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Chapter 22 - Agency Law
Chapter 22
Agency Law
I. Key Terms
Agency (p. 523) Master (p. 524)
Agency coupled with Negligent hiring (p. 529)
an interest (p. 543) Negligent retention (p. 529)
Agent (p. 523) Negligent supervision (p. 529)
Apparent authority (p. 537) Nondelegable duty (p. 529)
Charitable immunity (p. 533) Partially disclosed principal (p. 535)
Clerical malpractice (p. 534) Principal (p. 523)
Consensual (p. 523) Proprietor (p. 524)
Control test (p. 525) Ratification (p. 537)
Del credere agent (p. 536) Renunciation (p. 542)
Disclosed principal (p. 535) Revocation (p. 542)
Durable power of attorney (p. 542) Scope of authority (p. 539)
Economic reality test (p. 531) Scope of employment (p. 526)
Express authority (p. 536) Servant (p. 524)
Factor (p. 536) Sovereign immunity (p. 531)
General agent (p. 535) Special agent (p. 536)
Gratuitous agency (p. 540) Sui generis (p. 523)
Gratuitous agent (p. 485) Third party (p. 523)
Implied authority (p. 537) Undisclosed principal (p. 535)
Indemnification (p. 540) Uniform Durable Power of
Independent contractor (p. 524) Attorney Act (p. 542)
Lingering apparent authority (p. 537) Vicarious liability (p. 525)
II. Learning Objectives
1. Describe the nature of the agency relationship.
2. Outline the doctrine of vicarious liability.
3. Distinguish among the different types of principals.
4. Distinguish among the different types of agents.
5. Distinguish among express, implied, and apparent authority.
6. Outline the duties of an agent to the principal.
7. Clarify the duties that a principal has in relation to an agent.
8. Name the ways that an agency relationship can be terminated.
9. Identify who is entitled to a notice that an agency has ended.
10. Explain electronic agency.
III. Major Concepts
22-1 The Nature of Agency Law
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Chapter 22 - Agency Law
Agency is the legal fiduciary relationship that exists when the principal authorizes the
agent to represent the principal. The courts are often called upon to distinguish among
relationships between principal and agent, employer and employee, master and servant,
and proprietor and independent contractor. The terms master (employer) and servant
(employee) are used when questions of tort liability arise. Even though all people are
responsible for their own tortuous conduct, there are times when the law will hold not
only the actual tortfeasor but also the person who engaged the tortfeasor liable for the
tort. The name given to this type of liability is vicarious liability. Other liability questions
include negligent hiring, negligent retention, negligent supervision, contract liability,
criminal liability, statutory liability, sovereign immunity, clergy malpractice, and
charitable immunity.
22-2 Principles of Agency Law
Any person legally capable of entering into a contract may be a principal. There are three
kinds of principals—disclosed, undisclosed, or partially disclosed. Anyone may be
appointed an agent. Agents are commonly classified as general agents, special agents,
factor, and del credere agents. A principal is liable on all contracts that a general or
special agent enters into, as long as the agent acts with the authority of the principal. An
agent’s authority may arise expressly from the written or spoken words of the principal to
the agent or implied from the agent’s reasonable effort to understand the meaning of the
principal’s words describing what the agent is to do. Apparent authority results from
actions by the principal that give a third party reason to believe that an agent has the
authority to act for the principal. Ratification by the principal of an unauthorized act by
another person does not create agency, but it has the effect of agency.
22-3 Duties in Agency Law
As a result of the duciary relationship, the agent owes the principal
the duty of obedience to instructions; loyalty; reasonable judgment,
prudence, and skill; accounting for agency money and property;
personal performance of agency work; and communication of all facts
that aect the subject matter of the agency. In addition to the duties
that the principal owes to the agent under the agency agreement,
there are certain implied obligations. These obligations include the
duty to compensate the agent, reimburse the agent for authorized
expenses incurred, indemnify the agent for losses caused by the
agency relationship through no fault of the agent, and comply with the
terms of the agency contract.
