Restat 2d of Agency, § 1

• Restatement of the Law, Second, Agency
• Chapter 1- Introductory Matters
• Topic 1- Definitions
• § 1 Agency; Principal; Agent

(1)  Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.
(2)  The one for whom action is to be taken is the principal.
(3)  The one who is to act is the agent.

Note: The second part of § 219(2)(d), regarding the "aided-by-agency" theory of vicarious liability, was not approved by the ALI membership and thus did not represent the position of the ALI. It has since been superseded by the Restatement of the Law Third, Agency; see Restatement of the Law Third, Agency § 7.08, Comment b; see also Restatement of the Law, Employment Law § 4.03, Reporters? Note to Comment f.

Comment on Subsection (1):

a.  The relation of agency is created as the result of conduct by two parties manifesting that one of them is willing for the other to act for him subject to his control, and that the other consents so to act. The principal must in some manner indicate that the agent is to act for him, and the agent must act or agree to act on the principal's behalf and subject to his control. Either of the parties to the relation may be a natural person, groups of natural persons acting for this purpose as a unit such as a partnership, joint undertakers, or a legal person, such as a corporation.

b.  Agency a legal concept.  Agency is a legal concept which depends upon the existence of required factual elements: the manifestation by the principal that the agent shall act for him, the agent's acceptance of the undertaking and the understanding of the parties that the principal is to be in control of the undertaking. The relation which the law calls agency does not depend upon the intent of the parties to create it, nor their belief that they have done so. To constitute the relation, there must be an agreement, but not necessarily a contract, between the parties; if the agreement results in the factual relation between them to which are attached the legal consequences of agency, an agency exists although the parties did not call it agency and did not intend the legal consequences of the relation to follow. Thus, when one who asks a friend to do a slight service for him, such as to return for credit goods recently purchased from a store, neither one may have any realization that they are creating an agency relation or be aware of the legal obligations which would result from performance of the service. On the other hand, one may believe that he has created an agency when in fact the relation is that of seller and buyer. See § 14 J. The distinction between agency and other relations, such as those oftrust, buyer and seller, and others are stated in Sections 14 A to 14 O. The distinction between the kind of agent called a servant and a non-servant agent is stated in Section 2.

When it is doubtful whether a representative is the agent of one or the other of two contracting parties, the function of the court is to ascertain the factual relation of the parties to each other and in so doing can properly disregard a statement in the agreement that the agent is to be the agent of one rather than of the other, or a statement by the parties as to the legal relations which are thereby created. See § 14 L. The agency relation results if, but only if, there is an understanding between the parties which, as interpreted by the court, creates a fiduciary relation in which the fiduciary is subject to the directions of the one on whose account he acts. It is the element of continuous subjection to the will of the principal which distinguishes the agent from other fiduciaries and the agency agreement from other agreements. The characteristics which tend to indicate an agency or a non-agency relation are stated in Sections 12 to 14 O.

Illustrations:

1. P and A enter into an agreement which is stated to be a "contract of sale." It provides that for one year A shall purchase a specified amount of goods from P; that the risk of loss of such goods after purchase is upon P, if A uses care in their custody; that A is to pay for and to sell them at prices to be fixed by P from time to time and is to keep the proceeds as a separate account, remitting monthly 90 per cent. and keeping the remainder for himself; that unsold goods can be returned to P; and that P will pay A one-half of A's selling expenses. A is P's agent.

2. B, wishing to borrow money, goes to A, the local representative of an insurance company employed by it to lend money and collect interest, and signs a document which states that A is B's agent for the purpose of borrowing money from the company, for which B is to pay A one per cent. of the money borrowed, and that payments of interest are to be made to A. Both B and A understand that A is primarily to protect the interests of the company. A is not B's agent, and payment of interest by B to A is payment to the insurance company.

3. A, the secretary of the local branch of a fraternal organization, collects money from the members of the branch, remitting it each month to the national body. The rules of the order provide that the members must pay their dues in this manner; that the local secretary is subject to the orders of the national organization as to the collection and disposition of dues, but that in receiving and forwarding dues he is the agent for the members of the local branch. It may be found that, for the collection of dues, he is the agent of the national organization and not of the members of the local branch.

