agency

/ay"jeuhn see/, n., pl. agencies.

1. an organization, company, or bureau that provides some service for another: a welfare agency.

2. a company having a franchise to represent another.

3. a governmental bureau, or an office that represents it.

4. the place of business of an agent.

5. See Indian agency.

6. an administrative division of a government.

7. the duty or function of an agent.

8. the relationship between a principal and his or her agent.

9. the state of being in action or of exerting power; operation: the agency of Providence.

10. a means of exerting power or influence; instrumentality: nominated by the agency of friends.

[1650-60; < ML agentia, equiv. to L ag- (root of agere to do, act, manage) + -entia -ENCY]

Syn. 10. intercession, good offices.

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I

In law, a relationship in which one party (the agent) acts on behalf of and under the control of another (the principal) in dealing with third parties.

It has its roots in ancient servant-master relations. Agency becomes a legal issue when the agent injures or wrongs a third party. In Anglo-American law, principals are bound by and liable for the acts of such agents as stockbrokers, business agents, contractors, real-estate agents, lawyers, union representatives, managing partners, and private detectives. See also regulatory agency.

II

(as used in expressions)

Central Intelligence Agency

Environmental Protection Agency

European Space Agency ESA

International Atomic Energy Agency

mercantile agency

National Security Agency

news agency

Pinkerton National Detective Agency

Railway Express Agency

regulatory agency

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▪ law

Introduction

      in law, the relationship that exists when one person or party (the principal) engages another (the agent) to act for him—e.g., to do his work, to sell his goods, to manage his business. The law of agency thus governs the legal relationship in which the agent deals with a third party on behalf of the principal. The competent agent is legally capable of acting for this principal vis-à-vis the third party. Hence, the process of concluding a contract through an agent involves a twofold relationship. On the one hand, the law of agency is concerned with the external business relations of an economic unit and with the powers of the various representatives to affect the legal position of the principal. On the other hand, it rules the internal relationship between principal and agent as well, thereby imposing certain duties on the representative (diligence, accounting, good faith, etc.). The two relationships need not be in full conformity. Thus, an agent's effective powers in dealing with outsiders may extend to transactions that he is under a duty to his principal not to undertake, leading to a situation characterized as “apparent authority.”

      Agency is recognized in all modern legal systems (comparative law) as an indispensable part of the existing social order. It fulfills the most diverse functions in both public and private law; in particular, it assists in organizing the division of labour in the national and international economy by making it possible for a principal greatly to extend his individual sphere of activity by having one or more persons act for him. In addition to the individual principal, a principal may be composed of a group of persons carrying on a trade or business by way of a partnership, a registered company, or another kind of corporate entity. The need for legal representation in some form has therefore increased as business units have come to involve transactions conducted at a distance (through the use of factors, or commercial agents) or have grown in size (as in the case of the firm, the house, and the corporation). Continental law additionally allows the use of legal representatives, such as the father, mother, guardian, or curator (curateur, tuteur), to enable minors, insane persons, and other legally incapacitated persons to act. Although a similar category of “authority by law” is not unknown in common law, powers based on family relationships are scarce and appear in only a few cases.

Historical development

Roman law

      Because concepts grow primarily out of specific situations that have occurred and social needs that have arisen, the doctrine of legal representation developed differently in different times and places, sometimes even within a single legal system. At first it seemed unthinkable that an agent, by making a contract with a third party, could create obligatory rights and duties between a third party and a principal. Even the official law of the Roman Empire (Roman law) never fully recognized the principle of representation. The explanation for this rejection lies mainly in the early Roman conception of a contractual obligation as a personal relationship binding the parties in some quasi-mystical way. This type of relationship allowed creditors in some instances to seize the possessions—and in very early times also the person—of the debtor. Usually the formation of such a relationship between two parties took place in a solemn ceremony at which both parties had to be present, certain formal words spoken, and definite acts performed. In such a situation it was impossible to confer right or duties on a third party. On the other hand, the head of the household could transact business through his slaves (slavery) or his dependent sons, who were not conceived of as agents but as “long arm” extensions of the contracting master or father. Because of the wide prevalence of slavery, there was no great need for a true agency relationship. As Roman law later developed, the formalities connected with creating legal relationships became less important, and the need for personal representation in commerce increased. In the meantime, however, legal theory and practice had developed so many ways to evade the problem that there was no longer an urgent need for Roman law to overcome its stark conservatism and to develop a legal institution that it had earlier opposed.