22-4 A Final View of Agency Law
An agency agreement generally terminates when its purposes are accomplished. The
agency may also terminate at any time by the principal’s revocation of the agent’s
authority or by the agent’s renunciation of the agency relationship. If either party dies,
becomes insane, goes bankrupt, or ceases to be qualified to act, the agency relationship is
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Chapter 22 - Agency Law
terminated by operation of the law. The principal has the duty to notify third parties with
whom the agent has done business when the agency relationship has been terminated by
acts of the parties. Actual notice is required when the third party has given credit to the
principal through the agent. A public notice in a newspaper of general circulation is
sufficient for third parties who have never given credit but who have had cash
transactions with the agent.
IV. Outline
I. The Nature of Agency Law (22-1)
A. Agency and Other Relationships
1. Principal-Agent Relationship Agency
a. Principal-agent relationship agency is a legal relationship in which one party, the
agent, is authorized to transact business for and under the control of the second,
the principal.
b. The principal must indicate that the agent is authorized to act for the principal.
c. An agency relationship is always consensual because the agent must agree to act
for the principal.
d. The agency relationship is a fiduciary relationship because the agent and principal
trust one another.
2. Employer-Employee Relationship
a. The legal principles governing the relationship of principal and agent and of
employer and employee are basically the same.
b. There are employment relationships that are not agency relationships and agency
relationships that are not employment relationships.
c. Agent-employees have the authority to and usually do deal with third parties on
behalf of the principal.
3. Master-Servant Relationship
a. A master is a person who has the right to control the activities of another person.
b. The person whose activities are controlled is called the servant.
c. The terms master and servant are used instead of employer and employee in a
legal setting when questions of tort liability arise.
4. Proprietor-Independent Contractor Relationship
a. An independent contractor is a party who contracts to do a job and retains
complete control over the methods employed until final completion.
b. The party for which an independent contractor works is often referred to as an
employer or proprietor.
c. Independent contractors are not subject to the control of the proprietor.
d. Independent contractors are not employees; however, they may be agents.
e. An independent contractor may be an agent if the independent contractor has the
right to enter a contract on behalf of the proprietor.
B. The Question of Liability
1. Contract Liability
a. An agent is appointed by the principal to negotiate and enter into contracts on
behalf of the principal, and the principal is bound to the terms of those contracts.
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Chapter 22 - Agency Law
b. Unless an employee is also an agent, he or she has no power to negotiate and
enter contracts for the employer.
c. An independent contractor has no power to bind the proprietor to a contract,
unless expressly authorized to do so.
2. Tort Liability
a. Vicarious liability is based on the principle of respondeat superior.
b. To apply the doctrine of respondeat superior in a tort case, two questions must be
answered.
(a) First, is the alleged tortfeasor was a servant?
(b) Second, was the servant’s action within the scope of employment?
c. The most widely accepted test for determining the existence of a master-servant
relationship, as opposed to the existence of a relationship involving an
independent contractor, is the control test.
d. The control test requires a review of the degree of control, or right to control, that
the hiring person exercises over the hired person.
e. When the degree of control is unclear, additional factors are considered.
f. The court will accept evidence about what the parties called themselves, but will
not sue it as final proof.
g. To determine whether a servant was operating within the scope of employment,
the court will ask the following questions:
(a) Was the action committed by the employee authorized by the employer?
(b) Where did the action take place?
(c) Were the employer’s interests and goals promoted by the action?
(d) Did the employer supply the instrumentality used in the action?
(e) Was this action performed by other employees on a regular basis?
(f) If the action involved force, was the use of force expected by the employee as
part of the job?
h. While most of the time vicarious liability is applied to negligence actions, under
some situations, masters may be held liable for intentional torts committed by a
servant.
i. In some situations, the court may hold the master liable for the torts of the servant
even when the tort is outside the scope of employment such occurs in some
jurisdictions when the theories of negligent hiring or negligent retention are
applied.
j. Under a theory of negligent supervision, the employer may be liable if, during
employee’s time on the job, the employer fails to properly train, equip, and
oversee the employee’s activities and that lack of management injures an innocent
person.
k. The employer may be open to liability when the employer hires an independent
contractor to perform a nondelegable duty that the law does not permit the
employer to delegate.
l. When required elements are satisfied, some courts recognize that, when an
employee breaches a fiduciary duty towed o a third party, the employer may also
be liable for any injuries that result from that breach.