Comment:

c.  Confusion of terms.  It is sometimes said that agency does not exist until the agent does something for the principal. In fact, the relation may exist before such time. Reciprocal duties between the parties together with a power of the agent to bind the principal are normally created at the time of the agreement. This is true although there is no binding contract between the parties. See § 16. Thus, where one asks another to purchase property for him which the other gratuitously promises to do, the other immediately has a power to bind the first by the purchase of the property and immediately becomes subject to a fiduciary duty not to buy it on his own account. This is true irrespective of the fact that either can properly terminate the relation at any time.

The agency relation is to be distinguished from other relations sometimes called agency but which do not include the elements here stated. Thus, there is sometimes said to be an "agency by necessity", in cases in which the so-called agent has no duty to respond to the will of the principal. See §§ 14 I and 141. Sometimes a power of attorney given for security has been thought to be a form of agency although the power holder has no duty to respond to the will of the one creating the power. See §§ 14 H, 138, 139. In such cases the rules of agency as herein stated do not apply.

Comment on Subsection (2):

d.  "Principal" is a word used to describe a person who has authorized another to act on his account and subject to his control. It includes, therefore, both a person who has directed another to act on his account in business dealings or to represent him in hearings or proceedings, but who has no control or right of control over the other's physical conduct, and also a person who employs another to act in his affairs, having such control or right to control over his conduct that the other is termed a servant, whether or not he renders merely manual service. The word "master" as defined in Section 2 is not used in contrast to the word "principal," but is included within it. Thus, the owner of a business is a principal not only with regard to brokers who, as to their physical acts, are independent of his supervision, but also with regard to salesmen who conduct business transactions under supervision as to such conduct and who therefore come within the definition of servant. Likewise, the owner of a house is the principal as well as the master of the janitors whom he employs and whose jobs are confined to the performance of manual acts on the premises under the owner's supervision. The word "principal," therefore, includes both persons who are masters and persons who are principals but not masters.

Comment on Subsection (3):

e.  "Agent" is a word used to describe a person authorized by another to act on his account and under his control. Included within its meaning are those who, whether or not servants as described in Section 2, act in business transactions and those who perform only manual labor as servants. An agent may be one for whose physical acts the employer is not responsible and who is called an independent contractor in order to distinguish him from a servant, also an agent, for whose physical acts the employer is responsible. Thus, the attorney-at-law, the broker, the factor, the auctioneer, and other similar persons employed either for a single transaction or for a series of transactions, are agents, although as to their physical activities they are independent contractors. These are to be contrasted with others, such as clerks, train conductors, and others who conduct transactions with third persons but who fall within the category of servants. Likewise, the janitor of a building or the driver of a truck is an agent, as that word is used in the Restatement of this Subject, if he is employed under such circumstances that he becomes a servant. For many purposes it is immaterial whether or not one who is an agent is also a servant. However, the liability of a master for the torts of his servant is greater in extent than the liability of a principal for the torts of an agent who is not a servant (see §§ 219-255), and a master's duties to servants are different from those of a principal to agents who are not servants. See §§ 472-528.

f.  Statutory use.  Whether the word "agent" as used in a statute corresponds to the meaning here given depends, with other factors, upon the purpose of the statute. Thus, the purpose of statutes providing for substituted service of process on a public official is to satisfy the due process requirement of the United States Constitution. Although such a statute may label the public official an "agent" for receiving service of process, he is not an agent in the sense used herein. He is not in fact designated by the one on whose account he "accepts service", nor does he respond to that person's directions. So, in a statute which fixes the method of payment of all "public officers and agents", the word "agents" may be interpreted in a restricted sense to exclude a clerk employed by the state. The word "agent" in a criminal statute does not normally include other fiduciaries such as receivers, although some statutes may be interpreted to include them.

g.  Power holders not agents.  The language of agency has been used to describe as agents persons who bind others, or even act in the name of others, but do so for their own purposes. This has resulted from various causes. Thus, at a time when contracts were considered to be purely personal relations between the parties, a contractor could not transfer his right to another. However, one could appoint an agent to collect money due on the contract, the document of agreement being called a power of attorney. When economic reasons made it desirable to recognize assignments, it was not too difficult to hold that one could agree with an "attorney" that the latter should keep the proceeds. In accordance with this point of view, a mortgagee was given a "power of attorney" to sell the mortgagor's interests in the mortgaged property. In doing this the courts created a power for security. Such a power is not an agency power and the holder of one is not an agent of the one who created it. See § 138.

ALR Annotations:

Who is real estate broker within meaning of statute. 56 A.L.R. 480, s. 167 A.L.R. 774.

Digest System Key Numbers:

Brokers 2
Principal and agent 1