Medieval influence of canon law and Germanic law

      Labouring under the influence of Roman law, legal development in the Middle Ages strove to overcome disadvantages in daily commercial life caused by the Roman rejection of the principle of agency. Through the efforts of legal scholars (glossators and commentators), Roman law was further developed by means of extensions, emphases, and exceptions—a process already sanctioned by the Romans themselves. Additional impetus for change came from Roman Catholic Church canon law. Although manifestly structured after Roman civil law, canon law had its own special development, influenced by Hebraic theological concepts. Certain writers succeeded as early as 1200 in constructing a type of agency relationship based on the position of procurator, a relationship intended to solve the representation problem in all except legal matters. The issue nevertheless remained in dispute.

      About this time, the doctrine of principal and agent developed in England as an outgrowth or expansion of the doctrine of master and servant. Anglo-Norman law (Germanic law) created the figures of ballivus and attornatus. His position in the household of his master empowered the ballivus to transact commercial business for his master, reminiscent of the power of the slave to bind his master under Roman law. Later the ballivus was given more authority, especially in his frequent role as land administrator, gradually becoming competent to act independently for his master. On the other hand, the attornatus, originally just a representative of one of the parties in litigation, soon assumed a position of broader importance. Certain contracts were effective only when made in a judicially prescribed manner. For this reason, the formation of this type of contract always had to be concluded in a court proceeding in which an attornatus represented each party. This was the beginning of the role of the attornatus as a general agent.

Modern developments

 Recognition of the principle of agency in the field of civil law was finally achieved in continental Europe during the ascendancy of natural law in the 17th century. By this time, however, new objections grounded in state law, feudal law, and the question of the general reasonableness of agency had to be overcome. Hugo Grotius (Grotius, Hugo) in his best-known work, De Jure Belli ac Pacis (1625; On the Law of War and Peace), explained that on the basis of his mandate a procurator could acquire rights directly for his principal. He thereby overcame the Roman rule that allowed slaves and dependent sons, but not free persons, with two exceptions, to act directly for the head of the household. Grotius simply maintained that this rule did not contradict natural law. In another work, Defensio Fidei Catholicae, Grotius added, in a theological context, that the principle of agency is based not on essential natural law but on nonessential natural law; that is, agency is not demanded by the nature of things but must only correspond to and be adapted to the nature of things.

      The codifications of the subsequent age of rationalism recognized the principle of representation. The Prussian Civil Code (1794), the French Napoleonic, or Civil, Code (1804), and the Austrian General Civil Code (1811) nevertheless regarded agency as an aspect of mandate and the power to act as an agent to be derived solely from that concept.

      A similar dualism governed the English development of the doctrine of principal and agent, in large part because of the new doctrine's dependence upon that of master and servant. The jurists of the 18th century, employing the phrase qui facit per alium, est perinde ac si facit per se ipsum (“whoever acts through another acts as if he were doing it himself”), made much use of the fiction of identity. In contrast, 18th-century commercial law, which at the end of the Anglo-Saxon period had split off from the main body of common law and had been allowed to develop under less-stringent controls, modified numerous feudal common-law concepts. In particular, it brought a legal flexibility allowing the law of agency, which had grown from three independent common-law roots—one relating to actions of debt and assumpsit (informal contract), another connected with the action of account, and the third deriving from deeds—to adapt itself to the peculiar problems and requirements of an individual case. Through this commercial influence, the concept of undisclosed agency, an especially important mode of representation in commercial transactions in which the agent appears to be the principal, developed alongside open agency representation in English law. Thus, even when a principal with the real economic interest in the transaction remained concealed, claims for and against him began to be recognized, whereas in continental law the necessity for the agent to act openly in the name of the principal retained a more fundamental importance in the general doctrine of contracts. English law attempted to relate agency rules more closely to the everyday needs of the principal–agent relationship, in contrast to the conceptually systematic and more narrowly confining treatment of agency in continental European law (civil law). As Alfred Conard, a modern writer, has observed, agency came to be a legal institution in English and North American law, “knitting together the whole subject of the employment of one man by another, whether for one job or for life, and whether on commission or on payroll.”

