessed by the subagent is imputed to the principal. The principal is not obligated to compensate the subagent when the subagent and the agent create an agreement between them concerning compensation or other duties.
2.3. An agent serving co-principals An agent has a duty of loyalty to the principal. In a situation in which an agent is serving more than one principal, and there is no substantial conflict among the principals’ interests or their instructions to the agent, the agent may fulfill duties owed to all principals. If a conflict exists between the principals, then the agent may not work for the conflicting principals.
3. Liability of the P and A to 3rd Parties
3.1. Contractual
3.1.1. An agent has the power to bind the principal to a contract when: i) The agent has actual authority (express or implied); ii) The agent has apparent authority; or iii) The principal is estopped from denying the agent’s authority.
3.1.1.1. Actual Authority Actual authority may be either express or implied.
3.1.1.1.1. Express actual authority Express actual authority can be created via: i) Oral or written words; ii) Clear, direct, and definite language; or iii) Specific detailed terms and instructions.
3.1.1.2. Implied actual authority Implied actual authority allows an agent to take whatever actions (designated or implied in the principal’s manifestations) are properly necessary to achieve the principal’s objectives, based on the agent’s reasonable understanding of the manifestations and objectives of the principal. Restatement (Third) of Agency §2.01, cmt. b (2006).
3.1.1.2.1. The authority to make purchases on behalf of the principal may create implied authority in an agent to: i) Make payments for goods and services purchased; ii) Accept deliveries; and iii) Collect funds.
3.1.1.2.2. Customary implied authority In the absence of instructions to the contrary, an agent has implied authority to act within accepted business customs or general trade usage within an industry. The agent must be aware of the normal business customs or usage before she acts.
3.1.1.2.3. Implied authority by position A principal may manifest assent to the actions of his agent by placing the agent in a position that customarily has certain authority, such as vice president or treasurer.
3.1.1.2.4. Implied by acquiescence Implied authority based upon acquiescence commonly results from: i) A principal’s acceptance of the agent’s acts as they occur; or ii) The principal’s failure to object to the unauthorized actions of the agent that:
3.1.1.2.5. Implied authority due to emergency Agents have implied authority to take all reasonably necessary measures in cases of emergency, in the absence of the principal and/or specific instructions to act.
3.1.1.2.6. Implied authority to delegate In general, agents are prohibited from delegating either express or implied authority to a third person without the principal’s express authorization. The rationale for the rule is that the agency relationship is consensual, and the principal has not agreed to a third party acting in the place of the known agent. Yet, in certain cases, a principal may be shown to have granted implied authority to the agent to delegate his duties to a third person or subagent. a) Mechanical or ministerial acts; b) Specific to situation or circumstance; c) Custom or usage; d) impossibility
3.1.1.3. Apparent Authority Apparent authority, also known as the doctrine of "ostensible agency," derives from the reasonable reliance of a third party on that party’s perception of the level of authority granted to the agent by the principal. The perception is based on the principal’s behavior over a period of time.
3.1.1.3.1. Implied authority results when the principal’s words or actions cause an agent to reasonably believe in the agent’s authority to act.
3.1.1.3.2. Apparent authority results when the principal causes a third party to reasonably believe that the agent has authority to act.
3.1.1.3.3. To determine if a third party has a reasonable belief of apparent authority, look for a principal’s manifestation that reaches the third party and could reasonably cause the third party to believe that the agent is authorized. The key is the principal’s behavior, not the agent’s, and the third party’s perception that results from it.
3.1.1.4. Termination of Authority An agent’s actual authority may be terminated by: i) The principal’s revocation; ii) The principal’s agreement with the agent; iii) A change of circumstances; iv) The passage of time; v) The principal’s death or suspension of powers; vi) The agent’s death or suspension of powers; vii) The principal’s loss of capacity; or viii) A statutorily mandated termination.
3.1.1.5. Estoppel A person who has not represented that an individual is authorized to act as an agent may be estopped from denying the existence of an agency relationship or an agent’s authority with respect to a transaction entered into by the agent. Estoppel applies when a third party is justifiably induced to make a detrimental change in position because that third party believed the transaction was entered into for the principal and either the principal: i) Intentionally or carelessly caused the belief; or ii) Having notice of such belief and the possibility that the belief might induce others to change their positions in reliance on it, failed to take reasonable steps to notify them of the facts.
3.2. A principal may be vicariously as well as directly liable to a third person who is tortiously harmed by an agent’s conduct.
