Agency

Agency is a fiduciary relationship whereby one party expressly or impliedly authorizes another to work under his or her control and on his or her behalf. The party for whom another acts and from whom such other derives authority to act is a principal. The one who acts for and represents the principal and acquires his or her authority from the principal is an agent. Pursuant to the grant of authority by the principal, the agent is the representative of the principal and acts for, in the place of, and instead of, the principal. Any person who is capable of suing and/or being sued in a legal proceeding in his own name and has capacity to affect his or her legal relationships by giving consent to a delegable act or transaction may authorize an agent to act for him or her with the same effect as if such person were to act in person. Any person has the capacity to act for another. Even if a person has legal disability that his or her contracts are not binding on him or her, s/he may act as agent of another. The relationship between an agent and a principal is a contractual one. Therefore, rights and duties of the agent and principal are in accordance with the agency contract. To establish an agency, there must be consent of both the principal and the agent, although such consent may be implied rather than expressed. The written authorization by which principal appoints another as his or her agent and confers upon the agent the authority to perform certain specified acts or kinds of acts on behalf of the principal is the power of attorney. A power of attorney may be general, special, or partly general and partly limited or special. The relationship of principal and agent can be terminated only by the act or agreement of the parties to the agency or by operation of law. An agent cannot delegate his or her authority and have services performed by a subagent without express permission from principal unless permission can be implied from the nature of the business or custom.

Types of Agency Relationships

Agency is a relationship between a principal and an agent in which the principal confers his/her rights on the agent to act on behalf of the principal. An agency relationship is fiduciary in nature and the actions and words of an agent exchanged with a third party bind the principal. The most common agency relationships are:

Buyers Agency; Sellers Agency; Dual Agency.

In a buyers agency relationship, the buyer is considered the client. A buyers agent has to be loyal, maintain confidentiality, be obedient, provide reasonable care and diligence, and give accounting for all funds. Similarly, a sellers agency relationship represents the seller in the transaction and the seller is considered the client. A sellers agent is also known as a listing agent. The sellers agent possesses the same fiduciary responsibilities to the seller as the buyers agent has to the buyer. In a sellers agency, the client relationship is established through a listing agreement. Whereas, in a dual agency, an agent represents both buyer and seller in a single transaction and carries fiduciary responsibilities to both principals. The mistake of an agent acting as a dual agent becomes a mutual mistake of fact by both principals. This prevents one principal to make the other principal liable for the mistake of the agent[i]. However, knowledge or notice to a dual agent is not imputed if the agent acted adversely or fraudulently[ii]. Dual Agency is only permitted with the informed and voluntary consent of both the buyer and the seller. [i] Messall v. Merlands Club, Inc., 233 Md. 29 (Md. 1963) [ii] Herdan v. Hanson, 182 Cal. 538 (Cal. 1920)

Creation of Agency
Agency is a relationship between a principal and an agent in which the principal confers his or her rights on the agent to act on principals behalf. Such a relationship is based on an agency contract. The rights and duties of the agent and principal are in accordance with the express or implied terms of the contract. To create an agency, the consent of the agent and the principal is necessary. The principal must intend that the agent act for him or her, the agent must intend to accept the authority and act on it. The intention of the agent and the principal must be either in express terms of the contract or can be inferred from the conduct of the parties. In the absence of any claim or exercise of control by one party over the activities of another, there can be no agency relationship[i]. An agency relationship can arise only at the will and by the act of the principal. Existence of agency is always a fact to be proved by tracing it to some act of the alleged principal. There are two species of agency: actual, either express or implied, and apparent. The relationship of an agent and an principal may also arise by estoppel, necessity or operation of law.

In transactions conducted by parties through an intermediary, whether an agency relation has been created depends on the intention of the parties. In such cases, terms used to designate the capacity of the intermediary in the written instrument attending the transaction is not conclusive. Factors to be considered in determining if there is an agency and which party is the principal of the intermediary include the duties of the intermediary, the exercise of such duties, and the person for whose benefit they are being performed. [i] Carr v. Hunt, 651 S.W.2d 875 (Tex. App. Dallas 1983)