3. Criminal Liability
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Chapter 22 - Agency Law
a. The principal or employer ordinarily is not liable for an agent’s or employee’s
crimes, unless the principal or employer actually aids or participates in their
commission.
b. A principal or employer will be held criminally liable for acts done by an agent or
employee to further an illegal business.
c. Most states have enacted statutes, such as those that penalize the sale of impure
foods or alcoholic beverages that hold a principal or employer liable for certain
crimes committed by their agents or employees, even though they acted
disobediently.
4. Independent Contractor Liability
a. Most of the time, any tort committed by an independent contractor is the
responsibility of the independent contractor, not the proprietor.
b. However, the proprietor may be responsible in some situations such as when
nondelegable duties are involved and when the proprietor is not sufficiently
careful in hiring, training, supervising, and/or retaining an independent contractor.
5. Statutory Liability
a. Many statutes govern the employment relationship and are written so that they
apply to employees but not to independent contractors.
b. The Internal Revenue Code has regulations that treat employees one way and
independent contractors another.
c. Some employers label workers as independent contractors to escape or minimize
the effects of the law.
d. In an effort to remedy that situation, courts created a test, called the economic
reality test, to uncover the nature of the employment relationship.
6. The Economic Reality Test
a. The economic reality test is generally tailor made to reflect the goals of each
statute and is, thus, a fairly flexible rule.
b. In application the rule is very similar to the control test used in respondeat
superior.
c. The economic reality test also adds some factors of its own such as whether the
third party invested in the employer’s business and the degree to which the hired
person’s services were integrated into the employer’s commercial activity.
7. Sovereign Immunity and the Federal Government
a. Sovereign immunity is a doctrine preventing a lawsuit against the government
without the government’s consent.
b. The Federal Tort Claims Act of 1946 limits the federal government’s sovereign
immunity but retains immunity for discretionary actions by officials.
8. Sovereign Immunity, Respondeat Superior, and the States
a. The starting point for liability purposes is whether the state has a statute for
preserving or eliminating sovereign immunity.
b. If a statute exists that preserves immunity, the next step is to determine whether
exceptions exist and whether defenses are available to the state.
9. Charitable Immunity
a. The doctrine of charitable immunity is designed to protect charitable institutions,
including churches, from liability for lawsuits based on tort law.
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Chapter 22 - Agency Law
b. State law on the doctrine varies, and more than half of the states have eliminated
charitable immunity completely.
II. Principles of Agency (22-2)
A. Types of Principals and Agents
1. A disclosed principal is one whose identity is known by third parties dealing with that
principal’s agent.
2. When an agent does not reveal the existence of an agency relationship but appears to
act in his or her own behalf rather than for another, an undisclosed principal exists.
3. A partially disclosed principal exists when the agent, in dealing with third parties,
reveals the existence of an agency relationship but does not identify the principal.
4. A general agent is a person who is given broad authority to act on behalf of the
principal in conducting the bulk of the principal’s business activity on a daily basis.
5. A special agent is a person who is authorized to conduct only a particular transaction,
to conduct a series of related transactions, or to perform only a specified act for the
principal.
6. A factor is a special agent who is employed to sell merchandise consigned for that
purpose.
B. Liability of Principals and Agents
1. The principal is liable on all contracts that a general or special agent may enter into
with third parties, as long as the agent acts within the authority conferred by the
principal.
2. An undisclosed principal can be held liable for the acts of the agent once the identity
of the principal is disclosed, and a third party may sue either the principal or the
agent.
3. When an agent is not known to be an agent and is acting as a principal, the agent can
be held liable as a principal.
4. When a person is known to be an agent, but it is not know for whom the agent acts,
the third party can hold the agent liable.
5. When an agent exceeds the authority conferred by the principal, the agent can be
made personally liable.
C. Scope of an Agent’s Authority
1. Agents who exceed their delegated authority may become personally liable.
2. Unauthorized actions do not bind the principal unless the actions can be reasonably
assumed by a third party to be within the scope of the agent’s authority.
