MGT 401 - Detailed Study Guide on Agency Law
Agency Terminology
Agency: A legal relationship in which one party (the agent) agrees to act on behalf of another (the
principal). Principal: The person or entity who grants authority to the agent to act on their
behalf. Agent: A person authorized to act for or in place of the principal. Fiduciary Relationship:
A relationship of trust where the agent must act in the best interest of the principal.
Types of Agency Relationships
1. EmployerEmployee (MasterServant): The principal (employer) controls the work of the agent
(employee), who is subject to supervision. 2. Independent Contractor: An agent hired to perform a
task but who maintains control over how it is completed. 3. Power of Attorney: A legal document
allowing the agent to make decisions on behalf of the principal (e.g., for finances or health).
Employee vs. Independent Contractor
Legal significance: Determines tax obligations, liability, and legal protections. Factors courts
evaluate: - Control over details: Does the principal control how tasks are done? - Distinct
occupation: Is the worker part of an independent trade? - Tools: Who provides the equipment? Duration: Is the work ongoing or project-based? - Payment: Paid by time (employee) or by task
(contractor)? - Skills: Specialized skills suggest contractor status.
Agents Duties to Principal
1. Performance: The agent must carry out duties with care and competence. 2. Notification: The agent
must inform the principal of relevant information. 3. Loyalty: No conflicts of interest; no
competition with the principal; maintain confidentiality. 4. Obedience: Follow all lawful
instructions. 5. Accounting: Keep proper records and handle funds honestly.
Principals Duties to Agent
1. Compensation: Pay the agent as agreed. 2. Reimbursement: Cover expenses the agent incurs while
acting within their authority. 3. Indemnification: Protect the agent from legal liability for
authorized actions. 4. Cooperation: Provide assistance and not obstruct the agents work. 5. Safe
Conditions: Maintain a safe environment when applicable.
MGT 401 - Detailed Study Guide on Agency Law
Agents Authority
1. Actual Authority:
- Express: Clearly granted (written or oral).
- Implied: Arises from job
title or customary practices. 2. Ratification: When the principal accepts an unauthorized act of the
agent after it occurs.
- Conditions: Must be aware of all material facts, accept the full act,
and have legal capacity. 3. Apparent Authority: When a third party reasonably believes the agent is
authorized due to the principals conduct. 4. Operation of Law: Authority arises in emergencies to
prevent loss or damage to the principals interests.
Disclosure of Principal & Contract Liability
1. Fully Disclosed: Third party knows the agent represents a known principal.
- Result: Principal
is liable, agent is not. 2. Partially Disclosed: Third party knows theres a principal but not who.
- Result: Both agent and principal may be liable. 3. Undisclosed: Third party doesnt know the agent
represents a principal.
- Result: Agent is liable; principal may also be liable once revealed.
Contract Liability Scenarios with Examples
1. Actual Authority + Fully Disclosed: Principal is liable. Example: Store manager buys supplies
with authorization. 2. Apparent Authority + Fully Disclosed: Principal is liable based on
appearance. Example: Agent signs contract using company letterhead. 3. No Authority + Disclosed:
Agent is liable. Example: Employee signs unauthorized contract and principal disavows it. 4. Actual
Authority + Undisclosed: Both liable. Example: Buyer signs a deal with agent unaware a company is
behind it. 5. No Authority + Undisclosed: Agent alone is liable.
Tort Liability
Principals are liable for torts of agents if: - Conduct was within scope of employment - The agent
was acting under actual authority Doctrine of Respondeat Superior applies: 'Let the master answer'
principal is vicariously liable for employees' actions.
Special Cases: Torts and Exceptions
- Frolic: Major personal detour no liability for principal. - Detour: Minor deviation possible
liability. - Intentional torts: Principal only liable if they negligently hired or supervised the
agent. - Contractors: Principals not liable unless activity is inherently dangerous or they were
MGT 401 - Detailed Study Guide on Agency Law
negligent in hiring.
Termination of Agency
To fully terminate an agent's authority: - Notify the agent (ends actual authority). - Notify third
parties (ends apparent authority). Failure to notify may lead to continued liability due to
lingering apparent authority.