Capacity of Parties
As a general proposition every person who is sui juris may appoint an agent for any purpose. The general rule is that if acting in ones own right and in ones own behalf, the person may lawfully delegate to an agent. However, by the express terms or necessary effect of the act, an authority which is conferred, or a duty which is created by statute may be required to be performed by the person only who is named as to demand a personal execution. There should be an express enactment or necessary implication, which limits the common law right of any person who is sui juris to appoint an agent to act on ones behalf[i]. The principal may be either a natural person or an artificial one[ii]. If a person is appointed a general agent, the principal is bound by his/her acts. However, an agent constituted for a particular purpose and under a limited and circumscribed power cannot bind the principal by any act in which s/he exceeds his/her authority[iii]. When one knowingly and without dissent permits another to act as his/her agent, the capacity will be conclusively presumed. The agents capacity to have rights or be subject to duties and liabilities is not necessary. Moreover, the resulting relations between the principal and third persons are not affected by the fact that the agent would be incapable of affecting his/her own legal relations by the performance of an act done on his/her own account similar to that done for the principal[iv]. [i] State ex rel. Hansen v. Schall, 126 Conn. 536 (Conn. 1940) [ii] Taylor v. Davis Admx, 110 U.S. 330 (U.S. 1884) [iii] Kramer v. Blair, 88 Va. 456 (Va. 1891) [iv]Cason v. Aetna Life Ins. Co., 91 Ga. App. 323 (Ga. Ct. App. 1954)

Powers of Attorney

A power of attorney is an instrument created by a person to act on someone elses behalf in a legal or business matter[i]. In an agency a principal appoints another as his/her agent and confers upon the agent the authority to perform certain specified acts or kinds of acts on behalf of the principal[ii]. A power of attorney is a written authorization that can be used as evidence before a court to show an agents authority. A person holding a power of attorney is an attorney in fact. An attorney in fact is provided with all powers to act on behalf of a principle. However, such action scan only be taken based on public policy or based on contractual agreements. Any person who has capacity to appoint an agent can create a power of attorney in the agents favor. A mentally incapable person who cannot create a valid instrument cannot execute a valid power of attorney. However, an instrument created by a mentally impaired person is only voidable[iii]. When there is no statutory rule, the power of attorney should be created based on common law rule in written form[iv]. A power of attorney will be used to only when a principal is not present. Therefore, the instrument should be created to show its genuineness and should be valid before law[v]. A power of attorney should be created in clear and plain language. The intention of the principal should be clear from the instrument. Extend of discretion allowed to an agent should also be specified in an instrument. If a statute regarding power of attorney does not require acknowledgment of a power of attorney, it need not be acknowledged. If a statute requires acknowledgement of a power of attorney, failure to acknowledge or defective acknowledgment of the instrument will make it invalid[vi]. Certain statutes require recording of power of attorney. This is to avoid defrauding by agents. However, not recording an instrument will not render it invalid[vii]. A recorded power of attorney is easily provable in a court of law. Even if a principal becomes incompetent at a later state, an agent can be appointed before incompetency. The instrument should be clear and precise regarding the principals intention regarding agencies. This is called a durable power of attorney. A durable power of attorney consists of a clause that provides that a power of attorney will not be affected by later incapacity of the principal. However, it should state a time for termination of the instrument. Generally, a principal is assumed to be competent while creating a power of attorney. It will be the burden of the principal or his/her beneficiary to prove that the principal was incompetent while creating the instrument. Powers of attorney are interpreted according to the general rules governing written instruments. The laws of agency can also govern the instruments interpretation.

When a power of attorney is written in a precise and clear language, the courts need only follow the plain meaning provided. However, if the instrument is ambiguous, the courts should act according to the intention of the principal at the time of creating the power of attorney. The words in the instrument should be given strict legal interpretation[viii]. Courts cannot grant implied powers to agents. The powers that are provided in an instrument alone can be given effect by courts. The general words provided in a power of attorney concerning powers provided to agents can only be construed in a strict manner by courts. Only the specific powers granted by the instrument can be held valid. The general terms should be interpreted according to the intention of the principal when creating the power of attorney[ix]. [i] Succession of Conville v. Bank One La., N.A., 920 So. 2d 397 (La.App. 2 Cir. Jan. 25, 2006) [ii] Calhoun v. Mechanics & Traders Bank, 30 La. Ann. 772 (La. 1878) [iii] United States v. Manny, 463 F. Supp. 444 (S.D.N.Y. 1978) [iv] Trentman Co. v. Brown, 176 La. 854 (La. 1933) [v] Montgomery v. Foreman, 410 So. 2d 1160 (La.App. 3 Cir. 1982) [vi] Figgins v. Cochrane, 403 Md. 392 (Md. 2008) [vii] My Thi Nguyen v. Exxon Corp., 1991 U.S. Dist. LEXIS 30 (E.D. La. Jan. 2, 1991) [viii] Kilpatrick v. Wiley, 197 Mo. 123 (Mo. 1906) [ix] Toledo Sav. Bank & Tr. Co. v. Moore, 15 Ohio Dec. 404 (Ohio C.P. 1900)