3.2.1. Respondeat superior Under the doctrine of respondeat superior, a principal may be vicariously liable for a tort committed by an agent acting within the scope of his employment. The principal is liable despite the absence of tortious conduct by the principal. This is also known as “derivative liability.”
3.2.2. Scope of employment An employee acts within the scope of employment when either: i) Performing work assigned by the employer; or ii) Engaging in a course of conduct subject to the employer’s control.
3.2.3. Limitations: an employee's use of physical force against another; intentional torts
4. Rights and Duties of Parties to an Agenct Relationship
4.1. Rights of Principals A principal has the right to select an agent and control the agent’s actions within the scope of the agency relationship.
4.1.1. Control of the agent The agency relationship is, by definition, one in which the agent acts on the principal’s behalf and is subject to the principal’s control. Therefore, a principal has the right to control the acts of an agent working on the principal’s behalf, including third-party negotiations. However, a principal cannot require agents to perform illegal acts or acts against public policy.
4.1.2. An agent’s duty of care Principals have the right to expect an agent to follow instructions and to perform duties, tasks, and transactions with reasonable care, diligence, and judgment. Uncompensated agents are expected to perform in an acceptable manner and are subject to the same standard of care as a compensated agent.
4.1.3. An agent’s duties of loyalty and obedience Agency is a special relationship that gives rise to fiduciary duties on the part of the agent. A principal has the right to expect good faith, loyalty and obedience from her agent. A principal is entitled to expect the agent to avoid acts in the agent’s self-interest in matters connected with the agency and to refrain from secretly profiting from transactions on behalf of the principal. The fiduciary duty owed by the agent to the principal implies that the agent will not breach the trust imposed by the agency relationship.
4.1.4. Notification The principal is entitled to notice from the agent of all issues relevant to the subject matter of the agency relationship. Generally, the law of agency assumes that the principal is aware of all relevant knowledge of and information provided to the agent. A core tenet of agency law is that knowledge of or notice to the agent is notice to the principal.
4.1.5. Accounting The principal has the right to receive an accounting from the agent of all property and funds received or paid on behalf of the principal. The agent is obligated to maintain the principal’s funds separate from his personal funds.
4.2. Duties of Principals to Agents
4.2.1. Deal fairly and in good faith A principal is obligated to treat the agent fairly and in good faith and to provide the agent with information concerning risks of physical or financial harm or loss that the principal knows or should know are present in the agent’s work but that are unknown to the agent. In addition, although a principal does not owe an agent a duty of loyalty, a principal has a duty to refrain from conduct likely to injure an agent’s business reputation or reasonable self-respect.
4.2.2. Contractual duties A principal has a duty to act in good faith in accordance with the terms of the contract between the agent and the principal.
4.2.3. Duty to pay compensation Whether a principal is obligated to compensate an agent depends on the terms of their agreement. To recover compensation, an agent must show that the principal expressly or impliedly agreed to pay compensation. If a principal has promised to pay compensation, then the agent can maintain an action for damages if the principal fails to pay.
4.2.4. Duty not to interfere with an agent’s work If a principal has agreed to furnish an agent with an opportunity for work, then a principal has a duty not to interfere with the agent’s completion of that work.
4.2.5. Duty to indemnify Subject to an agreement to the contrary, a principal has a duty to indemnify the agent against pecuniary loss suffered in connection with the agency relationship and within the scope of the agent’s actual authority. The principal’s duty to indemnify includes expenses and other losses incurred by an agent (such as attorney’s fees) in defending an action brought by a third party.
4.3. A Principal’s Remedies for Breach by an Agent
4.3.1. A principal may pursue one or more of the following remedies against an agent who breaches a duty: i) An injunction; ii) A breach-of-contract action for monetary damages; iii) A tort action for harm suffered, including punitive damages; iv) Avoidance or rescission of a contract or a transaction; v) Restitution; vi) An accounting to the principal for the value of the agent’s use of the principal’s property; vii) Termination of the agency relationship; viii) Forfeiture of commission or other compensation paid or payable; and ix) Disgorgement of profits earned by the agent without the principal’s consent.
5. creation
5.1. By appointment
5.1.1. Expressed orally or in a writing
5.1.1.1. Writing Requirement A writing is generally not necessary to create an agency relationship. In some jurisdictions, statutes require that the principal’s authorization of the agent be in writing and comply with specific requirements. The most common example is when the agent contracts to sell or buy real property.
