Agency

MBEMax wiki article — paired with the Business Associations question set on mbemax.com.

One-line summary

Agency is the fiduciary relationship arising when one person (the agent) agrees to act on behalf of and under the control of another (the principal); the principal is bound by the agent's authorized acts and vicariously liable for the agent's torts within the scope of agency.

Mnemonic

A-P-F-A-R — Authority (actual or apparent), Partially disclosed / undisclosed, Fiduciary duties, Apparent authority, Ratification.

Think of an agent as an "A-list PFAR card" — if any letter is checked, the principal is on the hook.

Formation of agency

Three elements (Restatement (Third) of Agency § 1.01):

1. Assent — both parties manifest willingness.
2. Benefit — agent acts on the principal's behalf.
3. Control — principal has the right to control the agent's actions.

No consideration is required; no writing is required (except agency to purchase real estate in some states — "equal dignity" rule).

Authority (when the agent binds the principal)

• Express actual authority — principal's words granting specific powers.
• Implied actual authority — power to do what is reasonably necessary to carry out express authority, consistent with past dealings and custom.
• Apparent authority — third party reasonably believes, based on the principal's manifestations, that the agent has authority. Focuses on principal's conduct toward the third party.
• Authority by estoppel — principal's negligent failure to deny apparent authority, plus third-party reliance + position change.
• Ratification — principal accepts benefits of unauthorized act with full knowledge of material facts; contract becomes binding from the date of the agent's act.
• Inherent agency power — residual category for undisclosed principals where agent's act is within the ordinary scope.

Fiduciary duties owed by agent to principal

• Duty of care — reasonable skill and diligence.
• Duty of loyalty — no self-dealing, secret profits, conflicts of interest.
• Duty to account — disclose information, keep records.
• Duty of obedience — follow lawful instructions.
• Confidentiality and non-disclosure.

Remedies for breach: disgorgement of profits, constructive trust, termination, damages, rescission.

Principal's liability

Contract liability

• Authorized contract: principal is liable.
• Unauthorized but apparent: principal is liable.
• Ratified: principal is liable from date of original act.
• Undisclosed principal: both principal and agent are liable; third party may elect (majority).

Tort liability — respondeat superior

Principal (employer) is vicariously liable for torts of agent (employee) committed within scope of employment.

• Scope test: within authorized time and space; motivated, at least in part, to serve the employer. Slight deviation (frolic vs. detour).
• Independent contractors: employer usually NOT liable. Exceptions: inherently dangerous activities, non-delegable duties, employer's own negligence (negligent hiring, training).
• Intentional torts: usually outside scope, but within scope if authorized, if nature of job foreseeably involves force, or if motivated in part to serve principal.

NCBE loves to test

• Express vs. apparent authority. Express = principal tells agent. Apparent = principal's manifestations to third party.
• Undisclosed principal. Agent contracting for undisclosed principal is personally liable on the contract; principal is also liable if agent acted within the scope of agency.
• Ratification requires full knowledge. No ratification if principal didn't know the material facts. Cannot partially ratify — all or nothing.
• Termination by operation of law. Death, incapacity of principal (common law), bankruptcy, change in law, or destruction of subject matter terminates agency automatically. Apparent authority may survive if third parties reasonably unaware.
• Durable power of attorney. Modern statutory exception — continues authority past incapacity if expressly stated.
• Independent contractor vs. employee. Right-to-control test: level of supervision, skill required, source of tools, method of payment, hired for long or single task.
• Frolic vs. detour. Minor deviation = still in scope. Major personal mission = frolic, outside scope.

Fast hypos

Hypo 1. Sales agent with express authority to sell products signs a lease for office space without principal's authorization. Third-party landlord reasonably believed based on title on agent's business card that she had authority. Apparent authority — principal bound.

Hypo 2. P sends A to buy a painting, telling A not to exceed $5,000. A buys for $6,000. P keeps the painting with knowledge. Ratification — P bound on the whole contract.

Hypo 3. Delivery driver employed by D, running a personal errand three blocks off route, rear-ends V. Detour vs. frolic — factual; slight deviation keeps vicarious liability.

Hypo 4. D hires independent contractor to demolish building with explosives. Contractor's negligence injures neighbor. Non-delegable duty / inherently dangerous — D vicariously liable despite IC status.

Case anchors

• Humble Oil & Refining Co. v. Martin, 222 S.W.2d 995 (Tex. 1949) — gas station operator as employee for respondeat superior.
• Watteau v. Fenwick, [1893] 1 Q.B. 346 — undisclosed principal bound by agent's usual authority.
• Hoddeson v. Koos Bros., 135 A.2d 702 (N.J. App. 1957) — agency by estoppel from failure to supervise store premises.
• Ira S. Bushey & Sons v. United States, 398 F.2d 167 (2d Cir. 1968) — Friendly's scope-of-employment analysis; foreseeability-of-loss frame.

See also

• Corporations — Formation
• Partnerships
• Negligence
• Contracts — Formation

Sources

Restatement (Third) of Agency §§ 1.01, 2.01, 2.03, 3.03, 4.01, 7.03–7.08, 8.01–8.05; Humble Oil & Refining Co. v. Martin, 222 S.W.2d 995 (Tex. 1949); Watteau v. Fenwick, [1893] 1 Q.B. 346; Ira S. Bushey & Sons v. United States, 398 F.2d 167 (2d Cir. 1968).