3. Authority granted to an agent may be express, implied, or apparent.
4. An agency relationship is generally created by appointment and implication, by
necessity and operation of law, or by estoppel and ratification.
5. Express authority occurs when the principal either orally or in writing creates the
agency relationship.
6. Express authority, also referred to as actual authority, may be indicated by conduct.
7. Implied authority is the agent’s authority to perform acts that are necessary or
customary to carry out expressly authorized duties.
8. Implied authority can be described as incidental authority when the acts performed
are reasonably necessary to carry out an express authority.
9. Implied authority may be described as customary authority when the agent acts in
conformity with the general trade or professional practices of the business.
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Chapter 22 - Agency Law
10. Apparent authority occurs when a principal, by virtue of words or actions, leads a
third party to believe that an agent has authority even though no such authority was
intended.
11. Apparent authority is sometimes referred to as agency by estoppel, apparent agency,
and ostensible agency.
12. Under a concept sometimes referred to as lingering apparent authority, apparent
authority may be created if the principal terminates an agent’s actual authority but
fails to give proper notice of that termination to those who are entitled to receive such
notice.
13. Ratification occurs when the principal approves of an unauthorized act performed by
an agent or by one who has no authority to act as an agent and the following
conditions are satisfied.
14. Although an agent generally is personally liable to third parties for actions in excess
of the agent’s authority, this liability is not true when the third party knows that the
agent has exceeded the proper level of authority.
15. In some cases, agency authority is bestowed upon employees by statutory law.
16. Principals rely on the agent’s personal skill and integrity, and they do not ordinarily
give agents the power to delegate to someone else the job they have agreed to do.
17. Should an agent delegate authority without authorization, the acts of the subagent do
not impose any obligation or liability on the principal to third parties.
18. In some instances an agent is permitted to delegate authority even if the agency
agreement does not contain an express power of delegation.
19. The purpose of agency cannot be criminal or contrary to public policy.
20. Some acts, such as making a will, must be performed in person, not delegated to an
agent.
III. Duties in Agency Law (22-3)
A. Fiduciary Obligations
1. An individual who acts as an agent for another has a fiduciary relationship with the
principal.
2. An agent may not enter any agency transaction in which the agent has a personal
interest.
3. An agent must not take a position in conflict with the interest of the principal.
B. The Agent’s Obligations to a Principal
1. Obedience and Loyalty
a. The agent, whether being paid or acting gratuitously, must obey all reasonable and
legal instructions issued by the principal that relate to the agency agreement.
b. In obeying the instructions of the principal, the agent is duty-bound to remain
within the scope of authority.
c. The agent may not use confidential information to advance the agent’s own
interests.
2. Judgment, Prudence, Skill, and the Duty to Account
a. Agents imply that they possess the required knowledge, training, and skill to
perform and carry out their agency obligations properly with reasonable care and
diligence.
b. The principal is entitled to expect that the agent has the degree of skill commonly
displayed by others employed in similar work.
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Chapter 22 - Agency Law
c. An expert must use the skill possessed by others who have been admitted to that
field.
d. An accounting must be given to the principal within a reasonable period of time
after money or property is received or disbursed.
e. Money collected by the agent must be held separately from funds belonging to the
agent, and the failure to do so is known as commingling.
3. Personal Service and Communication
a. The agency relationship is usually one involving an agreement for personal
services.
b. In the absence of authority to do so, an agent may not delegate duties to others
unless such duties are purely mechanical in nature and require no particular
knowledge, training, skill, or responsibility.
c. The agent is obligated to keep the principal fully informed of all facts that
materially affect the subject matter of the agency and that come to the agent’s
attention when acting within the agent’s scope of authority.
d. The law assumes that if an agent receives either notice or information, it was also
communicated to the principal.
4. Remedies Available to the Principal
a. Remedies are always available when an agent fails to observe a duty owed to a
principal.
b. The principal may do one or more of the following:
(a) Terminate the agent’s contract of employment.
(b) Withhold compensation.
(c) Recover profit the agent made in violation of agency obligations.
