Putnam's Handy Law Book for the Layman

Agency. - Much of the business of our day is done by agents or persons who represent others. The most general division is into general and special agents. A general agent is one who has the authority to act for his principal or person he represents in all matters, quite as the principal himself could do; or in some of his matters. Thus if a principal had a farm he might have a general agent to act as his farmer; if he owned a mill, another general agent who had charge of it. If he had two mills, he might have a general agent for each, and so on.

A special agent is authorized to do a specific thing, to sell a home, buy a horse, or effect some particular end or purpose. While this distinction is plain enough in many cases, in others the lines run so close together that it is difficult to decide whether one is a general or special agent.

Whenever one acts as a general agent he is supposed to have all the authority that general agents possess and thus act for their principals, unless the person who is dealing with him knows of the restriction on his authority. Suppose one goes to the office of a general insurance agent to get insurance on his home. A policy is taken and afterwards, the house burns up. The company declined to pay because the agent made a lower rate than was authorized by his company. The insured however knew nothing about the restriction, and supposed that the agent had the same authority as other insurance agents concerning rates. The company would be obliged to pay. But if the [7]insured knew that restrictions had been put on the agent and that he was violating them in giving him the lower rate, the company would not be liable.

One who deals with a special agent must find out what authority he possesses; therefore more care is needed in dealing with a special than with a general agent. His authority must be strictly pursued. Thus it is said that a person dealing with him "acts at his own peril," is "put upon inquiry," "is chargeable with notice of the extent of his authority," "it is his duty to ascertain," "he is bound to inquire," "and if he does not he must suffer the consequences."

In some cases the law creates an agency. Thus an unpaid vendor of goods sometimes has authority to sell them, so has a pledgee of goods outside the authority conferred by the contract pledging them. A married woman whose husband does not supply her has limited power to buy necessaries on her husband's credit, which prevails notwithstanding any objection he may make. A minor sometimes has the same power.

A person can act as an agent for another who cannot act for himself. Minors therefore can thus act. Besides individuals, corporations often act for others.

The authority of an agent may be given in writing, a power of attorney so-called, or he may act, and often does, without written authority, especially a general agent. To this rule, there is one well-understood exception. If an agent is required to execute his authority to sign a deed or other writing, especially a sealed writing, his authority must also be equally great. In executing a deed therefore his authority must be in writing under seal, and when the deed is recorded, the agent's [8]written authority should also be recorded; this is the usual practice. If this is not done, some person who afterward wished to purchase the land might object because the recorded title was defective.

A particular usage or custom also affects an agent's powers. If the principal confers on him authority to transact business of a well-defined nature, bounded by well-defined usage and customs, the law presumes the agency was created with reference to them. This protection affects agents and third persons alike, the latter therefore who act in good faith in such dealings are protected against secret limitations of which they had no notice.

An agent has no authority to purchase his principal's property. To do this, in a sense, would be to purchase of himself. The temptation to do this is sometimes very great, too great for him to withstand, and so he resorts to a crooked method for accomplishing his end. He sells the property to another party who afterward sells it back to him. The worst violators of this principle have been railway receivers, who have taken advantage of their position to get control of the property entrusted to them at a sum much less than its real value. Such sales can be set aside by proper legal procedure. By the modern rule they are not void but are voidable, that is, can be set aside if the creditors or other interested parties wish to do so.

Whenever therefore one deals with a general agent and his authority is disputed, unless there be restrictions known to the person dealing with him, the liability of his principal turns on the answer to the general question, what authority do general agents like himself have. This is simply a question of fact, to be determined like every other [9]question of fact by the court in which the controversy is pending.

Another way of rendering a principal liable for the act of his agent is by ratifying it. Suppose "A" professed to be the agent of "B" in building a house for "C", and built it so badly that "C" sued "B" to recover damages, whose defense was, that "A" was not his agent. Suppose, however, that "B" accepted payment for the house, this would be a ratification of "A's" authority to act for "B" even if he did not have proper authority in the beginning. Suppose "A" had authority to sell goods for "B" but not to collect payment, and someone should pay him and he ran off with the money, could his principal still collect the money of the buyer of the goods? This is a hard case, and has happened many times. The buyer usually is required to pay the second time. But if "B", notwithstanding his direction to his agent not to collect payment, should receive it such conduct would operate as a ratification.

Whether the authorized act arises from a contract or from a wrong or tort, whoever with knowledge of all the facts adopts it as his own, or knowingly appropriates the benefits, which another has assumed to do in his behalf, will be deemed to have assumed responsibility for the act. Of course, such action does not render an act valid that was invalid before; its character in this respect is not changed by anything the ratifier may do.

Can a forgery be ratified? The right of the state to pursue the forger cannot be defeated by its ratification, but so far as the act may be regarded merely as the act of an unauthorized agent, it may be ratified like any other. Mechem says that if at the time of signing, the person doing so purported to act as agent, the act might be ratified.

[10]Again, a principal cannot accept part of an agent's act and reject the remainder. The acceptance or rejection must be complete.

In appointing an agent the principal has in mind the qualifications of the person appointed, he cannot therefore without his principal's consent, designate or substitute another person for himself. This rule though does not prevent him from employing other persons for a minor service. Indeed, in many cases a general agency requires the employment of many persons to execute the business. How far one may go in thus employing others to execute the details, and how much ought to be done by the general agent himself, depends on the nature of the business. The inquiry would be one of fact, to what extent is a general agent in his particular business expected or assumed to do the things himself.

One rule to guide an agent is this: when the act to be done is purely mechanical or ministerial, requiring no direction or personal skill, an agent may appoint a subagent. Thus an agent who is appointed to execute a promissory note, or to sign a subscription agreement, or to execute a deed, may appoint another to do these things. Likewise an agent who is authorized to sell real estate with discretionary power to fix the price and other terms, may employ a subagent to look up a purchaser, or to show the land to one who is desirous of purchasing.

