Business Law and the
Regulation of Business
Chapter 29: Relationship of Principal and Agent
By
Richard A. Mann
&
Barry S. Roberts
Topics Covered in this Chapter
A. Nature of Agency
B. Creation of Agency
C. Duties of Agent to Principal
D. Duties of Principal to Agent
E. Termination of Agency
Nature of Agency
Definition of Agency – relationship
authorizing one party (the agent) to act
for and on behalf of the other party (the
principal).
 Scope of Agency Purposes –
generally, whatever business activity a
person may accomplish personally he
may do through an agent.

Other Legal Relationships
Employment Relationship – one in
which the employer has the right to
control the physical conduct of the
employee.
 Independent Contractor – a person
who contracts with another to do a
particular job and who is not subject to
the control of the other.

Creation of Agency
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Formalities – though agency is a
consensual relationship that may be formed
by contract or agreement between the
principal and agent, agency may exist
without consideration.
Requirements – no particular formality
usually is required in a contract of agency,
although appointments of agents for a period
of more than one year must be in writing.
Duties of Agent to Principal
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Duty of Obedience –agent must act in the
principal's affairs only as authorized by the
principal and must obey all reasonable
instructions and directions.
Duty of Diligence –agent must act with
reasonable care and skill in performing the
work for which he is employed.
Duty to Inform –agent must use reasonable
efforts to give the principal information
relevant to the affairs entrusted to her.
Duties of Agent to Principal
Duty to Account –agent must maintain
and provide the principal with a true and
complete account of money or other
property that the agent has received or
expended on behalf of the principal.
 Fiduciary Duty –agent owes a duty of
utmost loyalty and good faith to the
principal.

Duties of Principal to Agent
Compensation – a principal must
compensate the agent as specified in
the contract, or for the reasonable value
of the services provided, if no amount is
specified.
 Reimbursement – the principal must
pay back to the agent authorized
payments the agent has made on the
principal's behalf.

Duties of Principal to Agent
Indemnification – the principal must
pay the agent for losses the agent
incurred while acting as directed by the
principal.
 Tort Duties – include the duty to
provide an employee with reasonably
safe conditions of employment and to
warn the employee of any
unreasonable risk involved in the
employment.

Duties of Principal and Agent
Duties of P to A
Compensation
Reimbursement
Indemnification
authorizes agent to act
P
A
agrees to act
Duties of A to P
Obedience
Diligence
Loyalty
Termination of Agency
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Lapse of Time
Fulfillment of Purpose
Mutual Agreement of the Parties
Revocation of Authority
Renunciation by the Agent
Operation of Law
Death – of either the principal or the agent
Incapacity – of either the principal or the
agent
Change in Circumstances
Loss or Destruction of the Subject Matter
Change in Law
Termination of Agency
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Bankruptcy – bankruptcy of a principal
usually terminates all of his agency
relationships; if the credit of the agent is
important to the agency relationship, the
relationship will be terminated by the
bankruptcy of the agent.
Disloyalty of Agent
Outbreak of War
Irrevocable Agencies – an agency coupled
with an interest is irrevocable and occurs
where the agent has a security interest in
the subject matter of the agency.