      While the first practical treatises on agency in England, by William Paley, and in the United States, by Samuel Livermore and Joseph Story, appeared early in the 19th century, in continental Europe the doctrines of the theoretical jurists continued to play their traditional leading role in the development of this branch of the law. A particularly important distinction in the European law of agency was made in the second half of the 19th century by the legal scholars Rudolf von Jhering (Jhering, Rudolf von) and Paul Laband. Before them, agency was viewed solely in terms of the relationship binding the principal, the person being represented, and the agent, the person representing; that is, agency was equated with the relationship created by the mandate given to the agent. Jhering and, especially, Laband were the first to distinguish sharply between the agent's power to create legal rights and obligations for his principal and the inner contractual relationship governing the personal rights and duties between principal and agent. This distinction was largely adopted by the continental European legal systems and was codified in several countries.

      Nineteenth-century legal theory also strengthened the so-called disclosure principle (Offenheitsprinzip), according to which the acts of an agent have direct legal implications for the principal only when the agent makes it known to the third party by acting in the name of his principal that he acts for him and not for himself. Only in such a case can there be direct representation—where the principal alone is the party to the contract—in contrast to indirect representation. Thus, this distinction became, to varying degrees, a common element in the individual civil-law systems.

      Anglo-American law, more realistic in this area and standing on different dogmatic grounds, was not influenced to the same degree by such principles, although it was also long plagued by refined doctrinal distinctions, such as the contrast between general agents, with whom an outsider could deal with moderate safety, and special agents, whose powers the courts viewed very narrowly. At this stage of development the remaining feudal elements in the English law of agency, whose prototypes had remained the servant and the steward of a lord, were largely eliminated. Because of the increasing complexity of most modern commercial transactions, the significance of the various types of representatives grew to the point where agency had become one of the most important of modern legal relationships. The agent had come to be seen as an instrument of the principal without personal responsibility, a view which developed still further the responsibility of the principal for the misconduct of his agent.

      Reflecting the generally more realistic attitude of contemporary private law, the modern treatment of agency has retreated from the somewhat artificial conceptualism of the 19th century and has emphasized the actual commercial and social context. Tendencies both to apply general solutions to broad types of cases and to provide specific solutions in the more unique individual cases have produced further refinements in the law of agency. The continuing shift to more complex business units, accompanied by developments in marketing practices, has required solutions more appropriate to modern business necessities. In addition to a reassessment of the relationship between mandate and authority to act for the principal, new questions are being asked concerning the proper role of this kind of authority in relation to the legal and social functions of representation that it serves. Accordingly, the mere fact of one's external position, which without authority cannot properly be used, has been increasingly acknowledged as an independent ground for recognizing an agent's power of representation.

      At the same time that modern society's concern for third persons' rights has led to recognition of powers of position, thereby making an agent's power of representation less dependent upon the will of his principal (the latter being bound in these cases whether or not he wishes to be), a better view of private autonomy, as expressed in the act of authorization, sees a fundamental connection between the agent's act and the will of his principal in the legal transaction as a whole. In this view the authorization by the principal and the act of the agent are not two independently complete legal transactions carried out in isolation from each other. Rather, they are two parts of an extended legal event, which would consist of a single act if no agency were involved. Thus, when the principal uses the help of an agent, the offer, which is usually made by a single act, becomes divisible into two parts (the authorization and the action of the agent). Without such a connection, agency in private law, as it is understood today, would be largely incompatible with the principal's own autonomy.

The rules of different systems

      In order to compare agency in continental and Anglo-American law, the principal types of agency that have developed in practice should be noted.

The continental “commercial agent” and his functions

      The four main types of agent engaged in business activities in continental Europe can be identified as follows:

Commission agent (German Kommissionär, French commissionaire, Italian commissionario)

      The commission agent accepts or sells goods for the account of his principal, but in his own name. He is independent of his principal, has a claim for his commission, and, except in France, has the right when dealing with certain goods to conduct the transaction as he sees fit. The forwarding agent (German Spediteur, French commissionaire de transport, Italian spedizioniere) ships goods in his own name for the account of his principal and therefore is a type of commission agent.

