Agency Law The first step in understanding employment law is understanding what an agent is. Agency...

Agency Law

The first step in understanding employment law is understanding what an agent is.

Agency law also complements our understanding of both contract law and the laws of business organizations.

Agency: A Tripartite Relationship

Principal

Agent

Third PartyInward-looking consequences

Outward-looking consequences

Agent Action

Fiduciary relationship

Contract or tort

Obligation or liability

Principal

Agent

Third Party

Definition of Agency

Agency is the fiduciary relationship that arises when one person (a “principal”) manifests assent to another person (an "agent") that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents so to act.

Restatement (Third) of Agency §1.01

Mutual Assent


Benefit



Control



Agents

An Agent is an authorized representative who has the authority to make decisions or create obligations for someone else who is called the Principal Cashiers Managers Buyers and sellers

The key to correctly identifying agents is often to look for the authority they are given or have. Authority should be rooted in transactions or obligations

Creating Agency Relationships

Agency by Agreement (express agency Mutual agreement, agency rooted in contract law

Agency by Ratification (after the fact agency) A principal can agree to accept the decision a

person made supposedly on their behalf.

Agency by Estoppel (implied agency) A principal can be estopped from denying an

agency relationship because of behavior and treatment consistent with agency

Authority of Agents

Express

Implied

Apparent

Authority that is customarily associated with agency or necessary for expressly authorized tasks

Agency by estoppel creates authority by estoppel or “apparent” authority

Authority

Agents bind principals by acting with authority Two forms of authority

Actual: principal manifests consent to agent Apparent: principal manifests consent to third

party

4. Principles of Attribution

Manifestations create apparent authority

Manifestations create actual authority

Third Party

Agent

Principal

Actual Authority

“An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principal's manifestations to the agent, that the principal wishes the agent so to act.”

Restatement (Third) of Agency § 2.01 “Manifestation”: “written or spoken words or other

conduct” Restatement (Third) of Agency § 1.03

Apparent Authority

“Apparent authority is the power to affect the legal relations of another person by transactions with third persons, professedly as an agent for the other, arising from and in accordance with the other’s manifestations to such third persons.” Restatement (Second) §8

Implies direct communication between the principal and the third party

“Apparent authority is the power held by an agent or other actor to affect a principal's legal relations with third parties when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal's manifestations.” Restatement (Third) §2.03

Implies that apparent authority may be created without any communication made directly to the third person. Custom may create apparent authority

Domain of Apparent Authority

Arises in two circumstances: One person appears to be an agent of another, even

though no agency relationship exists (“apparent agency”) An actual agent exceeds the scope of his or her authority

Apparent and actual authority may co-exist Apparent authority may survive the termination of the

agency relationship

Agency by Estoppel

An equitable doctrine founded in fairness

• False agency claim by person• Third party believes that person is agent

• Principal acted in way to cause belief

The Duties of Agents

Performance

ObedienceLoyaltyNotification

Accounting

The Duties of PrincipalsCompensation

Safe Working Conditions

Cooperation

Reimbursement

Indemnification

Contract Obligations

Fully disclosed principal

Undisclosed principal• Agent is directly liable to third party

• Agent is not liable, principal is

Partially disclosed principal• Agent and principal are liable to third

party

Torts by Agents (and employees)

Doctrine of respondeat superior

• Authorized time and space

Wrongful acts of an employee or agent on the job and within the scope of employment create liability for the principal or employer

• Authorized type of work

• Event caused in part by purpose of principal or employer

• Detour versus Frolic

Agent’s Duties to Principal

Fiduciary Duties

Duty of Care (Duty of Performance) Duty of Loyalty Duty of Obedience

Fiduciary Duty of Care

Duty to perform in accordance with express and implied terms of contract with principal (§ 8.07)

To act with care, competence and diligence normally exercised by similar agents (§ 8.08)

Duty to act only within scope of actual authority and to comply with lawful instructions from principal or those designated by principal to instruct agent (§ 8.09)

Duty to act in such a way as to not bring principal into disrepute (§ 8.10) Duty to provide information that the agents knows, has reason to know,

or should know when the agent knows or has reason to know that the principal would wish to know the information (§ 8.11)

Duties regarding Principal’s Property: Identification, Segregation, Record-Keeping, and Accounting (§ 8.12)

Fiduciary Duty of Loyalty

“An agent has a fiduciary duty to act loyally for the principal’s benefit in all matters connected with the agency relationship.”