(d) Recover money or property gained or held by the agent to which the principal
is entitled.
(e) Restrain the agent from continuing to breach the agency obligation.
(f) Recover damages from the agent for breach of the contract of employment or
assessed against the principal for the agent’s wrongdoing.
(g) Rescind a contract entered into by the agent based on an improper relationship
between the agent and the third party.
C. The Principal’s Obligations to the Agent (34-3)
1. Compensation
a. The principal is under a duty to pay an agent for work or services.
b. The principal must make salary deductions and payments to the government as
required by law.
c. If an agency relationship does not result from a contract it is a gratuitous agency.
2. Reimbursement
a. The principal is obligated to reimburse the agent for any reasonable expenses
incurred while working on the principal’s behalf and within the scope of the
agent’s authority or employment.
b. The agent cannot recover for expenses incurred due to the agent’s own
negligence.
3. Indemnification
a. Agents are entitled to indemnification if they incur a loss or are damaged as a
result of a request made by the principal.
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Chapter 22 - Agency Law
b. Indemnification is avoidable if the loss or damage results form an action the agent
knew to be illegal or from the agent’s negligence.
c. State workers’ compensation laws hold that the cost of paying for employee injury
should be a part of the operating expense of the business.
d. Public policy requires employers to indemnify employees for personal injury
sustained in the course of employment, and state worker’s compensation laws
hold that the cost of paying for such injury should be a part of the operating
expense of a business.
4. Cooperation with the Agent
a. The principal, having granted the agent the duty to perform certain tasks, must not
interfere with the performance of those tasks.
b. Should the principal make the agent’s job difficult or impossible, the principal has
breached the duty of cooperation.
D. Remedies Available to the Agent
1. The remedies of an agent against a principal are based upon the principal’s breach of
express or implied contract obligations.
2. The agent has the option of exerting one or more of the agent’s rights as follows:
a. Leave the principal’s employ.
b. Recover damages for the principal’s breach of contract.
c. Recover the value of services rendered.
d. Obtain reimbursement for payments made for the principal.
e. Secure indemnity for personal liability sustained while performing an authorized
act for the principal.
IV. A Final View of Agency Law (22-4)
A. Termination by Actions of the Parties
1. When the contract involving the agency agreement is performed, the agency is at an
end.
2. The agency relationship may also be discharged by mutual agreement.
3. Although a breach of contract may be involved, a principal may terminate an agency
agreement by revoking the agent’s authority.
4. Although it may subject them to damages, agents may terminate an agency by giving
notice to principals that they are quitting, a practice known as renunciation.
B. Termination by Operation of Law
1. The termination of the agency agreement by operation of the law results when
significant events make the continuance of the agency impossible or impractical.
2. The death of either the principal or the agent generally terminates an agency.
3. The insanity of either the principal or the agent usually terminates the authority of the
agent although in some states, under certain circumstances an agent’s powers may
continue.
4. An agency relationship is generally terminated upon the incapacity of the principal,
but many states have adopted the Uniform Durable Power of Attorney Act under
which a person can appoint an agent whose authority is preserved should the principal
become incapacitated.
5. In some cases, the durable power of attorney may activate the agent’s power once the
principal is incapacitated.
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Chapter 22 - Agency Law
6. The National Conference of Commissioners on Uniform State Laws recently finalized
a new Uniform Durable Power of Attorney Act.
7. In the event of the bankruptcy of the principal, the agency is ended.
8. When an agent goes bankrupt, the principal and the agent may continue the
relationship if they choose.
9. An agency relationship terminates when it is impossible for the agent to accomplish
the purpose of the agency.
10. A change in the law that causes authorized acts to be illegal terminates the agent’s
authority.
C. Agency Coupled with an Interest
1. The only exception to the rule that either the principal or the agent may terminate an
agency relationship at any time arises in the situation of an agency coupled with an
interest.
2. An agency coupled with an interest is an agency agreement in which the agent is
given an interest in the subject matter of the agency.
3. The principal lacks power to revoke agencies coupled with an interest without the
consent of the agent.