Commercial agent (German Handelsvertreter; French agent commercial, or voyageur, or représentant et placier; Italian agente)

      The commercial agent negotiates and concludes contracts on behalf of his principal. Although the degree of his independence from the principal varies, he is never totally independent. While Italian law limits such an agent's activities to a specific geographic region, German law has such limitations only for the Agent, a subclassification of the general commercial agent who remains unrestricted in this regard. Apart from several protective rules, the French commercial agent is subject to the general rules governing the mandate.

Broker (German Mäkler, French courtier, Italian mediatore)

      The broker is a business agent who is completely independent of his principal. In the area of employment brokerage or placement services, most European countries have passed special regulatory legislation to protect the interests of those persons using such services to seek employment.

Sales representative

      The sales representative is a dependent employee of a merchant who concludes contracts for the merchant outside the business establishment. Most European legal systems have no special provisions governing such an agent but rather treat the position under the general rules governing dependent commercial employees (e.g., those governing German shop assistants, or Handlungsgehilfen).

The variety of Anglo-American agents

      Various kinds of agency relationships are evident in Anglo-American commercial life. The factor and the broker are the most common mercantile agents dealing in transactions involving personal property. The factor is entrusted with possession of the chattels to be sold, or the documents of title thereto, and is empowered to conclude the sale at the best price obtainable. The broker, on the other hand, has no possession of the object of sale but is empowered to make contracts for the purchase or sale of personal property on behalf of his principal. More limited are the powers of the real estate agent, who may show the land and state the asking price to the potential buyer without ordinarily being empowered to make further representations. The store salesman is similarly restricted in his power to represent his principal and can usually do no more than make customary warranties and sell at the price fixed by his employer. In contrast, the traveling salesman not in possession of the goods normally has authority only to take orders, which are in effect mere offers to buy and are not binding on either party until the principal has accepted. The auctioneer is usually empowered to do no more than sell at the highest price bid.

      The common function of a second large class of agents is managerial or administrative. The manager of a business has the widest authority of all business agents and normally has complete control of all normal operations of the business. The agent employed to manage investments has a duty to deal only as would a prudent investor with reference to the principal's personal financial situation. The powers of the agent entrusted with his principal's land or chattels is more administrative; he has full power to protect the property and to make it profitable, but he may not sell or encumber it. Finally, the attorney at law may do what is necessary to advance his client's interests and may incur the necessary expenses in so doing but, unless specifically authorized, may not release any substantive rights of his client.

Apparent authority and related questions

      If the principle of private autonomy were uncompromisingly applied to the law of agency, only an actually authorized agent could create legal rights and obligations for his principal. The will of the principal would then precisely define the boundaries of the agent's competence; however, a third party cannot always make a reliable determination of whether the agent has acted within the scope of this authority. Rather, he must often rely upon the principal's manifestation of the agent's authority, which may go beyond the more restricted authority actually communicated by the principal to the agent. Often he must rely upon the fact that the agent holds a certain position, such as wife, partner, or employee, in the belief that the normal incidents of authority implied by such a position are present, even though special restrictions on the agent's authority may have been made. And sometimes a third party must rely upon an earlier declared authorization that has since been revoked internally by the principal. Obviously, a third party cannot be expected to check all the details of the agent's internal authorization, especially since representation makes sense only when it functions efficiently and since use of an agent is also for the benefit of the principal. Therefore, the risk that the agent has acted without power of representation must be apportioned between the principal and the third party, with individual factors determining who must bear it in a particular case. This compromise is the subject of the doctrine of apparent authority.

      It is obvious that the expression apparent authority is inappropriate since in none of the above cases is the competence of the agent illusory. With respect to the third party, at least, the authority of the agent is no less real than it would be if it were in conformity with the will of the principal. The distinction between apparent and real lies rather in the justification of the agent's acts in relation to the principal. In contrast to apparent authority, real authority is more than mere power of an agent, for along with the agent's legal power “looking out” (posse) stands his privilege “looking in” to the lawfulness of his conduct (licere). In the case of a real authority, power and privilege to exert the power are coextensive as against the principal, while, in the case of apparent authority, the agent has only the external legal power to perform without the corresponding internal justification vis-à-vis the principal.