When a person is really acting as an agent, but this is not known by the persons with whom he is doing business, he is liable to them as if he were the principal. It often happens for various reasons that agents do not disclose their principals. Suppose a dealer finds out that the agent presumably [11]acting for himself was, in truth, acting for another, could the real principal be held responsible and the agent escape, or could both be held? The answer is, after discovering the real principal, both can be held, or either of them. The failure of an agent to disclose his agency will not make him individually liable if the other party knew that he was dealing with a principal with whom he had had dealings through the agent's predecessor. Notice of the agency to one member of a firm is not sufficient notice to the firm to release the agent from personal responsibility in subsequent transactions with another member who did not know and was not informed of the agency. Again, the liability must be determined by the conditions existing at the time of the contract, his subsequent disclosure will not relieve the agent. Finally, while the agent may be held in such a case, the principal also is liable, except on instruments negotiable and under seal, on the discovery of his relationship as principal.

While secret instructions to an agent that are unknown to persons dealing with him do not bind them, the principal is liable for any acts within the scope of his agent's authority connected with the business conducted by his agent for him. Some very difficult questions arise in applying this rule. A car conductor is instructed to treat passengers civilly and to use no harsh means with them, save in extreme cases. How far may a conductor go with a disorderly passenger? Very likely he would be justified in putting him off; suppose the conductor was angry and administered hard and needless kicks in the operation? His principal surely would not be liable, though the conductor doubtless would be. Suppose in buying a railway ticket the agent loses his temper and calls you a liar and a thief, you [12]would have an action against him for slander, unless you happened to be one, but you would have no action against his principal for the company did not employ him to slander its patrons; to do this was clearly not in the scope of his employment.

An agent must not act for both parties in any transaction unless this is understood by both of them. Nor can an agent receive any personal profit from a transaction. Whatever profit there may be should be given to the principal. Thus if an agent is authorized to buy a piece of property for his principal and buys it for himself, or hides the transaction under the name of another, the principal, after discovering what his agent has done, can proceed to obtain the property.

An agent must be faithful and exercise reasonable skill and diligence. Money belonging to the principal should be deposited in the principal's name, or, if in the agent's name, his agency should be added; otherwise if the bank failed the agent would be responsible for the loss. Again, if the agent deposited the money in his own name the true owner could proceed against the bank to recover it.

A principal is liable for the statements and representations of his agent that have been expressly authorized. He is also liable even for false and fraudulent representations made in the course of the agent's employment, especially those resulting in a contract from which the principal reaped a benefit. Even though the statements may not have been expressly authorized, such authority may be implied by law because they are the natural and ordinary incidents of the agent's position. Thus the position of a business manager often calls for a great variety of acts, orders, notices, and the [13]like, and statements made while performing them are regarded as within the line of his duty.

An agency may end at a fixed time, or when the particular object for creating it has been accomplished, or by agreement of the parties. In many cases an agency is created for an indefinite period, and in these either party can terminate it whenever he desires. There are some limitations to this principle. Neither party can wantonly sever the relation at the loss of the other; and if one of them did he would be liable for the damage sustained by the other. Likewise if the agent has an interest of his own in the undertaking the principal cannot terminate it before its completion without the agent's consent. Such a rule is needful for his security. The bankruptcy of a business agent operates as a revocation of his authority, but not when the act to be done is of a personal nature like the execution of a deed.

If the principal becomes insane and unable to exercise an intelligent direction of his business, his condition operates as a revocation or suspension for the time being of his agent's authority. If on recovering, he manifests no will to terminate his agent's authority, it may be considered as a mere suspension, and his assent to acts done during the suspension may be inferred from his forbearing to express dissent when they come to his knowledge. Likewise an agent's insanity terminates or suspends the agency for the time being unless he has an interest of his own in the matter. Partial derangement or monomania will not have that effect unless the mania relates to the agency, or destroys the agent's ability to perform it.

Again, the marriage of a principal in some cases, unless a statute has changed the common law, will [14]revoke the power previously given, especially when its execution will defeat or impair rights acquired by marriage. Thus should a man give a power of attorney to another to sell his homestead, but before effecting a sale the principal should marry, his marriage would revoke the power. By marrying the wife acquires an interest in the property which cannot be taken away from her without her consent by joining in a deed of conveyance with her husband. Likewise the marriage of a woman would operate to revoke a power of attorney previously given by her whenever its execution would defeat the rights acquired by her husband. An agent's marriage usually will not affect the continuance of his agency.

When an agency is terminated it is often needful for the principal to notify all customers for his protection, otherwise they might continue to do business with the agent, supposing he was thus acting, and involve him perhaps in heavy loss. This rule applies especially to partnerships, each member of which is an agent with general authority to do the kind of business in which it is engaged.

If the authority of an agent in writing is revoked, but is still left with him and is shown to a third person who, having no knowledge of the revocation, makes a contract with him, the principal will be held for its execution.

Another rule of law may be given. The law assumes that any knowledge acquired by an agent concerning his principal's business, will be communicated to his principal, who is bound thereby. This rule though is often difficult to apply. Thus, if a cashier of a bank should learn that a note was defective, which was afterward discounted by his bank, it would be regarded as having knowledge of the defect, because it was the cashier's duty to inform the proper officials before they discounted it.

The death of either agent or principal terminates the agency except in cases of personal interest. And when an agent has appointed a substitute or subagent without direct authority, and for his own convenience, the agent's death annuls the authority of the subagent or substitute, even though the agent was given the right of substitution. But if the subagent's authority is derived directly from the principal, it is not affected by the agent's death.


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Law for the Laymen - Agency
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