CHAPTER 28: RELATIONSHIP OF
PRINCIPAL AND AGENT
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TOPICS COVERED CHAPTER 28:
RELATIONSHIP OF PRINCIPAL AND AGENT
A. Nature of Agency.
B. Creation of Agency.
C. Duties of Agent to Principal.
D. Duties of Principal to Agent.
E. Termination of Agency.
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NATURE OF AGENCY
 Definition
• 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.
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NATURE OF AGENCY
 Other Legal Relationships.
• Employment Relationship – one in which
the employer has the right to control
the physical conduct of the employee.
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NATURE OF AGENCY
 Other Legal Relationships.
• Independent Contractor – a person who
contracts with another to do a
particular job and who is not subject to
the control of the other.
• DEL PILAR V DHL GLOBAL CUSTOMER
SOLUTIONS (USA), INC. (2008).
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CREATION OF AGENCY
 Consensual relationship between one
person (principal) and another
(agent). Consists of three basic
elements:
• Assent.
• Control by the Principal.
• Agent’s Acting on Behalf of the
Principal.
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CREATION OF AGENCY
 Gratuitous Agency.
• Agency created without compensation
to agent.
 Agency by Estoppel.
• Agency created when principal
intentionally or negligently gives a third
person a reasonable basis to believe
agency is created. 
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CREATION OF AGENCY
 Agency by Estoppel.
• Elements include:
• (1) a person (‘‘principal’’) intentionally or
carelessly causes a third party to believe that
another person (the ‘‘agent’’) has authority
to act on the principal’s behalf;
• (2) the principal has notice of the third
party’s belief and does not take reasonable
steps to notify the third party; 
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CREATION OF AGENCY
 Agency by Estoppel.
• Elements include:
• (3) the third party reasonably and in good
faith relies on the appearances created by
the principal; and
• (4) the third party justifiably and
detrimentally changes her position in
reliance on the agent’s apparent authority.
• MILLER V. MCDONALD’S CORPORATION (1997).
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CREATION OF AGENCY
 Formalities.
• Consensual relationship formed by
contract or agreement; agency may
exist without consideration.
• Power of Attorney.
 Capacity.
• Durable Power of Attorney.
• Agent’s Capacity.
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DUTIES OF AGENT TO PRINCIPAL
 Duty of Obedience.
• Agent must act in principal's affairs
only as authorized by the principal and
must obey all reasonable instructions
and directions.
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DUTIES OF AGENT TO PRINCIPAL
 Duty of Good Conduct.
• An agent has a duty to act reasonably
and to avoid conduct that is likely to
damage the principal’s interests or
reputation. A breach makes the agent
liable to the principal and subject to
rightful discharge or termination.
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DUTIES OF AGENT TO PRINCIPAL
 Duty of Diligence.
• Agent must act with reasonable care
and skill in performing his work.
 Duty to Inform.
• Agent must use reasonable efforts to
give the principal information relevant
to the affairs entrusted to her.
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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.
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DUTIES OF AGENT TO PRINCIPAL
 Fiduciary Duty.
• Agent owes a duty of utmost loyalty
and good faith to the principal.
• Conflicts of Interest.
• Self-Dealing.
• Duty Not to Compete.
• Misappropriation.
• Confidential Information. 
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DUTIES OF AGENT TO PRINCIPAL
 Fiduciary Duty.
• Duty to Account for Financial Benefits.
• DETROIT LIONS, INC. V. ARGOVITZ (1984).
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DUTIES OF PRINCIPAL TO AGENT
 Contractual Duties.
• 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.
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DUTIES OF PRINCIPAL TO AGENT
 Contractual Duties.
• 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.
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DUTIES OF PRINCIPAL TO AGENT
 Indemnification.
• The principal must pay the agent for
losses incurred while acting as directed
by the principal.
 Reimbursement.
• The principal must pay back to the
agent authorized payments the agent
has made on the principal's behalf.
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DUTIES OF PRINCIPAL TO AGENT
 Tort Duties – include the duty to
provide an employee with reasonably
safe conditions of employment and
to warn employees of any
unreasonable risk involved in the
employment.
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DUTIES OF PRINCIPAL AND AGENT
Duties of P to A
Compensation
Reimbursement
Indemnification
Good Faith
authorizes agent to act
P
A
agrees to act
Duties of A to P
Obedience
Diligence Good Conduct
Loyalty Account
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
TERMINATION OF AGENCY
 Acts of the Parties.
• Lapse of Time.
• Mutual Agreement of the Parties.
• Revocation of Authority.
• Renunciation by the Agent.
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TERMINATION OF AGENCY
 Operation of Law.
• Death – of either the principal or the
agent.
• Incapacity – of either the principal or
the agent (except with durable power
of attorney). 
• Change in Circumstances
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TERMINATION OF AGENCY
 Operation of Law.
• Change in Circumstances.
• GADDY V. DOUGLASS (2004).
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TERMINATION OF AGENCY
 Irrevocable Powers – an agency
coupled with an interest is
irrevocable and occurs where the
agent has a security interest in the
subject matter of the agency.
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