      Although the expression apparent authority spread from continental Europe, where it was used by, among others, the influential French classicist Robert Pothier (1699–1772), into English law, where Lord Ellenborough applied it in Pickering v. Busk (1812), its development in the two legal systems was independent and went systematically different ways. Nevertheless, the results obtained in concrete situations by the courts of both systems often seem rather similar. A similar disparity marked the development of the doctrine within Europe itself, with the formulation of different rules in the French system, which largely identifies authority and mandate, and in the German system, which distinguishes the two ideas. Another general tendency that has arisen in both legal systems has been to objectify the more subjective aspects of the doctrine, thus making the legal consequences more certain and predictable. Today both Anglo-American and continental courts permit the legal consequences of an agency relationship to result even when the principal is not willfully responsible for the appearance of authority.

      Similar situations can also lead to opposite approaches in some matters. Here also it depends in the first instance upon whether the principal or the third party must bear the risk, since in general an agent acting without authority is not personally responsible. The question arises as to whether and to what degree the authority of the agent to bind his principal is affected by the death of the principal. According to the traditional English view (Campanari v. Woodburn; 1854), this event automatically terminates the agent's powers, irrespective of whether the agent or the third party knew or should have known of the death. While the rule originally might have rested upon the “fiction of identity” between principal and agent, today it is supported more by the technical argument that what a dead man cannot himself do, he cannot do through another, with further support garnered from the so-called doctrine of the meeting of the minds that is necessary for concluding a contract.

      In contrast, the continental legal systems have evolved less doctrinaire solutions to this question based more on considerations of protection of the concerned parties. Article 2008 of the French Civil Code (Napoleonic Code) even goes so far as to treat all transactions of an agent who acts in ignorance of the death of his principal as valid. The more balanced solution offered by the courts on the Continent, however, is to make the good faith of the third party the determinative factor, since in the usual case the real interest of the agent is simply to avoid any personal obligation.

Disclosed and undisclosed agency

      Continental European laws restrict the application of agency rules to cases where the agent acts openly in another's name. Thus, French jurists infer from article 1984 of their Civil Code, according to which agency is the act of the agent pour le mandant et en son nom (“for and on behalf of the principal”), the negative conclusion that in case an agent does not disclose that he is acting as an agent for a principal, the consequences touch only the “agent” himself. The hidden principal is not concerned by the effects of the transaction at all. Section 164 of the West German Civil Code expressly provides that “an agent, who acts without disclosing the fact that he is acting as agent, is the only one to acquire any rights and is exclusively personally liable.”

      In contrast to the continental view, when an agent contracts in his own name without disclosing his principal, the common law allows the undisclosed principal under certain conditions to sue or be sued by the third party. Such conditions include that the agent had power to make the contract and that the parties eventually learn their respective identities. This wider concept of agency has no counterpart in continental legal tradition.

      The use of this basic doctrine in the common-law countries gives rise to questions regarding the identity of the undisclosed principal, the election of remedies that must be made by the third party, the extent of the respective liabilities, the right of the third party to setoff (the amount of its own damages from any sum that might be awarded it), etc. A solution to these conflicts of interests must in final analysis rest upon an evaluation of the extent to which the relationship between the undisclosed principal and the agent should influence the contract made by the agent with a third party.

The external, unilateral act of authorization

      It is still a characteristic feature of the French Civil Code and of other codifications following its model (for instance, those of Spain, Portugal, Romania, and Brazil and other Latin-American countries) that agency is not recognized as an isolated institution. These legal systems conceive of agency only as a subordinate instance or external effect of mandate. The result is that they consider the power to act as an agent as a mere part of mandate and do not have a general concept of authorization as a distinct legal institution. In contrast to this approach, the more modern codifications of Scandinavia and of such countries as Germany, Switzerland, Japan, Poland, Italy, and Greece draw a sharp distinction between the unilateral organizational act on the part of the principal authorizing the agent to act and the internal contractual relations between the principal and the agent. This distinction, one of the major achievements of 19th-century European legal scholars, is also followed by modern English and American legal writers, even though the classical concept of mandate is unknown in the common law.

      The insight that authority can exist independent of the underlying contract, and even without it, opens several new practical possibilities. For example, it explains the rule that the authorization of a minor can be valid if he is in fact mentally and physically capable of transacting business, even though the minor is not competent himself to conclude the (internal) contract of employment for himself that establishes fiduciary duties. Thus, the minor is not subject to the liabilities ex contractu (from or out of a contract) of an adult agent although he is authorized.

