AGENCY

Agency is a legal relationship in which one person, the agent, represents another, the principal, and
is authorized to act for him or her. Agency law is largely the common law of the various states. It
consists of the rules that society recognizes and enforces in regard to situations in which one
person acts for another.
Agency may include employment . An agent may or may not be the principal's employee. But
usually, employees are agents.
Agency includes and may be created by a power of attorney. An attorney in fact may represent
another person as an agent for general or special purposes other than legal ones. An attorney in
fact is named as representative or agent in a power of attorney, a written document setting out the
appointment of the attorney. The appointment may be general or special.
Agency generally does not include independent contractors . An independent contractor is a person
hired to undertake a contractually defined result. How the contractor achieves the result is his
responsibility. Only if the independent contractor is a representative does he constitute an agent.
The tort or contractual responsibility of a principal for the acts of his/her agent moves from very
great when the agent is an employee to far less in the case of an independent contractor.
Personal service obligations cannot be performed by an agent . A number of personal service
obligations cannot be delegated to another. These nondelegable obligations require the special skill
of a designated person who cannot send a representative to act in his place. For example, a doctor
or lawyer cannot name an agent to act in his place.
It is very important to distinguish between employees, who often are agents, and independent
contractors, who rarely are agents.
There are advantages to using independent contractors instead of employees:
− no tort liability under respondent superior,
− less administrative burdens,
− less benefit expenses, etc. 
Disadvantages include:
− less control over a worker's performance,
− less control over his use of the hirer's proprietary information, etc. 
An agency can be created by:
• Express contract or consensual agreement: The agency relationship is always
consensual. It is usually created by contract, oral or written. Sometimes, though, the contract
 element of consideration is lacking. For example, the power of attorney creates a consensual,
but often non contractual agency. When an agency is not contractual, either party can
terminate it at any time without liability to the other for failure to continue performance of the
agency. However, there is responsibility for tasks completed, undertaken, or underway.
•  The conduct of the parties: implied contracts of agency may be judicially determined
because the words or actions of the parties would lead others to believe that an agency
existed, that one party was acting for another.
•  Ratification of an unauthorized act: Even though there was no agency when an "agent"
performed a valid act apparently on behalf of another person, that person may ratify the act by
accepting its results after the fact.
•  Estoppel: a person allows another to act for him to such an extent that a third party
reasonably believes that an agency relationship exists.
•  Necessity: There are a few special situations in which one person, for example, a parent, is
responsible for the necessities of another, a child. Also, a person can act for another in an
emergency situation without express authority to do so.
 
The law considers that an agent acts in a fiduciary capacity to his principal. An agent is a trustee
and this trust relation requires a high degree of loyalty. Failure may be not only a breach of the
agency contract, but also a criminal act. Therefore, the law implies a number of duties of the
agent to the principal, though these may be modified by contract. These duties are:

1.      Duty to obey instructions. Otherwise, the agent is personally liable to the principal for
unauthorized contracts, torts committed, etc.
2.      Duty to act with skill. An agent undertakes to act with the degree of skill ordinarily expected
from others undertaking such employment.
3.      Duty to avoid conflict of interest (duty of loyalty). An agent who is acting for a principal
cannot act for himself with respect to the same matter. There should be a complete disclosure of
conflict or possible conflict, and the consent of the principal must be given with realization of all
consequences.
4.      Duty to protect confidential information. This is because the principal must be free to
disclose all necessary information to his agent, including trade secrets and proprietary information.
5.      Duty to notify. The agent must notify the principal of all information that may be useful to
the principal in evaluating a certain matter.
6.      Duty to account. The contract of agency will specify times and manner of accounting. Failure
to account and breach of the relation of trust may be criminal.

There are also duties of the principal to the agent:

1. To compensate the agent according to the terms of the agency agreement or, if no
agreement exists, at the reasonable value of the services performed.
2. To pay all expenses that the agent reasonably incurred in furtherance of the business and
inform the agent of dangerous risks the principal knows exist. If the agent is an employee, he
is also entitled to a place to work and to the equipment, supplies, and accessories necessary
to perform the employment.

 
The principal is liable for contracts made by the agent if the agent has either the actual
authority to make a contract for the principal or has the apparent authority to do so. 
Actual authority is either express (either oral or written) or implied (inferred from words or conduct
manifested by the principal to the agent). 
Apparent authority arises out of actions or conduct of the principal which causes a third party to
reasonably believe that the agent has the authority to make contracts for the principal.
When an agent commits a tort, he is personally liable for the tort. But a principal is directly
responsible for torts of the agent under any of the following circumstances:
1.       The principal gave the agent improper orders or instructions that caused the tort to occur.
2.       The agent was improperly or negligently chosen or employed.
3.       The principal failed properly to supervise the work when he had a duty to do so.
This direct liability of the principal for tort does not derive from the agency relation: it is the very
act of the principal that is negligent.
But the principal can also be indirectly responsible for torts of the agent. Even though the principal
has committed no act of negligence, the agent's negligence is imputed to the principal if the agent
is acting for the principal in the scope of his employment.
In cases of direct liability as well as indirect liability for the torts of the agent, both the agent and
the principal are simultaneously liable for the tort. There is a joint and several liabilities.

If a third party knows that the agent is acting for a principal and if the third party knows the
identity of this principal, the principal is a disclosed principal. In this case, the agent has no
personal responsibility for a contract made on behalf of this principal. But failure to identify the
principal and to use agency words upon signing may create personal liability for the agent. Even if
a principal is disclosed, however, the agent may have personal liability if in fact, he had no
authority. On the other hand, if the agent has the apparent authority to act for the principal, but in
fact the principal has not given authority, both agent and principal may be liable to the third party.
A partially disclosed principal is when the third party knows that the agent is acting for a principal
but does not know the identity of the principal. In this case, the  agent is liable on the contract.
However, if the principal's identity can be determined, the principal may also be liable on the
contract.
With an undisclosed principal, neither the fact of agency nor the identity of the principal is
disclosed. In this case, the agent is liable on the contract, since the third party was led to
believe that the agent was the real party on the contract.
 
An agency may be terminated by:
− Acts of the parties: The parties may terminate the agency by any act that would terminate a
simple contract. If the agency was created for a specified time or for a specified purpose, it
 terminates upon the passage of that time or the accomplishment of that purpose. If no time is
specified, the agency is terminated by the passage of a reasonable time.
The agency can also be terminated:
• By mutual rescission,
• by revocation of authority by the principal, or
• by renunciation by the agent.
To assure that there is no lingering apparent authority, the principal generally must give actual
notice of termination to third persons who previously dealt with the agent.
−  Operation of law: The agency relation is terminated by death, permanent incapacity or
bankruptcy of either party, material breach of the agency contract by either party, impossibility
of performance by either party, frustration of the purpose of the agency, etc.