D. Notice of Termination to Third Parties
1. The principal has the duty to notify third parties with whom the agent has done
business when the agency relationship has been terminated unless the agency is
terminated by operation of law.
2. When a third party has given credit to the principal through the agent, the third party
is entitled to actual notice of termination of authority.
3. A notice in the classified advertisement section in a newspaper of general circulation
is sufficient for third parties who have never given credit, but who have had cash
transactions with the agent or who know that other persons have dealt with the
principal through the agent.
4. The failure to give third parties appropriate notice results in liability of the principal
on contracts made by a former agent with third parties.
E. Cyber-Agency Statutes
1. The Uniform Computer Information Transactions Act (UCITA) is valuable because it
clearly establishes the nature of an electronic agent.
2. Under the UCITA an electronic agent can be characterized as a computer program
that acts without human intervention to begin an activity, answer cybermessages,
deliver or accept electronic mail, or enter electronic contracts as a representative of an
individual who does not intervene in the action taken by the electronic agent at the
actual time of the electronic agent’s activity.
3. The UCITA makes it clear that a principal who gives authority to an electronic agent
will be liable for the electronic contracts entered by the electronic agent.
4. The Uniform Electronic Transactions (UETA) has legitimized the use of electronic
agents by certifying that contracts made by electronic agents have the same binding
effect as contracts created by human agents.
5. Once an individual has received an e-mail, he or she is considered to have received
notice of an e-contract, even if that person ignores or trashes the e-mail without
opening or reading it.
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Chapter 22 - Agency Law
V. Background Information
A. Cross-Cultural Notes
1. In the former Soviet Union, all artists and authors were required to use the services of
VAAP, the government literary agency, VAAP held a monopoly on representation of
literary talent. With the breakup of the Soviet Union, artists and authors gained the
freedom to make their own independent contracts.
B. Historical Notes
1. The master is only liable when the servant is acting in the course of employment. If
he was going out of his way, against his master’s implied commands, when driving on
his master’s business, he will make his master liable; but if he was going on a frolic
of his own, without being at all on his master’s business, the master will not be liable.
— Joel v. Morison, 6 Car. & P. 501, 503, 172 Eng. Rep. 1338, 1339 (Ex. 1834)
C. State Variations
1. If an insurance agent sells a policy issued by a company not licensed in the principal’s
state, the agent can be held liable for any bills that the company does not pay. Agents
can also be held liable if they sell a policy with the knowledge that the company is
insolvent. In Texas, an agent has notification duties in relation to an insured.
2. In Tennessee, an employer of a therapist may be liable if sexual misconduct occurred
and the employer fails to take reasonable action when the employer knows or should
have known of such misconduct, or the employer fails to make inquiries of a former
employer of the therapist concerning past sexual misconduct of the therapist.
3. Most states have passed statutes that provide procedures for citizens to sue the state.
Iowa passed the Tort Claims Act, which lists under what circumstances a citizen may
sue the state. It also describes the procedure that should be used.
4. In Florida, minors can execute contracts under the Home, Farm, and Business Loans
Act with the same effect as if they were of legal age.
D. Quotations stop
1. Within the scope of the agency, principal and agent are one.
— Oliver Wendell Holmes (1841–1935), Supreme Court Justice
2. Strictly speaking, laws are nothing more or less than the terms of association of civil
society. The author of the laws ought, therefore, to be the people . . . bound by them;
i.e., the task of formulating a society’s terms of association belongs exclusively to
those who come together in it.
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Chapter 22 - Agency Law
— Jean Jacques Rousseau, The Social Contract. Chicago: Henry Regnery
Company, 1954, p. 55.
VI. Terms
1. Principal and prince come from the word primus, meaning first. Principal and prince
are also associated with the Latin term princeps, which literally means “one who
takes the first part.”
2. Vicarious means “to serve in place of someone or something else.”
3. Sovereign immunity developed from the theory that the King of England, as the
supreme ruler, was immune from lawsuits. The word sovereign comes from Old
French and from Latin super, meaning “to be above.”
4. Ratify has its origins in the Latin word ratus, which comes from two words meaning
agree and make. In an agency by ratification, the principal makes an agreement to fit
circumstances that already exist.