      A few countries still prescribe a special form for every authorization. According to the Russian (Soviet law) and Brazilian (Brazil) codes, for example, an authorization must be given in written form. This general rule, which has been mitigated to some extent by the courts, is influenced by a distrust of informality and by a concern “to protect the individual and to be better able to examine the lawfulness of a legal transaction.” The opposite tendency is followed to the extreme by the German Civil Code. It not only adopts the general principle of “freedom of form”—with the rare exception that a special form is required in those cases where a statutory article expressly prescribes it—but even states that the granting of authority need not be in the form prescribed for the judicial act to which the agency power relates. In spite of this express statutory language, German courts do require compliance with formalities in certain extreme situations under pressure of practical necessity, in order to avoid frustration of the aim of the formal requirement in the principal contract. This attitude thereby approaches the English rule according to which, in most cases, no particular formalities are required, even if the agent is to make an agreement for the sale or lease of land, an agreement that must be in writing. More attention to the connection between the authorization and the act of the agent appears in provisions like that of the Greek Code of 1940, which says that the authorization must take the form required for the legal transaction for which the authority is issued unless the particular circumstances lead to a different solution. Other modern codes like those of Poland and Italy do not even contain the “unless” clause and prescribe only that an agent's power of attorney (attorney, power of) must be granted with the formalities prescribed for the contract that is to be entered into by the agent.

The internal agency contract

      The internal bilateral relationship between principal and agent—apart from agency of necessity—rests upon what is commonly termed a “contract of agency.” This term encompasses all sorts of contracts of employment including gratuitous services (in those cases in which the agent is willing to render a friendly favour).

      This internal relationship between principal and agent must begin with an agreement, since otherwise the principal would have no rights against the agent—even the right to beneficial service presupposes the agent's consent to serve. The consent of the principal may be given expressly by a written power of attorney or implied by his conduct, such as an established course of dealing. Generally, the formation of the contract of agency requires no formal ritual. Moreover, in many cases the obligation to act as agent is only a part of the greater complex of duties that forms a person's job, profession, or office (for example, those of factors, bailiffs, attorneys, or brokers).

      The basic principle of agency is that the agent, in fulfilling his obligation, concludes legal transactions on the part of his principal. When these transactions result from the authorized legal acts of the agent, the result is that only the principal is bound by them. The competent agent himself remains outside the contractual relations with the third party (but compare “undisclosed agency” above) provided he has not also contracted for himself at the same time—for example, when the third party is not content with the principal's credit and insists upon having the agent's liability in addition to the principal's; in such a case the agent binds both his principal and himself. This general rule that the agent does not become involved may change in the exceptional case of an authorization conferred for the benefit of the agent. Thus, such an agent has been held personally liable by German courts for mistakes made in the course of contract negotiations (culpa in contrahendo).

Rights and duties between principal and agent

      Continental European codifications generally do not treat the contract of agency as a separate type of contract. The standards governing the principal–agent relationship must therefore be derived from the general legal rules governing the mandate, the contracts for performing work, employment contracts, and partnership contracts, together with the more specific rules (e.g., of the commercial codes) regulating particular agency relations and the individual transaction at hand.

      Differing from this general approach, the common law has recognized a number of more specific rights and duties between principal and agent. The principal must provide the agent with a regular opportunity for service under the contract of employment and has a positive duty to aid, and not inhibit, the agent's performance of such service. He must compensate the agent for his services, provided they are not gratuitously rendered (the agent's right of remuneration), and must account for those amounts due to the agent, including indemnification for economic loss suffered by the agent on account of the agency relationship (right of indemnity and right of lien by way of charge on the principal's goods in his possession). The principal also has the more abstract duty to conduct himself so as not to harm the agent's reputation.

      The primary duties of the agent to the principal are those of care, obedience, and loyalty—similar to those of a trustee. More specifically, the agent must act solely for the interests of his principal and therefore must account for any financial benefit (“secret profit”) he might derive from a transaction. It follows that it is a violation of an agent's fiduciary duty to his principal to have unrevealed interests adverse to those of his principal. He must not compete with his principal and may not use or disclose confidential information except for his principal's benefit. If an agent has received money or other property from or for his principal, he must account for it. An agent also may not normally delegate his task to a subagent, since the principal is assumed to have placed his confidence in the person of the agent and not in a subagent. Finally, the agent also has the abstract duty of conducting himself so as not to bring disrepute upon the principal.