5.1.1.2. When a statute requires the principal’s authorization to be in writing, the requirement is often referred to as the “equal-dignities rule,” i.e., the authorization must be of equal dignity to the underlying transaction.
5.1.2. Implied by a P's conduct
5.1.3. Misinterpreted by a third party
5.2. created when:
5.2.1. A P manifests assent to an A
5.2.2. The A acts on the P's behalf
5.2.3. A's actions are subject to P's control
5.2.4. The A manifests assent or otherwise consents
5.3. Capacity To become a principal and be bound by an agent’s actions, a person must have capacity both to consent to the agency relationship and to enter into the transaction to which the agent purports to bind the principal.
5.3.1. Minors A person under the age of majority does not have the legal capacity to form contracts. Therefore, a minor generally may not be bound to a contract by an agent. However, a minor can serve as an agent.
5.3.2. Incompetents A person who has a factual incapacity, such as incompetence, due to a mental condition related to medication, drugs, alcohol, or illness, does not have the legal capacity to be a principal, but she may be an agent.
5.3.3. Unincorporated associations An unincorporated association is a non-legal entity in which two or more persons voluntarily associate with mutual consent or purpose. Examples of unincorporated associations include religious, literary, professional, charitable, or social associations; they each lack the capacity to form agency relationships.
5.4. Consent Both the principal and the agent must consent to the agency relationship. The agent does not have to verbally consent, but she may manifest assent by performing acts on behalf of the principal. Restatement (Third) of Agency § 1.01, cmts. c, d; § 103 (2006).
5.5. Consideration The parties may create an agency relationship without consideration.
6. The Principal
6.1. Definition: Any individual or entity (e.g., a government, an organization, an association) that has the legal capacity to possess rights and incur obligations can be a principal.
6.2. Types:
6.2.1. Individual Any individual who has contractual capacity and is not a minor has the legal capacity to enter into an agency relationship as a principal and to appoint an agent. Status as a principal is established by the individual’s intent to delegate an act and control the way in which the act is performed by another.
6.2.2. Master or employer A master (often referred to as an employer) is a principal who employs an agent to perform services and who controls—or has a right to control—the physical conduct of the employee’s performance. Restatement (Second) of Agency § 2(1) (1958). An agent who is subject to this level of control is referred to as a servant or employee.
6.2.2.1. i) The principal exercises significant control over the details of the worker’s day-to-day activities; ii) The principal supplies the tools at the place of employment; iii) The principal pays the worker on a structured pay period; iv) The worker’s skill level is specialized; and v) The principal directs the work to completion.
6.2.3. Entrepreneur Any business owner who has the legal capacity to contract with a person to represent him and conduct business on his behalf can be a principal.
6.2.4. Corporation A corporation is a legal entity created for the purpose of conducting business. A corporation must have legal existence to be considered a principal in an agency relationship. Corporations that are yet to be formed (i.e., future incorporation pending) cannot be principals.
6.2.5. Partnership A partnership is an association of two or more persons for the purpose of carrying on as co-owners of a business for profit. The partnership can be considered the principal in an agency relationship. Partners, employees of the partnership, and other persons, such as attorneys, can all serve as agents of the partnership.
7. Agent's Liability
7.1. An agent’s liability as a party to a contract
7.1.1. Disclosed principal A principal is a disclosed principal if the third party has notice of both the existence and identity of the principal. Unless the agent and third party agree otherwise, an agent who enters into a contract on behalf of a disclosed principal does not become a party to the contract. To avoid becoming a party to the contract, the agent must: i) Enter into the contract on behalf of the disclosed principal; ii) Affirmatively disclose to the third party both the existence and identity of the principal; and iii) Not agree to become a party to the contract.
7.1.2. Partially disclosed principal A principal is a partially disclosed principal if the third party has notice of the principal’s existence but not the principal’s identity. Unless the agent and the third party agree otherwise, an agent who enters into a contract on behalf of a partially disclosed principal becomes a party to the contract. If the agent binds the principal to the contract, or if the principal ratifies the contract, then both the principal and agent are parties to the contract with the third party.
7.1.3. Undisclosed principal A principal is an undisclosed principal if the third party has no notice of the principal’s existence. An agent who enters into a contract on behalf of an undisclosed principal becomes a party to the contract. Thus, when the agent does not inform a third party of the identity or the existence of the principal, the agent becomes liable to the third party on the contract. If the agent binds the principal to the contract, then both the principal and the agent are parties to the contract with the third person. Once the third party discovers the existence of the principal, however, the election of remedies doctrine requires the third party to choose to hold liable either the principal or the agent. If the third party obtains a judgment against one of them, then the judgment operates as an election, and the third party is precluded from seeking to hold the other party liable on the contract.
