CHAPTERS 29 AND 30
CHAPTER 29: The use of agents allows one person to act on behalf of another. Agency relationships include
salespersons selling goods, a partner acting on behalf of a partnership, an attorney representing a client.
Agency laws are made to protect people from agents.
Restatement (Second) Agency – Consent by one person to act on behalf and under control of another
and agreement by other to have that person so act.
Principal – A party who employs another person to act on his or her behalf.
Agent - A party who agrees to act on behalf of another.
A principal agent relationship is formed when an employer hires an employee & gives that employee
authority to act & enter into contracts on his/her behalf. The extent of this authority is governed by any
express agreement between the parties & implied from the circumstances of the agency.
This relationship exists when an employer hires an employee to perform some form of physical service. An
employee is not an agent unless he/she is specifically empowered to enter into contracts on the principal employer’s
Principals often hire outsiders – persons & businesses that are not employees – to perform certain tasks on their
behalf. A principal is not liable for torts committed by independent contractors. They are personally liable for their
torts. Principal does not control how the end task will be accomplished. Principal can also authorize an independent
contractor to enter into contracts. Principals are bound by the authorized contracts of their independent contractors.
Formation of Agency
1. Express Agency: most common form of agency. Occurs when a principal and an agent expressly
enter into an agency agreement with each other.
Exclusive v. Non-exclusive agency:
Exclusive: is a contract that a principal/agent enters into that says the principal cannot
employ any agent other than the exclusive agent.
Power of Attorney: an express agency agreement that is often used to give an agent the
power to sign legal documents on behalf of the principal.
2. Implied Agency: 2 way to create an agency. An agency that occurs when a principal & an agent
don’t expressly create an agency, but it is inferred from the conduct of the parties.
“Incidental Authority”- agent’s posses certain implied authority to act.
3. Agency by Ratification: occurs when (1) a person misrepresents himself as another’s agent when
in fact he/she is not and (2) the purported principal accepts the unauthorized act. In these cases, the
principal is bound to perform, and the agent is relieved of any liability for misrepresentation.
Ex: Bill sees a house that his friend would want to buy. Bill then enters contract to purchase house
from seller & signs the contract “bill agent for max”. Because bill is not max’s agent, max is not
bound to contract. But if max agrees to sign contract than there is agency by agreement. By this
max is obligated to purchase house.
4. Apparent Agency: agency that arises when a principal creates the appearance of an agency that in
reality does not exist.
Agency by Estoppel – when the apparent agency is established, the principal stopped CHAPTERS 29 AND 30
from denying the agency relationship & is bound to contracts entered into by the apparent
agent while acting within scope of the apparent agency. The principal’s actions not
agents are the ones that create the apparent agency.
Principal’s Duties: I hire you to do something for me so what do I owe you for doing something for me:
1. Compensation: I have to pay you! Duty that a principal owes to pay a set amount to agent after completion
of agency or at some other mutually agreed time.
2. Reimbursement/Indemnity: principal owes duty to reimburse agent for all expenses if they were (1)
authorized by the principal, (2) within scope of agency and (3) necessary to discharge agent’s duties in
carrying out agency.
Ex: travel fees, rental fees, gas fees that employer must reimburse you for.
Indemnity is reimbursement for liability. Principal owes duty to indemnify agent for any looses agent
suffers because of principal.
3. Duty of Cooperation: agent must cooperate with person.
Duties of Agent
1. Performance: Duty to perform; so the job that you have been hired to do; job you have agreed to
do. Agent’s duty is to (1) performed lawful duties expressed in contract & (2) meet the standards
of reasonable care, skill, & diligence implicit in all contracts. Judged by a reasonable person’s
2. Duty of Notification: if an agent learns important information they must tell person who hired the
principal. It’s their duty to inform you.
> Impute Knowledge: principal is assumed to know what the agent knows. This is so
even if agent does not tell the principal certain relevant info. Agent is “assumed” to
3. Duty of Accountability: Agent must maintain accurate records of money you spend on
employer’s behalf. At any time employer can ask you for records and it’s your duty to let them
TERMINATION OF AGENCY
Termination by Acts of Parties
1. By mutual agreement: both parties can agree to terminate contract. By doing so, the parties
relieve each other of any further rights, duties, obligations, or powers provided for in the agency
2. Lapse of Time: sometimes you can put into your contract a certain amount of time that person is
going to be your agent/working for you.
3. Purpose Achieved: a principal can employ an agent for the time it takes to accomplish a certain
task, purpose, or result. These agencies automatically terminate after completion.
4. Happening of a