5. Subagents working for independent contractors are often called subcontractors. In
construction, for example, a general contractor may hire a subcontractor to install
plumbing or electrical systems.
6. The word mingle, part of commingle, means “to mix.” Things are commingled when
they are blended, or mixed, into a whole.
7. The word compensate comes from the Latin word compensatus, meaning “to weigh
together.”
VII. Related Cases
1. Difficulties resulting from borrowed servants are not new. In 1826, a country
gentleman, who had just arrived in town without means to get around, hired a carriage
with horses and a driver from a stable keeper. The driver negligently drove the
gentleman’s coach into another vehicle. The judges of the King’s Bench divided two
to two on the question of liability of the gentleman. Laugher v. Pointer, 5 B & C 547.
2. The Barrowses entered into the state of marriage by proxy (Barrows was to be away,
so an agent stood in for him at the ceremony). When Barrows died, the couple’s life
insurance company attacked the validity of the marriage. The court ruled that there is
a long history of proxy marriages; therefore, the deceased’s father cold not attack the
validity of the proxy marriage. Barrows v. U.S., 191 F. 2d 92 (9th Cir. 1951).
3. The general manager of a corporation, while buying supplies for his company,
purchased an additional quantity of supplies on his own account and sold them at a
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Chapter 22 - Agency Law
profit. The corporation sued, the defendant’s discharge was upheld, and the
corporation was awarded the proceeds from the sale of the goods. Michigan Crown
Fender Co. v. Welch, 178 N.W. 684 (Mich. 1920).
4. In Valles v. Albert Einstein Medical Center, 758 A2d 1238 (Pa. Super. Ct. 2000), a
medical malpractice case, the court addressed the issue of whether the defending
hospital was vicariously liable for the failure of a physician, a radiologist, to obtain
informed consent. While the court acknowledged that the physician had a contract of
employment with the hospital, the court noted that nothing in the record indicated that
the hospital exercised control over the manner in which the physician was to perform
radiology work. On that basis, the court found that the hospital was not vicariously
liable for the failure of the physician to obtain informed consent and granted a
summary judgment ruling to the hospital.
VIII. Teaching Tips and Additional Resources
1. Ask students if they have ever been considered an independent contractor when a
designation of employee would have been more appropriate. Information from the
Internal Revenue Service on determining whether someone is an employee or
independent contractor for tax purposes is available at
http://www.irs.gov/taxtopics/tc762.html. Information on the self-employment tax is
available at
https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employmen
t-Tax-Social-Security-and-Medicare-Taxes.
2. An article titled “Employer Liability for an Employee’s Bad Acts” is available on the
Findlaw web site at
http://smallbusiness.findlaw.com/business-operations/insurance/liability-employee-ac
ts.html.
3. Ask students their opinions on whether employees should be able to avoid civil and
criminal liability by claiming that they were following orders of a superior.
Information regarding the Nuremberg Trials and the refusal to allow the defense of
following orders of a superior is available from the Holocaust Research Project at
http://www.holocaustresearchproject.org/trials/nurnbergtrial.html.
4. An article titled “Vicarious Liability: ‘Let the Master Answer’” addressing vicarious
liability in the health care setting is available on the web site of the American
Academy of Orthopedic Surgeons at
http://www.aaos.org/news/bulletin/jun07/managing6.asp.
5. The Colorado Bar Association has information available on financial powers of
attorney at http://www.cobar.org/index.cfm/ID/20877.
6. An article titled “Advance Directives: Creating a Living Will and Health Care Power
of Attorney” is available from the AARP at
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 22 - Agency Law
http://www.aarp.org/relationships/caregiving-resource-center/info-11-2010/lfm_living
_will_and_health_care_power_of_attorney.html.
7. An article from USA Today titled “Power of attorney can be valuable and dangerous
tool” is available at
http://www.usatoday.com/money/perfi/columnist/block/2008-12-08-managing-money
-power-attorney_N.htm.
