PART IV

AGENCY: THE CONDUCT OF BUSINESS THROUGH REPRESENTATIVES

CHAPTER X

PRINCIPAL AND AGENT

116. Agency its divisions and problems. Agency is a term signifying the legal relations established when one man is authorized to represent and act for another and does so represent and act for another. Most of the things that a man may do in person he may do through a representative. An individual often does, and a corporation necessarily must, employ persons to transact affairs and perform services essential to the proper conduct of a business. A single concern often has hundreds and even thousands of such employees. In an era of large business enterprises like the present the subject of agency is one of the most important in the whole range of business law.

The acts which a representative may perform for his employer fall into two classes: (1) the making of contracts for the employer; (2) the doing of operative or mechanical acts in the service of the employer. In order to mark the distinction the subject is divided into two corresponding heads, the law of principal and agent and the law of master and servant. In the first there are three persons involved, namely, the principal, the agent, and the third party with whom the agent brings the principal into contractual relations. In the second there are normally but two persons involved, namely, the master and the servant; but if in performing the assigned service the

servant causes some injury to a third person, then three persons become involved.

In either class the relation itself is generally created by contract. The employer engages to pay an agreed compensation and the employee engages to perform agreed services; but an employee (agent or servant) may act gratuitously. So far as third parties are concerned the important question is whether the agent or servant was authorized to act, not whether he was promised compensation for doing so. If the agent or servant was not authorized, the principal or master would not be liable for what was done unless the act was subsequently ratified. Prior authorization or subsequent ratification is therefore the basis of a principal's or master's liability. The main problem of agency is to discover when and under what circumstances a man is liable for the acts of another who represents him or assumes to represent him.

The problem is not an easy one. If an employer were liable only for the specific acts which he expressly authorizes or ratifies, there would be little difficulty. But the law may hold a principal liable for a specific contract which he never authorized, or which he even forbade, upon the ground that he held his agent out to the world as authorized to make such contracts; in other words, it estops him from denying that an agent had the authority which he led others reasonably to suppose that such agent possessed. And it may hold a master liable for a specific act of a servant which was unauthorized or forbidden, upon the ground that the act was performed in the course of the business intrusted to the servant and in the furtherance of it.

Examples: 1. P authorizes A to travel and sell goods for him as his agent, but forbids A to hire a horse on credit, furnishing A with funds for the purpose. A hires a horse on the credit of P while traveling about P's business. P is liable. The general power conferred to travel and sell goods carries with it, as to third persons, the incidental power to contract for the means necessary to this end. This cannot be limited by secret instructions to the agent.

2. P intrusts A with goods to sell, but forbids A to receive the payment. The buyer pays A, who absconds with the money. P cannot recover again

from the buyer. An agent having possession of goods with power to sell them has implied authority to receive payment. But if the agent has not possession of the goods which he sells he has no implied authority to receive payment.

3. M tells S, his servant, to drive a load of goods to the railway station. S drives negligently and injures C. M is liable because S was about M's business.

4. As above. C is blocking the road. S becomes angry and drives his wagon into and injures C's wagon. If S does this to further M's business, that is, to get the goods sooner to the station, M is liable. If S does it solely to vent his own spite, M is not liable. This is a question for the jury.

I. APPOINTMENT OF AGENTS

117. Who may appoint agents. Generally speaking, a person competent to make any contract is competent to appoint an agent by contract or ratification.

1. Infants. An infant's contracts are usually voidable at the election of the infant; they are not absolutely void. It is sometimes said, however, that his appointment of an agent is absolutely void; but this rule is now generally confined to one form of appointment, namely, by a formal sealed document known as a "power of attorney." The decided tendency of the courts is to hold the appointment of agents by infants, in any other form, to be voidable at the infant's election, like his other contracts. Thus an agency to sell the infant's horse would be voidable, while a power of attorney to sell and convey his lands would by most states but not by all be held void and of no effect. There seems to be no sound reason for such a distinction.

2. Insane persons. An insane person's contracts are voidable by him or his guardian if he has been judicially declared to be insane or if the other party to the contract knew him to be insane. In other cases the contract is binding if it has been so far executed that the other party to it cannot be put in statu quo. Perhaps a deed by an insane person is absolutely void. If an insane person, not adjudged to be so, appoints an agent by a formal "power of attorney," this may be void; but in any other case the third person who contracts with the agent in

good faith, with no notice of the principal's insanity, would be protected from loss thereby.

3. Married women. At common law a married woman could make no contracts in person, and could not therefore appoint an agent. But under the modern married women's acts, a married woman may generally contract as freely as an unmarried woman, and so far as she may make contracts in person she may appoint agents to make them for her.

4. Corporations. Corporations can act only through agents. The directors are the chief agents, and they may appoint such additional agents as are authorized by the charter or as are necessary to carry out the objects authorized by the charter (see sec. 150 post).

5. Unincorporated associations. Unincorporated associations, such as clubs and other societies, are not legal entities like corporations. If they appoint agents, the members individually and collectively are the principals so far as they authorized the appointment. Such authority may be gathered from the constitution and by-laws to which each member assents, or may be found in a specific vote of a meeting at which members were actually present. If the constitution provides that a majority vote shall bind all members, assent to the constitution is assent to any action thus taken under it. An agent or committee of a club may be personally liable when the other members are not.

Example 1. A college class voted to publish an annual and elected A business manager. A contracted with C for the printing. All the members of the class were present at the meeting except G. All are liable to C except G. If H had been present and had voted against the publication, the question whether he was also liable would be determined by a finding as to whether H acquiesced in the decision of the majority.

6. Partnerships. In a partnership each member is both principal and agent. Each is liable as principal for the acts of the other partners within the scope of the partnership business, and each by acting as agent for the partnership may bind them. One of the implied powers of a partner is to appoint necessary agents. If rightfully appointed, an agent may by his acts bind the partnership.

7. Subagency. A principal, P, may empower an agent, A, to employ a subagent. If under such authority A appoints B as subagent, B becomes agent of P. If there is no authority to appoint a subagent, the agent must act personally in all matters involving judgment, skill, or discretion, but may delegate merely ministerial or mechanical duties to another. In such a case the subordinate is the agent not of the principal but of the agent, and the latter is liable to the principal for any default of the subagent.

118. Who may be an agent. Any person may be an agent and be vested with authority to bind his principal. An infant, a married woman, and probably a lunatic may be the instrumentality for bringing the principal into contractual relations with third parties. If the principal chooses and empowers an agent, he must be responsible for the results.

A principal may appoint joint agents. Ordinarily joint agents must act jointly; but if a partnership is acting as agent one partner may act alone, and if a corporation is acting as agent a majority of the directors may decide for all.

119. Form of appointment. Generally an agent may be appointed by parol. To this there are two exceptions.

1. The Statute of Frauds in a few states requires that where a contract between P and C must be in writing and signed by P or his agent, the latter's authority to sign shall also be in writing. This is not generally found in the statute. As between the principal and agent, a contract of agency not to be performed within one year must be in writing; but if an agent acted under a parol contract the principal would as to third persons be bound by the agent's acts.

2. Where the contract between the principal and a third person is required to be under seal (as a conveyance of lands), the authority of the agent to execute the contract must also be under seal. Such a formal authorization is commonly called a "power of attorney." A power of attorney may be used in any case.

120. Ratification. Ratification consists in assenting to an act done in one's name or on one's behalf either by a person who had no authority to represent one at all or by a person who