An Overview of Agency Doctrine

Our paper is a concise introduction to the doctrines that comprise the common law of agency, written for a forthcoming Research Handbook on agency and intermediation (Elgar Handbook on Agency and Intermediation (Deborah A. DeMott and Tan Cheng Han, editors, forthcoming Edward Elgar). The primary focus is US law as well as English law, which shapes agency doctrine in other English-speaking jurisdictions. As the law defines it, agency is a consensual (and categorically fiduciary) relationship in which one person (the ‘principal’) manifests assent that another person (the ‘agent’) will—subject to the principal’s right of control—have power to affect the principal’s legal relations through acts by the agent taken on the principal’s behalf. Taken together, the paper argues that these doctrines establish agency as a distinctive subject within the common law, not reducible to contract, that has ongoing salience in a wide range of settings as illustrated by a sampling of recent cases.

Some legal consequences of an agency relationship are inward-looking, specifying duties that an agent and principal owe to each other; others are outward-looking and address consequences stemming from the agent’s interactions with third parties. In some prototypical agency relationships, like those between lawyers and their clients, agency law furnishes a foundational architecture but does not itself address all legal issues that may arise. Separately, not all relationships in which one person provides services to another satisfy the legal requisites for agency. Nor does the legal definition necessarily accommodate relationships referred to as ‘agency’ or instrumentalities referred to as ‘agents’ in commercial and (non-legal) academic settings.

The scope of an agency relationship delimits both its inward-looking and outward-looking consequences. Agency law defines or specifies the concept of scope through doctrines of actual authority, apparent authority, and, in a more complex way, ratification. Although the relationship between principal and agent is consensual, agency law’s consequences can operate apart from the terms of any express or implied-in-fact agreement between principal and agent. In particular, an agent serves the principal as a fiduciary and, as a consequence, owes duties of loyalty to the principal as to conduct within the scope of their relationship. Even when the law, as in the UK, permits principal and agent to agree to depart from this position, it constitutes a strong default. An agent’s fiduciary duties encompass specific constraints on self-dealing, representing parties adverse to the principal, competition with the principal, and use of the principal’s property or information connected with the agency relationship. Consent by the principal to the agent’s conduct is effective only when it concerns a specific transaction (or predictable type of transaction) and the agent discloses all material facts not otherwise known to the principal.

Like the inward-looking consequences of an agency relationship, those reaching outward are limited by the relationship’s scope and can operate independently of any agreement between principal and agent. Relevant to many of the agency’s consequences—but potentially overlooked—knowledge the agent possesses or receives that is related to the agent’s duties to the principal is generally imputed to the principal in connection with the principal’s legal relationships with third parties. This basic legal principle—a quintessential example of a legal fiction—can be subject to complications.

Our paper opens by introducing the primary and secondary sources of authority for agency law for jurisdictions within the common law tradition. In the United States, secondary sources in the form of the three successive Restatements of Agency published by the American Law Institute have substantially shaped secondary authority on the subject, beginning with the publication of the first Restatement of Agency in 1933. The initial Reporter for the Restatement was the author of the last comprehensive US treatise by a named author, published in 1914. In contrast, in the United Kingdom, a comprehensive continuing treatise now in its twentieth-third edition dominates the field.

Our paper next examines the specifics and implications of the legal definition of agency. Given the potential implications of determining that a relationship is governed by the common law of agency, the definition does significant work in resolving disputes. Next, the paper details doctrines that establish outward-looking implications for principal and agent: actual authority, apparent authority, and ratification. Recent cases illustrate the robustness of apparent authority as a doctrine that is outcome-determinative in many cases. In some cases, although the agent may have acted with actual authority—that is, consistently with the agent’s reasonable understanding of what the principal wished for the agent to do—the third party lacked access to facts that would prove the presence of actual authority. Apparent authority, in contrast, turns on how a third party reasonably understands manifestations made by the principal. An agent’s own actions cannot ground apparent authority unless the principal (for example) itself positions the agent as the sole point of contact between itself and the third party. To focus solely on the agent and the agent’s conduct would undermine the agency’s consensual quality.

The final sections of our paper detail the inward-looking consequences of an agency relationship for principal and agent. Imputing to the principal the agent’s knowledge relevant to the agent’s duties links agency’s inward-looking dimensions to its outward-looking implications. However, imputed knowledge is relevant to the principal’s legal relations with third parties, not the principal’s relationship with the agent.

Our paper illustrates the distinctiveness of agency law as well as the breadth of its implications and its contemporary salience.

Deborah A. DeMott is a Professor of Law at Duke University.

Tan Cheng Han is a Professor at the National University of Singapore.

The authors’ article can be found here.