8. The National Hospital and Palliative Care Organization has a section on advance
directives and choosing an agent at http://www.caringinfo.org/i4a/pages/index.cfm?
pageid=3284. An article titled “Selecting Your Healthcare Agent” is available on the
web at http://www.caringinfo.org/i4a/pages/index.cfm?pageid=3286.
9. The National Association of Realtors has a “Law, Ethics & Policy” section at
http://www.realtor.org/law-and-ethics.
10. Various publications may be obtained electronically from the Equal Employment
Opportunity Commission at http://www.eeoc.gov/eeoc/publications/index.cfm.
11. Ask students to think of certain situations in which they have made contracts through
third parties. Agency relationships are not always recognized as involving agency, so
you might offer some examples. For instance, salespeople act as agents for their
employers when they make contracts with customers. Ask students if any of them are
independent contractors. If so, have them describe their relationships with the other
parties to the contracts.
12. For a more detailed explanation of the development of agency law see: Holmes,
Oliver Wendell, Jr. The Common Law. New York: Barnes and Noble Books, 2009,
pp. 6–12.
13. With help from students, create a list of occupations that are often performed by
independent contractors. Then have the students choose one of the occupations listed
and research the responsibilities involved, compiling a list of the costs of being an
independent contractor in that occupation. Remind students to take into account
personal expenses, such as insurance and taxes, as well as costs of the occupation,
such as hiring subcontractors, renting space, and purchasing materials.
14. Have students discuss whether the U.S. government should be liable for all improper
actions or only those that are allowed under the Federal Tort Claims Act. Does the
historical background of sovereign immunity have any relevance today?
15. Explain that an agent works for and on the behalf of a principal and is subject to the
principal’s control. Review the three types of principals and ask students to suggest
examples of each type.
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 22 - Agency Law
16. Have students interview local real estate brokers about the status of the agents
working for them. Students should find out what kind of agency relationships exist
between the brokers and the agents. Have students find out about multiple listings
services and what happens when an agent sells property listed with a different
brokerage firm.
17. Ask students to think about the responsibilities of the parties involved in a contract.
Give some examples of different types of contracts and have students identify in
whose interest each party acts. Next, name some examples of agency relationships
and ask the students in whose interest each party acts. Make sure students recognize
the fundamental distinction between acting for oneself and acting for another.
18. Bring in the want ads from several editions of a local newspaper and distribute them
to small groups of students. Ask students to look through the ads and discuss in their
groups which jobs require an employee to act as an agent for the employer. Then have
student groups share their discoveries with the rest of the class.
19. Obtain standard forms for a power of attorney and have students examine them.
Discuss the forms’ terminology.
20. Inform students that the apparent principal is estopped to deny the authority of the
apparent agent. This is so a principal does not unjustly benefit from the actions of an
agent without also taking responsibility for the actions of the apparent agent.
21. Ask students to come up with instances in which an agent may be acting without
authority, but the principal’s actions would lead a reasonable person to believe that
the agent did have authority. One example would be if a used car salesman acted
outside of the agency relationship but the dealer/owner did not affirmatively disavow
the agent’s actions. Contrast the apparent authority with implied authority. How are
they different? How are they the same?
22. Some writers’ agents are creating their own compensation by identifying news stories
with best-seller potential and recruiting writers and publishers for the project. Agents
comb newspapers and magazines for ideas.
23. There is no promise to indemnify implied if the act directed to be performed was one
in which the agent knew or must be presumed to have known to be illegal. Not even
an express promise to indemnify would be enforced under those circumstances.
24. Invite a real estate broker or car dealer to class to discuss agency relationships. A
broker might relate anecdotes about contracts with both sellers and buyers, while a
car dealer could discuss experiences with buyers and the salespeople who act as
agents. Ask the visitors to share stories about how agency relationships can end.
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 22 - Agency Law
25. Explain to the class that agency relationships eventually end. Tell students that
termination may come by operation of the law or by the acts of the parties involved.
Discuss the differences between these two kinds of termination and ask for examples.
26. The agency coupled with an interest is not a true agency power because it cannot be
terminated at will. It may be terminated only as agreed to in the transaction that
created it or if the subject matter of the interest is destroyed.
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distribution without the prior written consent of McGraw-Hill Education.
