I. Teacher to Teacher Dialogue
Agency law is very important in a basic undergraduate law course in that it represents a synergy of two otherwise distinctive bodies of law: contracts and torts. Because these topics are a precondition to a good foundation to agency, I never teach agency before having taught both contracts and torts. In addition, I have found it useful to remind students of the constant interplay that goes on between these two areas of law. For example, I will go through the creation of the agency relationship (which highlights contract elements), involve a third party (by way of tort), and decide whether any defenses may apply (possibilities from both the law of contracts and torts). Invariably, certain patterns of behavior can be identified which can be used to help students ask key questions about agency-based issues.
Qui facit per alium facit per se. He who acts through another, acts himself. This simple Latin phrase provides the keystone upon which the mutual obligations of agency law rest. Agency is defined by Section 1 of the Second Restatement of Agency as: The fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.
Agency is a legally recognized relationship that allows an attribution of one person’s behavior to another. This carryover process is two-sided in that both benefit and burden inure to the parties involved in the agency relationship.
Under the basic doctrine of agency, the principal is allowed to reap the beneficial harvest of the agent’s actions made on his or her behalf. For example, assume an agent has agreed to be paid a set salary of $100 for selling certain kinds of goods. The principal gets to keep the net profits from that agent’s selling activities, be they $100 or $1,000,000. This net gain is what allows the use of agency theory to maximize one’s efficiency through the actions of others. Exponential growth of most any sort of enterprise is almost always directly tied to effective use of the talent of others through agency law. There are some limits on this ability to designate others to act on one’s behalf based on uniqueness of personal services or on public policy grounds that forbid use of agents, such as voting or serving a criminal sentence. As a practical matter, business as we know it today simply could not be conducted on any scale beyond sole proprietorship without extensive use of agency relationships.
II. Chapter Objectives
• Define an agency.
• Identify and define a principal-independent contractor relationship. • Describe how express and implied agencies are created.
• Define apparent agency.
• Describe how an agency is terminated.
III. Key Question Checklist
• How was the agency relationship created?
• What definition best fits the agency relationship?
• If there is not an agency, is there a principal/independent contractor relationship? • How will the agency be terminated?
IV. Text Materials
Introduction to Agency Formation and Termination
Business people use agents to conduct their business activities.
Agency relationships are fiduciary relationships formed by mutual agreement between the principal and an agent. The principal employs the agent to act on his or her behalf.
Persons Who Can Initiate an Agency Relationship – Agents can be appointed by any person who has contractual capacity. The court may appoint a legal guardian to handle the affairs of anyone who lacks capacity. Agency contracts can only be created for lawful purposes.
Principal-Agent Relationship – The principal hires an employee and gives him/her the authority to act on the principal’s behalf. The authority is limited to any express agreement between the parties or implied by the...