Fiduciary Duty of Loyalty

“An agent has a fiduciary duty to act loyally for the principal’s benefit in all matters connected with the agency relationship.”


Principal

Agent

Inward-looking consequences

(Conflict of interests)

(1) If a contract concluded by an agent involves the agent in a conflict of interests with the principal of which the third party knew or ought to have known, the principal may avoid the contract.

(2) However, the principal may not avoid the contract (a) if the principal had consented to, or knew or ought to have

known of, the agent’s involvement in the conflict of interests; or (b) if the agent had disclosed the conflict of interests to the

principal and the latter had not objected within a reasonable time.

The Role of Fiduciary Duty

Agent’s Duties Duty not to acquire a material benefit from a third

party in connection with the agency (§8.02) Duty not to deal with the principal as or on behalf of

an adverse party (§8.03) Duty to refrain from competing with the principal

(§8.04) Duty not to use or disclose confidential information

(§8.05)

The Role of Fiduciary Duty

Principal’s Consent Conduct that otherwise would constitute a

breach does not constitute a breach of duty if the principal consents to the conduct (§8.06)

To obtain consent, the agent must: Act in good faith Disclose all material facts Otherwise deal fairly with the principal

Intermediaries not acting in the name of a Principal (1) Where an intermediary acts: (a) on instructions and on behalf, but not in the

name, of a principal, or (b) on instructions from a principal but the third party

does not know and has no reason to know this, the intermediary and the third party are bound to

each other. (2) The principal and the third party are bound to each other only under Intermediary’s Insolvency or Fundamental Non-performance.

(Liability of agent acting without orexceeding its authority) (1) An agent that acts without authority or exceeds its

authority is, failing ratification by the principal, liable for damages that will place the third party in the same position as if the agent had acted with authority and not exceeded its authority.

(2) However, the agent is not liable if the third party knew or ought to have known that the agent had no authority or was exceeding its authority.

(Sub-agency)

An agent has implied authority to appoint a sub-agent to perform acts which it is not reasonable to expect the agent to perform itself.

The rules of this Section apply to the sub-agency.

Illustrations

1. B appoints A as Manager of B’s apartment building. A has implied authority to conclude short term lease contracts relating to the individual apartments.

Owner B consigns to shipmaster A a cargo to be carried to country X within 10 days. With only three days of navigation left, the ship is damaged and must stop in the nearest port for repairs. A has implied authority to unload the cargo and consign it to another shipmaster to be carried to destination on another ship.

A, a sales representative for computer manufacturer B, accepts the order placed by university C for the purchase of a certain number of computers. The sales contract directly binds B vis-à-vis C with the result that it is B, and not A, who is under an obligation to deliver the goods to C and who is entitled to payment by C.

Illustrations

Dealer B, expecting a substantial increase in the price of wheat, decides to purchase a large quantity of wheat. B, wishing to remain anonymous, entrusts commission agent A with this task. Even though supplier C knows that A is purchasing on behalf of a principal, the purchase contract is binding on A and C and does not directly affect B’s legal position.

Confirming house A, acting on behalf of overseas buyer B, places an order with supplier C for the purchase of certain goods. Since C, who does not know B, insists on A’s confirmation of B’s order, A accepts to be held liable itself vis-à-vis C. Even though C knows that A is purchasing on behalf of B, the purchase contract is binding on A and C and does not directly affect B’s legal position.

Principal B authorises agent A to buy on its behalf a specific quantity of grain but without exceeding a certain price. A enters into a contract with seller C for the purchase of a greater quantity of grain and at a higher price than that authorised by B. On account of A’s lack of authority, the contract between A and C does not bind B, nor does it become effective between A and C.

Agency Law The first step in understanding employment law is understanding what an agent is. Agency...

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