Liability of principal for acts of agents

      Continental European law classifies the undertaking of transactions in the place of another as agency only when the transactions are legal. It excludes other acts, including unlawful acts, so that, when dealing with the law of agency, the rules concerning the liability of a master for the torts (tort) of his servant do not come into consideration.

      Following the lead of Justice Oliver Wendell Holmes, Jr., the opposite view has been taken in English and American literature. The predominant opinion treats the liability of a master for the tortious conduct of his servant as a part of agency law since these cases logically come within the maxim qui facit per alium, facit per se (“he who acts through another, acts himself”). The doctrine of respondeat superior (“that the master must answer”) is therefore treated as a part of agency law, even though the rationale behind the master's liability is that he has assigned to a servant under his control a task that unforeseeably results in damage to a third person. On the other hand, consequences flowing from an agency relationship rest on the idea that an authorized person performs legal acts within his competence not on his own behalf but for the principal. A growing view in the modern literature recognizes, however, that “the two basic relations are strange bedfellows.”

      According to English and American law, the liability of a principal for his agent's torts in the ordinary course of his employment depends upon the existence of a master–servant relationship. If the principal and agent stand in a master–servant relationship to each other, the master is vicariously liable for his servant's tortious conduct committed within the course of his employment irrespective of any personal fault on the master's part. This doctrine of respondeat superior arose from the belief that, since the head of the household or of the economic enterprise exercises control, he should pay for the harm caused by its members.

      Such a relationship presupposes a degree of physical control by the master over his servant, which may exist, for example, over the driver of the principal's delivery truck but is lacking over the principal's factor or broker. The other major limitation to the doctrine is that the servant's tortious conduct must be committed within the servant's course of employment. Generally, this includes conduct that is not a serious departure from that authorized, both in manner and space, by the master and that is actuated at least in part by a motive to serve the master. Under this principle, the master's vicarious liability extends in some instances even to claims arising from the servant's intentional torts.

      If no master–servant relationship exists between the parties, the principal's liability for the torts of his agent is far more restricted. For example, a principal is not liable for the harm caused by the negligent physical conduct of his nonservant agent. He is liable, however, for any other torts of his agent that either are authorized or the commission of which normally are made possible by the agent's position. The chief example of such conduct is tortious misrepresentation by the agent.

Termination of agency

      With the termination of actual authority, questions often arise as to whether the authority was usual, was special or general, arose out of necessity, or was also apparent. Questions concerning the external and internal agency relationships create special problems, particularly in this area. A principal's termination of the agency relationship does not necessarily have the same effect vis-à-vis the agent as it has with respect to the third party. It may be that the principal can terminate the real authority but not the apparent authority toward a third party.

      In theory, the principal may revoke the real authority of his agent or the agent may terminate his authority by renunciation or revocation at any time. If the revoking party has previously agreed not to do so, the revocation remains valid, but the other party may maintain a breach of contract action against him. The agency relation can also terminate by operation of law in case of death, insanity, bankruptcy, or war, particularly where the principal is concerned. The question then arises as to whether the unknowing agent is protected by the law, since he might be personally liable on the contract.

      A major exception to the principal's power of revocation occurs when the agent possesses “authority coupled with an interest.” Here the agent who has part ownership in something that is to be disposed of also has power to dispose of his principal's remaining interest in this thing. Such a power for the purpose of effectuating any security or of protecting or securing any interest of the agent cannot be revoked without the agent's consent.

Additional Reading

Oliver Wendell Holmes, “Agency,” in Collected Legal Papers (1920, reprinted 1985), pp. 49–116, is an Anglo-American treatment written from a historical point of view. W. Edward Sell, Agency (1975), discusses the basic principles of the law of agency. Comparisons between Anglo-American and civil law rules are offered in “Law of Agency,” The American Journal of Comparative Law, 6:165–188 (1957); and Konrad Zweigert and Hein Kötz, An Introduction to Comparative Law, 3rd rev. ed. (1998; originally published in German, 1971).Wolfram Müller-Freienfels

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