Fiduciary Character of Agency
Agency is a fiduciary contract by which the agent acts in representation of the principal, so the agent's duties are measured by authority, instructions, loyalty, diligence, and accountability.
The agent is not an owner of the business entrusted to him; he is a representative whose acts may bind the principal only when they fall within actual authority, apparent authority created by the principal, or later ratification.
The principal is not a passive beneficiary of the relation; he must respect acts validly done in his name, provide or reimburse necessary funds, indemnify the agent for authorized risks, and pay compensation when the agency is onerous.
Obligations of the Agent
Carry Out the Agency
An agent who accepts the agency must perform it in accordance with its terms and is liable for damages caused by non-performance, delay, abandonment, or negligent execution.
If the agent declines the agency after receiving goods, documents, funds, or information from the principal, he must observe the diligence of a good father of a family in preserving what he received until the principal can take protective measures.
If the principal dies after the agent has begun a business, the agent must finish the business when delay would cause danger or loss, because the duty to prevent prejudice survives the technical termination of authority for that limited purpose.
The agent must not execute the agency when the contemplated act would clearly result in loss or damage to the principal, because authority to act does not include authority to knowingly injure the represented interest.
Follow Instructions and Use Proper Diligence
The agent must follow the principal's lawful instructions, whether contained in the contract, communicated separately, or implied from the nature and purpose of the business.
In the absence of specific instructions, the agent must act as a prudent person would act in managing another's affairs, considering the usage of trade, the urgency of the transaction, and the ordinary risks of the undertaking.
Departure from instructions is justified only when obedience has become impossible, illegal, seriously prejudicial, or plainly inconsistent with the principal's manifest interest under circumstances not reasonably foreseen by the principal.
When the business admits of consultation without prejudicial delay, the agent should seek the principal's instructions before making a material decision not covered by the authority given.
Act Within the Scope of Authority
The agent must act within the limits of the authority conferred, because the principal is generally bound only by acts done in his name and within the scope of authority.
An act is within authority when it is expressly authorized, necessarily implied from the authorized act, usual in the business entrusted, or reasonably required to accomplish the object of the agency.
Private instructions limit the agent as between principal and agent, but they do not defeat the rights of a third person who in good faith relies on the terms of written authority or on apparent authority traceable to the principal.
An agent who exceeds his authority may be personally liable to the third person when the principal does not ratify and the agent undertook to obtain ratification or failed to disclose the limits of his power.
If the third person knew that the agent lacked authority and the principal did not ratify, the principal is not bound, and the third person's remedy normally lies against the agent only if the agent independently assumed liability.
Ratification cures the unauthorized act from the beginning as between the principal and the third person, provided the principal had capacity, knew the material facts, and accepted the act or its benefits in a manner consistent with approval.
Preserve Loyalty and Avoid Conflicts
The agent must prefer the principal's interest over his own in every matter connected with the agency, because the relationship rests on trust and representation.
If the agent prefers his own interest to that of the principal, the principal may reject the transaction, recover what was lost, demand the benefit wrongfully obtained, and claim damages when the elements of liability are present.
An agent authorized to sell may not secretly become the buyer of the property entrusted for sale, and an agent authorized to buy may not secretly sell his own property to the principal, because self-dealing destroys the adversarial protection expected in a sale.
Self-dealing may be allowed only when the principal gives clear, informed consent or when the transaction is otherwise permitted by law and does not impair the principal's interest.
An agent empowered to borrow money may himself lend to the principal at the current rate, because the principal receives the financing sought; but an agent empowered to lend the principal's money may not become the borrower without the principal's consent, because the agent would be judging his own credit risk.
Dual agency in the same transaction requires the knowledge and consent of both principals, since one representative cannot faithfully protect conflicting interests without informed authorization.
Account and Deliver
The agent must render an account of his transactions and deliver to the principal everything received by virtue of the agency, even if the thing received was not due to the principal.
A stipulation exempting the agent from the duty to account is void, because accounting is a basic consequence of fiduciary management and cannot be waived in advance to shield disloyalty.
The duty to deliver covers money, documents, fruits, accessories, securities, commissions, rebates, discounts, and other advantages obtained through the agency, unless the principal validly agreed that a particular benefit belongs to the agent.
If the agent applies the principal's money to his own use, he owes interest from the time of application, without prejudice to damages, restitution, and any criminal or civil consequences arising from misappropriation.
