Agency

Relationship of Principal and Agent

The rights and duties of a principal and agent toward each other are determined
by the local law of the state which, with respect to the particular issue, has the
most significant relationship to the parties and the transaction.

An agency relationship can give rise to three choice-of-law problems: namely,

what law should be applied to determine the rights and duties as between

1) The principal and agent

2) The principal and some third person on account of one or more acts by the
agent

3) The agent and the third person.

An agency relationship will usually result from a contract between the parties. On
occasion, however, an agency relationship may exist even though there is no
contract between the parties. When the agency relationship is created otherwise
than by contract, the obligations of the principal and agent to each other are
determined by the local law of the state which, with respect to the particular
issue, has the most significant relationship to the parties and the transaction.

The law selected by application of the rule determines what the agent is
authorized to do on the principal's behalf. It determines the rights and
obligations of the parties toward each other, like the circumstances under which
either the principal or agent can put an end to their relationship, the amount of
compensation, if any, to which the agent is entitled, and the liability of the agent
to the principal for an unauthorized act.

Sometimes, the principal and agent will intend that their rights and duties toward
each other should be determined by the local law of a particular state. If so, the
local law of that state will be applied.

Agency relationships may be placed into two broad categories;

 1. Situations where the agent is to serve the principal for a period of time and
is to do a number of acts on the principal's behalf.

2. Situations where the agent is to do a single act on the principal's behalf.

In either case, in the absence of an effective choice of law by the parties, state
where performance by the agent is to take place will usually be given the greatest
weight, in determining what law governs the rights and duties owed by the
principal and agent to each other.

Where the agent's activity is to be confined primarily to one state but where he is
to do one or more acts on the principal's behalf in another state. The local law of
the state where the agent is to do the great majority of his acts will usually
determine what rights and duties are owed by the principal and agent to each
other as the result of an act done by the agent on the principal's behalf in another
state.

Other situation will be although the major portion of the agent's activity is to take
place in one state and he is to engage in substantial activity in another state. In
this situation, the local law of the state where the agent is to do most of the acts
will usually determine what rights and duties are owed by the principal and agent
to the other as the result of an act, or acts, done by the agent on the principal's
behalf in the other state.

Finally, there will be situations where the agent's activity on behalf of the
principal is to be divided more or less among two or more states. In such a case,
little weight can usually be given to the places of the agent's activity in
determining the state of the applicable law. If, however, the agent's activity is to
take place in two or more states which have the same local law rule with respect
to the issue involved, the case will be treated for choice-of-law purposes as if the
agent's performance were to take place in a single state.

2. Contractual Liability of Principal to Third Person

The principal will be held bound by the agent's action if he would so be bound
under the local law of the state where the agent dealt with the third person,
provided at least that the principal had authorized the agent to act on his behalf
in that state or had led the third person reasonably to believe that the agent had
such authority.

The local law determines whether the agent acted with authority or apparent
authority, the scope and extent of this authority, and whether such authority had
been effectively revoked prior to the agent's act or was revocable at all. Whether
the principal was disclosed or undisclosed to the third person at the time of the
agent's act.

A principal may be liable to a third person for the act of an agent on four distinct
bases:

(1) That the agent acted with the principal's authority,

(2) That the agent acted with the principal's apparent authority,

(3) That the principal misled the third person as to the extent of the agent's
authority, or failed to correct what he realized, or should have realized, were the
third person's misconceptions about this authority,

(4) That the agent acted within his inherent agency powers, that is when because
of the relationship of the parties or the subject matter involved, policy requires
that the agent should have power to bind the principal.

The principal should not be held bound by the agent's act by application of the
local law of a state to which he has no reasonable relationship. The forum will
use its own judgment and will apply its own rules in determining whether such a
reasonable relationship exists.

Reasonable relationship means that the relation of the principal, agent, and third
party with the state, the principal authorized the agent in specific state or in all
states, the local law, where the contract concluded, will govern them.

3. Ratification by Principal of Agent's Act

The consequences of a principal's ratification of action taken on his behalf by an

agent in dealing with a third person are determined by the local law of the state
which, with respect to the particular issue, has the most significant relationship to
the parties and the transaction. The law will be applied to determine whether the
act could effectively be ratified, and whether the principal's action or non-action
amounted to ratification and was done in sufficient time.

By ratifying action taken on his behalf by an agent in dealing with a third person,
the principal has evinced an intention to be bound by that action.

3. Partnerships

3.1 Relationship of Partners Inter Se

The rights and duties owned by partners to each other are determined by the
local law of the state which, with respect to the particular issue, has the most
significant relationship to the partners and the transaction.