Rights, Duties, and Liabilities Between Principal and Agent

An agency is the creation of a contract entered into by mutual consent between a principal and an agent. By agency, a principal grants authority to an agent to act on behalf of and under the control of the principal. The relation between a principal and an agent is fiduciary and an agents actions bind the principal[i]. The law of agency thus governs the legal relationship in which an agent deals with a third party for his/her principal. An agent owes certain duties towards his/her principal and a principal owes certain duties towards his/her agent. The scope of an agents duty to the principal is determined by:

the terms of the agreement between the parties[ii]; and extent of the authority conferred and the obligations of loyalty to the interests of the principal.

An agents primary duties are:

act on behalf of and be subject to the control of the principal; act within the scope of authority or power delegated by the principal; discharge his/her duties with appropriate care and diligence; and avoid conflict between his/her personal interests

Other duties of an agent include:

not to acquire any material benefit from a third party in connection with transactions conducted or through the use of his/her positions as an agent[iii]; to act with the care, competence, and diligence normally exercised by agents in similar circumstances[iv]; to take action only within the scope of the his/her actual authority[v]; to comply with all lawful instructions received from the principal and persons designated by the principal concerning agents actions on behalf of the principal[vi]; to act reasonably and to refrain from conduct that is likely to damage the principals enterprise[vii];

An agent is liable to a principal when he/she acts without actual authority, but with apparent authority. An agent is liable to indemnify a principal for loss or damage resulting from his/her act. A principal owes certain contractual duties to his/her agent. Correlative with the duties of an agent to serve a principal loyally and obediently, a principals primary duties to his/her agent include:

To compensate the agent as agreed; and To indemnify and protect the agent against claims, liabilities, and expenses incurred in discharging the duties assigned by the principal[viii].

Because of the fiduciary relationship, a principal owes his/her agent a duty of good faith and fair dealing[ix]. However, a principal can be relieved of contractual obligations by an agents prior breach of contract. A principal has a duty to act in accordance with the express and implied terms of any contract between a principal and an agent[x]. When an agent acts within the scope of actual authority, the principal is liable to indemnify the agent for payments made during the course of the relationship irrespective of whether the expenditure was expressly authorized or merely necessary in promoting the principals business.

[i] Andrews v. Schram, 562 N.W.2d 50 (Neb. 1997) [ii] E. S. Harper Co. v. General Ins. Co., 91 Idaho 767, 771 (Idaho 1967); Garl v. Mihuta, 50 Ohio App. 2d 142 (Ohio Ct. App., Lorain County 1975) [iii] Restat 3d of Agency, 8.02 [iv] Restat 3d of Agency, 8.08 [v] Restat 3d of Agency, 8..09 [vi] Restat 3d of Agency, 8.09 [vii] Restat 3d of Agency, 8.10 [viii] Western Smelting & Refining Co. v. First Natl Bank, 35 N.W.2d 116 (Neb. 1948) [ix] Lawrence Warehouse Co. v. Twohig, 224 F.2d 493 (8th Cir. Iowa 1955) [x] Restat 3d of Agency, 8.13

Duration and Termination of Agency

The relation of principal and agent can only be terminated by the act or agreement of the parties to the agency or by operation of law. An agency, when shown to have existed, will be presumed to have continued, in the absence of anything to show its termination, unless such a length of time has elapsed as destroys the presumption[i]. The agents duty to act on behalf of the principal comes to an end on the termination of agency. The timeframe for termination of an agency can be stipulated by a particular statute or instrument. In such a case, if the instrument specifies in plain and unambiguous terms that an agency will terminate without action on the part of the principal or agent upon the expiration of the time specified in the instrument, the agency will in fact, terminate[ii]. If, after the expiration of the time so stipulated in the contract, the parties continue their relationship as principal and agent, a rebuttable presumption is raised that their relations are governed by the original contract and that the contract is renewed for a similar period. For instance, if the parties entered into a contract for one year and continued to act under the contractual terms after one year, the court will presume that the parties in fact intended to keep the contract alive for another year [iii]. On the other hand, if the parties did not fix any appropriate time for the termination of contract, the contract is deemed to be terminated after a reasonable time. What constitutes a reasonable time during which the authority continues is determined by the nature of the act specifically