If the agent owes sums after the agency has ended, interest may run from demand, because the agent's possession after demand is no longer justified by the relation of representation.
Use and Advance Funds Properly
The agent must use the principal's funds only for the authorized purpose and must keep them separate enough to permit identification and accounting.
The agent is not bound to advance his own funds for the agency unless he expressly undertook to do so, and even then he is excused when the principal becomes insolvent because the implied basis of reimbursement has failed.
When the agent voluntarily makes necessary advances without fault and within the agency, the principal must reimburse him, but the agent must still prove that the expenses were authorized, useful, or necessary under the circumstances.
Responsibility for Substitute or Sub-Agent
An agent may appoint a substitute when substitution is not prohibited, but he remains responsible in the cases fixed by law or by the agency agreement.
The agent is responsible for the acts of the substitute when he was not given power to appoint one, or when he was given such power without designation of a particular person and he chose a substitute who was notoriously incompetent or insolvent.
If the principal prohibited substitution, all acts of the substitute are void as to the principal, because the agent's personal confidence was an essential element of the appointment.
The principal may proceed directly against the substitute when the substitute's acts affect the principal's property or business, since the substitute entered the sphere of the agency and handled the principal's affairs.
Liability of Several Agents
When two or more agents are appointed for the same transaction, their liability is not solidary unless solidarity is expressly stipulated or clearly required by law.
If solidarity among agents is agreed upon, each agent may be held answerable for non-fulfillment of the agency and, within the limits of the undertaking, for the fault or negligence of the others.
An agent is not liable for a co-agent's act that is outside the scope of authority unless he participated in it, ratified it, concealed it in breach of duty, or assumed responsibility for it.
Special Duties of a Commission Agent
A commission agent buys or sells goods for another and is subject to the general duties of an agent, with additional obligations arising from the handling of commercial goods and credit transactions.
The commission agent who receives goods must answer for them according to the conditions in which they were received, unless he makes a timely protest or reservation showing defects, shortages, or differences in quality or quantity.
When the commission agent has goods of the same kind belonging to different principals, he must distinguish them by marks, records, or other reliable means so that each principal's goods can be identified and returned or accounted for.
If the goods suffer damage, loss, or deterioration without the agent's fault, the agent must promptly inform the principal and take reasonable steps to preserve rights against carriers, warehousemen, insurers, or other responsible persons.
A commission agent may not sell on credit without the principal's consent; if he does, the principal may treat the sale as a cash sale as against the agent.
When authorized to sell on credit, the commission agent must inform the principal of the names of the buyers and the terms of credit, because the principal is entitled to evaluate collection risk.
A commission agent who receives a guarantee commission assumes responsibility for the solvency of the buyer and the collection of the credit, according to the terms of the guarantee undertaking.
Effect of Contracting in the Agent's Own Name
When the agent contracts in his own name, he generally binds himself directly to the third person, and the principal and third person generally have no direct action against each other.
The exception arises when the contract involves things belonging to the principal, because ownership or beneficial interest may justify direct claims despite the agent's use of his own name.
An agent who uses his own name should still account to the principal for the transaction if it was undertaken by virtue of the agency, because the internal fiduciary duty is not erased by the external form of the contract.
Obligations Upon Withdrawal or Termination
An agent may withdraw from the agency by giving notice to the principal, but he must indemnify the principal for damages caused by the withdrawal unless continuing the agency would cause the agent grave detriment.
After withdrawal, revocation, death, or another cause of termination, the agent must continue acts necessary to avoid imminent prejudice until the principal, heirs, or proper representatives can reasonably protect the business.
Termination ends authority to create new obligations for the principal, but it does not erase duties to account, return property, preserve confidential information, and deliver documents or funds already received.
Obligations of the Principal
Respect Authorized Acts
The principal must comply with obligations contracted by the agent within the scope of authority, because the agent's authorized act is legally the act of the principal.
The principal is bound not only by express authority but also by implied authority necessary or usual to carry out the entrusted business, unless the third person knew of a limitation.
The principal may be bound by apparent authority when his own conduct, silence, documents, business practice, or prior course of dealing reasonably led a third person in good faith to believe that the agent had authority.
A principal who allows an agent to act as though he had full powers may be liable together with the agent to a third person who relied in good faith on that appearance.
