Introduction to the Law of Agency

Definition of Agency Law

• The definition of agency law deals with agent-
principal relationships; that is a relationship
where one party has the legal authority to act
in place of another.
Relationships that are commonly associated
with agency law
• employer-employee
• administrator-decedent or executor
• guardian-ward
 The Agency Relationships
• Agreements that result in the formation of
agency-type relationships can be implied or
express
• Both the principal and the agent can be an
entity (such as partnership or corporation) or
individual.
 The Agency Relationships (cont)
• Agency refers to an agreement, explicitly
stated or implied by which one party, called
the principal, entrusts the management of a
business to another party, called the agent, to
carry out transactions on his account or in his
name, and the agent agrees to carry out the
business and render an account of his
proceedings.
 Implied or Expressed

• If the agency is express, it is created by deed,

verbally without writing or in writing.
• If the agency is implied, it can be inferred from
the relation between the parties and the
nature of the employment (without proof of
express appointment).
 Implied or Expressed (cont)

• The agency must be subsequently adopted or

given in advance. In the former case, there
must be acquiescence on the part of the agent
(from which recognition can fairly be implied)
or express acknowledgment.
 Creation of Agency

• An agency is created when the principal

names an individual as an agent by virtue of a
contract or asks someone to make a delivery.
This means that the principal is responsible for
all actions taken by the agent, while the
actions of the agent are analogous to those of
the principal. This type of agency is usually
enforced by a written agreement created
through the power of attorney.
 Legal Authority to Act on Principal's Behalf

• If an individual is injured by a delivery truck,

under agency law, the injured person can hold
the truck driver's employer liable for injuries,
even though the employer was not directly
responsible. This is because the driver and
employer are in a principal-agent relationship
where the driver, who in this case is the agent,
has the legal authority to act on the
employer's (i.e. the principal's) behalf.
Principals Are Liable for the Outcome of Agent's Actions

• Agency law allows an individual to employ

another to acquire property, carry out work,
and sell goods and services on his/her behalf.
A principal can authorize the agent to carry
out various functions or restrict the agent to
the performance of specific functions.
 Principals Are Liable for the Outcome of
Agent's Actions (cont)
• However, regardless of the scope of authority
that the principal gives the agent, the agent is
under the control of the principal and
represents his/her interests. More
importantly, principals are held liable for the
outcome of actions that they direct the agent
to perform.
 Principals Are Liable for the Outcome of
Agent's Actions (cont)
• Agency relationships are created by the
mutual consent of both the principal and the
agent. Although principal-agent relationships
can be created via a contract, the contract is
unnecessary if it is sufficiently clear that both
parties want to act as agent and principal.
Their intent can either be implied by conduct
or expressed by words.
 Respondeat Superior's Rule

• Agency relationships also come up in personal

injury cases when the victim or plaintiff sues
both the defendant and his/her employer
under the respondeat superior's rule, which
state that the employer and the defendant
who works for the employer are both
responsible when negligence on the part of
the employee causes injury to a third party.
 Responsible for Injuries to Third Parties

• If an agency relationship exists, the principal is

also responsible for any injuries caused by the
agent to other parties. These may include
injuries to a third party's financial interests,
emotional injuries, or physical injuries.
 Duties of Agents (to Principals)

• A duty to account for monies received or spent while

acting on behalf of the principal.
• A duty to protect the confidential information of the
principal.
• A duty of dealing with a third party or the principal in good
faith.
• A duty to act in the best interests of the principal.
• A duty of loyalty to the principal.
• A duty to act with reasonable care and skill at all times.
• A duty to follow and obey the instructions of the principal.
 Duties of Agents (to Principals)
• If an agent fails to carry out any of the above
duties, resulting in the principal suffering
damage of any kind, the principal may win a
tort case against the agent for breach of duty.
Authority
 Actual authority

• Actual authority can be of two kinds. Either the

principal may have expressly conferred authority on
the agent, or authority may be implied. Authority
arises by consensual agreement, and whether it exists
is a question of fact. An agent, as a general rule, is
only entitled to indemnity from the principal if they
have acted within the scope of their actual authority,
and if they act outside of that authority they may be
in breach of contract, and liable to a third party for
breach of the implied warranty of authority.
 Expressed actual authority

• Expressed actual authority means an agent

has been expressly told he or she may act on
behalf of a principal.
 Implied actual authority

• Implied actual authority, also called "usual

authority", is authority an agent has by virtue of
being reasonably necessary to carry out his express
authority. As such, it can be inferred by virtue of a
position held by an agent. For example, partners
have authority to bind the other partners in the
firm, their liability being joint and several, and in a
corporation, all executives and senior employees
with decision-making authority by virtue of their
position have authority to bind the corporation.
 Implied actual authority (cont)
• Other forms of implied actual authority include
customary authority. This is where customs of a
trade imply the agent to have certain powers. In
wool buying industries it is customary for traders to
purchase in their own names. Also incidental
authority, where an agent is supposed to have any
authority to complete other tasks which are
necessary and incidental to completing the express
actual authority. This must be no more than
necessary
 Apparent Authority

• Apparent authority (also called "ostensible authority")

exists where the principal's words or conduct would lead
a reasonable person in the third party's position to
believe that the agent was authorized to act, even if the
principal and the purported agent had never discussed
such a relationship. For example, where one person
appoints a person to a position which carries with it
agency-like powers, those who know of the appointment
are entitled to assume that there is apparent authority to
do the things ordinarily entrusted to one occupying such
a position.
 Apparent Authority (cont)
• If a principal creates the impression that an agent
is authorized but there is no actual authority, third
parties are protected so long as they have acted
reasonably. This is sometimes termed "agency by
estoppel" or the "doctrine of holding out", where
the principal will be estopped from denying the
grant of authority if third parties have changed
their positions to their detriment in reliance on
the representations made.
Liability
 Liability of agent to third party

• If the agent has actual or apparent authority, the

agent will not be liable for acts performed within the
scope of such authority, as long as the relationship of
the agency and the identity of the principal have
been disclosed. When the agency is undisclosed or
partially disclosed, however, both the agent and the
principal are liable. Where the principal is not bound
because the agent has no actual or apparent
authority, the purported agent is liable to the third
party for breach of the implied warranty of authority.
 Liability of agent to principal

• If the agent has acted without actual

authority, but the principal is nevertheless
bound because the agent had apparent
authority, the agent is liable to indemnify the
principal for any resulting loss or damage.
 Liability of principal to agent

• If the agent has acted within the scope of the

actual authority given, the principal must
indemnify the agent for payments made
during the course of the relationship whether
the expenditure was expressly authorized or
merely necessary in promoting the principal's
business.