authorized, the formality of the authorization, the likelihood of changes in the purposes of the principal, and other factors[iv]. Moreover, the burden of proving the termination or revocation of an agency rests on the party asserting it. Parol evidence cannot be admitted to add another term to an agreement even if the writing contains nothing relating to the particular provision to which the parol evidence is directed[v]. Thus, courts will not admit parol evidence while determining the duration of an agency contract where the written contract is viewed as integrated, or unambiguous, or both. An agency continuing for a reasonable time can be terminated by one party only after giving sufficient notice to the other party. An agency created for a specific purpose as well as an agency created by a power of attorney is terminated once the particular purpose for which it was created was accomplished[vi]. After the termination of the agency, the agent is free of any fiduciary duty to the principal arising from the agency relationship. According to the Uniform Durable Power of Attorney Act 5, an affidavit executed by the attorney in fact under a power of attorney, stating that he/ she did not have at the time of exercise of the power actual knowledge of the termination of the power by revocation or of the principals death, disability, or incapacity is conclusive proof of the nonrevocation of the power at that time. The parties can terminate the agency by mutual agreement. An agency relationship requires the mutual assent of the parties and both the parties have power to withdraw their assent. An agency may not be terminated by the act of one of the parties and should be done mutually. The mutual abandonment of an agency is a question of fact, since it is a matter of intention of both the parties. The court will ascertain such intent from the surrounding facts and circumstances of the transaction as well as implied from the conduct of the parties[vii]. An agency contract may be cancelled on the basis of an express stipulation in the contract. In such a case, the parties will have a right of cancellation at the will of either party or upon the happening of a contingency or the nonperformance of some expressed condition. The principal cannot cancel such an agreement at will so long as the agent fulfills his/her part of the agreement. However, the principal can cancel the agency contract for any justifiable cause. An agency may be revoked at the will of the principal when an agency is not coupled with an interest, and no third partys rights are involved. The party terminating the agency must show good cause. Thus, when A enters into a contract whereby B is to provide A for a stated period of time with goods or services, which both parties realize are for use in a particular enterprise owned by A, in the absence of a specific clause so providing, A cannot escape his obligations under that contract by voluntarily selling his interest in the enterprise before the expiration of the expressed contract term[viii]. Therefore, if the right to cancel an agency contract is dependent upon some contingency, the cancellation must be justified by establishing the happening of such contingency[ix]. An agency cannot be terminated at will during certain specific instances. For example, in the matter of distributorship or sales agency contracts of indefinite duration, an at-will termination is not feasible. In such a case, the distributor might have made substantial investment in

establishing or furthering the distributorship. Hence, the agreement may be terminated only after a reasonable time has lapsed and reasonable notice of termination is given[x]. An agency contract to be performed to the principals satisfaction can generally be canceled at will by the principal. Similarly, a power of attorney constituting a mere agency may be revoked at any time, with or without cause. A principal may unilaterally cancel an agency without incurring liability for breach of contract under the following instances: misconduct or habitual intoxication of the agent which interferes with his/her employment, the refusal of the agent to obey reasonable instructions or to permit the principal to make a proper audit of his/her accounts, serious neglect or breach of duty by the agent, dishonesty or untrustworthiness of the agent, the agents failure to pay an indebtedness owing to the principal, disloyalty of the agent like using the agency to make secret profits. Ordinarily, an agent may renounce the agency relationship by expressly notifying the principal, either orally or in writing. An agents cessation of all relations with the principal, and abandonment by the agent may be treated as a renunciation. However, mere violation of instructions by the agent will not amount to renunciation. Although agency can be terminated at will, law stipulates that notice must be given to the party affected by termination. However, express notice to the agent that the agency has been revoked, or to the principal that the agency is renounced, is not always necessary if the affected party actually knows, or has reason to know the facts resulting in such revocation or renunciation[xi]. The principal shall provide sufficient notice to third parties as to the revocation of agents authority. Otherwise, the acts of an agent after his/ her authority has been revoked may bind a principal as against third persons who rely upon the agencys continued existence. This may often happen to transactions initiated by the agent before the revocation of authority, and the rule is applied in favor of persons who have continued to deal with insurance agents, purchasing agents, and the like[xii]. There is no need to provide any formal written notice to third persons of the ending of an agency relationship. Actual notice of termination is sufficient in the case of third parties and such notice may be shown by a written or oral communication from the principal or the agent, or it may be inferred from the circumstances. For instance, a third party is deemed to have actual notice if he/she has knowledge of the fact that the principal has appointed another agent for the same purpose. The character of the notice also differs with respect to third parties. Thus, actual notice must be brought home to former customers who have dealt with the agency more directly, while notice by publication will be sufficient as to other persons. In addition, an agency may be terminated by operation of law. The death of the principal operates as an immediate and absolute revocation of the agents authority, unless the agency is one coupled with an interest. The rule is the same even if the agency is created with more than one principal. Where the power or authority is created by two or more principals jointly and one