The principal is not bound by an unauthorized act that he did not ratify, except to the extent that estoppel, unjust enrichment, or receipt and retention of benefits makes it inequitable for him to deny the act.
Pay Compensation
Agency is presumed to be for compensation unless there is proof that it was gratuitous, so the principal must pay the agreed commission, fee, or reasonable value of services when the agency is onerous.
Compensation becomes demandable according to the agreement, trade usage, or the completion of the service for which the agent was engaged.
The principal may resist or reduce compensation when the agent acted in bad faith, violated instructions, concealed material facts, or caused loss through fault connected with the service for which compensation is claimed.
Advance Funds, Reimburse Advances, and Pay Interest
The principal must advance the sums necessary for the execution of the agency when the agent requests them, unless the agent agreed to make the advances and the principal is not insolvent.
If the agent advanced necessary funds, the principal must reimburse him even if the undertaking was unsuccessful, provided the agent acted without fault and the expenses were within the authority or were reasonably necessary to protect the principal's interest.
Reimbursement includes interest from the time the agent made the advance, because the principal obtained the use or benefit of the agent's money for the purposes of the agency.
The principal need not reimburse expenses caused by the agent's fault, expenses made contrary to instructions when the principal does not accept the benefit, expenses incurred with knowledge that the result would be useless or adverse, or expenses that the agent agreed to bear.
Indemnify the Agent
The principal must indemnify the agent for damages suffered as a direct consequence of executing the agency when the agent acted without fault or negligence.
Indemnity covers losses that naturally arise from the authorized undertaking, including liabilities, claims, or sacrifices reasonably incurred to protect the principal's business.
The principal is not an insurer of every harm suffered by the agent; indemnity is denied when the harm was caused by the agent's fraud, negligence, disobedience, personal venture, or assumption of a risk outside the agency.
Agent's Right of Retention
The agent may retain in pledge the things that are the object of the agency until the principal reimburses advances and pays indemnity due in connection with the agency.
The right of retention is a security device, not ownership; the agent must preserve the property, account for it, and return it once the secured obligations are satisfied.
The right generally covers claims arising from the same agency and cannot be used to coerce payment of unrelated debts unless the parties validly agreed otherwise.
Liability of Several Principals
When two or more principals appoint an agent for a common transaction, they are solidarily liable to the agent for the consequences of the agency.
Solidary liability protects the agent who acted for a common undertaking and should not be forced to divide his claim among principals whose interests were jointly represented.
As among the principals, internal contribution depends on their agreement, shares in the transaction, or the benefit received, but that internal allocation does not defeat the agent's right to recover from any solidary principal.
Operational Distinctions
| Situation | Primary Duty | Legal Consequence |
|---|---|---|
| Agent follows authority and instructions | Principal must honor the act and agent must account | Principal is bound to the third person and agent is entitled to reimbursement or compensation if due |
| Agent exceeds authority but principal ratifies | Principal accepts the act with knowledge of material facts | Ratification retroacts and binds the principal as if authority existed from the start |
| Agent exceeds authority and principal does not ratify | Agent must answer for his own undertaking when liability was assumed or limits were concealed | Principal is generally not bound, especially where the third person knew the limits of authority |
| Agent violates private instructions but appears authorized | Agent is liable to the principal for breach of instructions | Principal may still be bound to a third person in good faith who relied on apparent or written authority |
| Agent receives money or property through the agency | Agent must account and deliver | Principal may recover the thing, its value, interest, fruits, and damages when appropriate |
| Principal fails to provide funds or reimburse advances | Principal must advance, reimburse, pay interest, and indemnify when legally due | Agent may enforce payment and retain the object of the agency as security for connected claims |
Remedies Between Principal and Agent
The principal may demand accounting, delivery, rescission or disregard of disloyal transactions, damages for breach of duty, return of benefits, and appropriate provisional relief to preserve property or funds.
The agent may demand compensation, reimbursement, interest on advances, indemnity for authorized losses, and recognition of his right of retention over the object of the agency.
Both parties may terminate the agency according to law and agreement, but termination does not defeat accrued rights, completed obligations, or duties necessary to prevent immediate prejudice.
Liability is ultimately determined by authority, instructions, good faith, causation, fault, benefit received, and the fiduciary standard imposed on one who manages the affairs of another.