7.1.3.1. Generally, an undisclosed principal is liable to a third party if: i) The third party is induced to make a detrimental change in position by an agent without actual authority; ii) The principal knew of the agent’s conduct and that it might induce others to change positions; and iii) The principal did not take reasonable steps to notify the third party of the facts.
7.1.4. An agent’s warranty of authority An agent or actor purporting to be an agent for a principal gives an implied warranty of authority to a third person with whom the agent enters into a contract on the principal’s behalf. If the agent or actor lacks the power to bind the principal, then a breach of the implied warranty has occurred, and the agent is liable to the third party for breach. An agent is treated as giving an implied warranty of authority when the principal is disclosed or partially disclosed, but not when the principal is undisclosed.
7.2. An Agent’s Tort Liability An agent is subject to liability to a third party harmed by the agent’s tortious conduct. An agent’s individual tort liability extends to negligent acts and omissions as well as intentional conduct. An agent is not liable for torts committed by the principal.
8. Rights and Duties of an Agent
8.1. Rights of an Agent
8.1.1. Right to receive compensation
8.1.2. Right to have the principal not interfere with the agent’s work
8.1.3. Right to indemnification and reimbursement
8.1.4. Right to work in a safe environment
8.1.5. Remedies available to an agent An agent might have a claim against the principal founded in contract or tort law. However, the agent is required to choose the remedy sought and to mitigate his damages prior to and during the period that the agent seeks relief.
8.2. Duties of an Agent
8.2.1. Duty of loyalty
8.2.1.1. Duty not to deal with the principal as an adverse party
8.2.1.1.1. Unless the principal and agent have agreed otherwise, the agent has a duty not to deal with the principal as an adverse party in any transaction connected with the agency without the principal’s knowledge. For example, an agent cannot, without the principal’s knowledge, purchase goods from the principal if the principal has retained the agent to sell those goods.
8.2.1.2. Duty to refrain from acquiring a material benefit
8.2.1.2.1. The agent’s duty of loyalty requires her to refrain from acquiring a material benefit in connection with transactions or other actions undertaken on the principal’s behalf, unless the principal consents to the agent acquiring the benefit.
8.2.1.3. Duty not to usurp a business opportunity
8.2.1.3.1. The agent’s duty not to usurp a business opportunity is a component of the duty of loyalty. It arises when either the nature of an opportunity or the circumstances under which the agent learned of it require the agent to offer the opportunity to the principal.
8.2.1.4. Duty not to compete
8.2.1.4.1. An agent has a duty to refrain from competing with the principal concerning the subject matter of the agency and from assisting the principal’s competitors.
8.2.1.5. Duty to disclose—multiple principals
8.2.1.5.1. An agent who acts for more than one principal in a transaction between or among them owes duties of disclosure, good faith, and fair dealing to each.
8.2.1.6. Duty not to use the principal’s confidential information
8.2.1.6.1. An agent has a duty to refrain from using the principal’s confidential information for the benefit of anyone other than the principal, including the agent. This duty survives termination of the agency relationship.
8.2.2. Performance-based duties
8.2.2.1. Contractual duties
8.2.2.1.1. Although an agency relationship does not require a contract between the agent and the principal, an agent has an implied duty to act in accordance with the terms of any contract between the parties.
8.2.2.2. Duty of care
8.2.2.2.1. An agent has a duty to act with the care, competence, and diligence normally exercised by agents in similar circumstances, as reflected by local community standards. The agent’s special skills and knowledge are taken into account in determining whether the agent employed due care and diligence.
8.2.2.3. Duty of obedience
8.2.2.3.1. An agent has a duty to provide relevant information to the principal pertaining to the subject matter of the agency and that the agent knows (or should know) the principal would wish to have.
8.2.2.4. Duty to provide information
8.2.2.4.1. An agent has a duty to provide relevant information to the principal pertaining to the subject matter of the agency and that the agent knows (or should know) the principal would wish to have.
8.2.2.5. Duty to keep and render accounts
8.2.2.5.1. An agent has the duty to keep the principal’s property separate from the agent’s property. Also, an agent has a duty to keep and render an accounting of the principal’s money and other property.