of them dies, the agency will be terminated unless it is coupled with an interest. However, an agency may be made irrevocable by statute, notwithstanding the death of the principal. Regarding the termination of agency upon the death of the principal, two views are prevailing. According to one view, unless the agency is one coupled with an interest, it will terminate on the death of the principal, notwithstanding the fact that the agent and third person are ignorant of the fact. Another view is that if the third person dealing with the agent acts in good faith and in ignorance of the principals death, the revocation of the agency on the death of the principal takes effect only from the time that the agent receives notice of such death. In such a case, the principals estate may be bound where the act to be done is not required to be done in the name of the principal. Similarly, death of the agent will revoke an agency not coupled with an interest and this is the rule when there are two or more agents. However, in the case where a sub agent is appointed by the agent, the authority of a subagent is terminated by the death of the agent, unless the agent appointed the subagent at the principals request. In that event, the subagent derives his/her authority form the principal and not from the agent. The loss of capacity of a party resulting from temporary or permanent mental incompetency may result in the termination or suspension of the agency relationship. Thus, the termination of the agents authority due to the loss of capacity of the principal may not affect the rights of third persons if such third persons do not have notice of such fact. Also, if the agents authority is coupled with an interest, it is not suspended by the principals insanity. Similarly, bankruptcy of the principal is a valid reason for the termination of agency and the agent is divested of any authority to deal with any assets or rights of property of which the principal was divested by reason of the bankruptcy, irrespective of whether the agent receives notice of the bankruptcy. A power of attorney may be terminated by the bankruptcy of the principal. The mere insolvency of the principal will not automatically terminate agents authority. The determinant fact is whether the law has assumed control over the principals property. Likewise, the bankruptcy or insolvency of an agent terminates his or her authority to conduct transactions on behalf of the principal. A change in value of the subject matter or a change in business conditions may terminate or suspend the agents authority if the agent should reasonably infer that the principal would not consent if aware of such facts. Similarly, a change in legal identity of, or merger by, the principal is a valid ground for termination of an agency contract. The loss or destruction of the subject matter of the agency or the termination of the principals interest is yet another ground for terminating the agents authority. The agents authority ceases when the agent has notice of the fact. However, destruction of subject matter will not always result in termination of agency, especially when the subject matter can be replaced without substantial detriment to either party.

In addition, a change of law making the required act illegal may terminate an agency contract. If the authority or power of an agent is coupled with an interest, it is not revocable by the act, condition, death, or mental incapacity of the principal before the expiration of the interest, unless there is some agreement to the contrary. A power is coupled with an interest where the agent receives title to all or a part of the subject matter of the agency. In order to support a claim of power coupled with an interest, either legal title or equitable title is sufficient. A power coupled with an interest will survive to the personal representative of the agent upon the agents death[xiii]. [i] Merchant v. Foreman, 182 Kan. 550, 555 (Kan. 1958) [ii] Tabor v. Mason Dixon Lines, Inc., 196 Tenn. 198 (Tenn. 1953) [iii] Cinefot International Corp. v. Hudson Photographic Industries, 13 N.Y.2d 249, 252 (N.Y. 1963) [iv] Beaucar v. Bristol Federal Sav. & Loan Asso., 6 Conn. Cir. Ct. 148, 159 (Conn. Cir. Ct. 1969) [v] Hotchkiss v. Nelson R. Thomas Agency, Inc., 96 Cal. App. 2d 154, 158 (Cal. App. 1950) [vi] Renchie v. John Hancock Mut. Life Ins. Co., 174 S.W.2d 87 (Tex. Civ. App. 1943) [vii] Preszler v. Dudley, 153 Cal. App. 2d 120, 124 (Cal. App. 2d Dist. 1957) [viii] Wilson Sullivan Co. v. International Paper Makers Realty Corp., 307 N.Y. 20, 26 (N.Y. 1954) [ix] Carleno Coal Sales, Inc. v. Ramsay Coal Co., 129 Colo. 393, 398 (Colo. 1954) [x] Bronkens Good Time Co. v. J.W. Brown & Assocs., 203 Mont. 427 (Mont. 1983) [xi] Van Houten v. Trust Co. of Chicago, 413 Ill. 310 (Ill. 1952) [xii] Morton Marks & Sons, Inc. v. Hill-Chase Steel Co., 196 Va. 268 (Va. 1954) [xiii] Phoenix Title & Trust Co. v. Grimes, 101 Ariz. 182 (Ariz. 1966)