
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 affect 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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