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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
Inward-looking
consequences
Agent
Outward-looking
consequences
Third Party
Agent Action
Principal
Fiduciary
relationship
Agent
Obligation or liability
Third Party
Contract or tort
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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.
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Restatement (Third) of Agency §1.01
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Mutual Assent
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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.
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Benefit

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.
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Restatement (Third) of Agency §1.01
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Control

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.
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Restatement (Third) of Agency §1.01
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
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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
Authority that is customarily associated with
agency or necessary for expressly authorized
tasks
Apparent
Agency by estoppel creates authority by
estoppel or “apparent” authority
Authority

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Agents bind principals by acting with authority
Two forms of authority
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Actual: principal manifests consent to agent
Apparent: principal manifests consent to third
party
4. Principles of Attribution
Principal
Manifestations
create actual
authority
Agent
Manifestations
create apparent
authority
Third Party
Actual Authority
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“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
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“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
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Domain of Apparent Authority
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Arises in two circumstances:
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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
Notification
Loyalty
Obedience
Accounting
The Duties of Principals
Compensation
Cooperation
Safe Working Conditions
Reimbursement
Indemnification
Contract Obligations
Fully disclosed principal
•
Agent is not liable, principal is
Undisclosed principal
•
Agent is directly liable to third party
Partially disclosed principal
•
Agent and principal are liable to third
party
Torts by Agents (and
employees)
Doctrine of respondeat superior
Wrongful acts of an employee or agent on the
job and within the scope of employment create
liability for the principal or employer
•
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Authorized type of work
Authorized time and space
Event caused in part by purpose of
principal or employer
•
Detour versus Frolic
Agent’s Duties to Principal
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Fiduciary Duties
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Duty of Care (Duty of Performance)
Duty of Loyalty
Duty of Obedience
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Fiduciary Duty of Care
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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
Principal
Inward-looking
consequences
Agent
“An agent has a
fiduciary duty to act
loyally for the
principal’s benefit in all
matters connected with
the agency
relationship.”
Restatement (Third) of
Agency §8.01
(Conflict of interests)
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(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.
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The Role of Fiduciary Duty
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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)
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The Role of Fiduciary Duty
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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:
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Act in good faith
Disclose all material facts
Otherwise deal fairly with the principal
Intermediaries not acting in the name
of a Principal
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(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 or
exceeding its authority)
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(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)
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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 subagency.
Illustrations
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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-àvis 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.