Agency Formation and Duties


  • Agency=Principal and Agent.
  • Agency is the most common and most important legal relationship.
  • Understanding agency is crucial to understanding the legal environment of business.
  • Principals use agents to be able to conduct multiple business operations simultaneously in various locations.  
  • The principal has the right to control the agent in matters entrusted to the agent.

Agency Relationships

  • Agency is a “fiduciary” relationship based on trust and confidence.
  • Distinguish Employee vs. Independent Contractor  Relationships.

Employer Liability.

Determining whether the worker is an employee or an independent contract affects liability of Principal/Employer.

  • Tax Liability: Employer liable if employee.
  • Contract Liability: Employer not necessarily liable.
  • Tort Liability: Employer liable for torts of employee within scope of employment.
  • Works for Hire.  
  • Case 31.1:  Graham v. James  (1998).

Formation of the Agency Relationship

  • Consensual Agreement.
  • No consideration required.
  • Principal needs contractual capacity, Agent does not.
  • For any legal purpose.

Types of Agencies

  • Agency by Agreement.
  • Agency by Ratification.
  • Agency by Estoppel.
  • Agency by Operation of Law.
  • Necessaries for family.
  • Emergency.

Agency by Agreement

Formed through express consent (oral or written) or implied by conduct.
Case 31.2:  Acordia of Virginia Insurance Agency v. Genito Glenn (2002).
Agency by Ratification
Principal either by act or by agreement ratifies conduct of a person who is not in fact an agent.

Agency by Estoppel

Principal causes a third person to believe that another person is the Principal’s Agent, and the third person acts to her detriment in reasonable reliance on that belief.

Agency by Operation of Law

Agency based on social duty is formed in certain situations when the Agent is unable to contact the Principal.

  • Necessaries.
  • Emergencies.

Agent’s Duties to Principal
Performance: reasonable diligence and skill (special skills).
Notification to P.
Loyalty (no conflict of interest).
Case 31.3:  American Express v. Topel (1999)

Principal’s Duties to Agent

  • Compensation (Express or Implied).
  • Reimbursement and Indemnification.
  • Cooperation.
  • Provide safe working conditions.

Rights and Remedies of Agents andPrincipals

Rights of Agents:

  • Right to compensation, reimbursement, indemnification and cooperation.
  • Agent can withhold performance and demand an accounting.
  • Agent can recover damages for past services and future damages.

Principal’s Rights and Remedies:

  • Contract remedies for breach of fiduciary duty and performance.
  • Can sue in tort: libel, slander, trespass, deceit, fraud.
  • Constructive Trust – money/ property agent steals from Principal.
  • Avoidance of contract if agent does not do as told.
  • Indemnification 


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Papoo Parmar

I am so simple and Like to do any special in my life in short way.

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