1911 Encyclopædia Britannica/Principal and Agent

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PRINCIPAL AND AGENT. In law an agent is a person authorized to do some act or acts in the name of another, who is called his principal. The law regulating the relations of principal and agent has its origin in the law of mandate among the Romans, and in England the spirit of that system of jurisprudence pervades this branch of the law. The law of agency is thus almost alike throughout the whole British Empire, and a branch of the British commercial code, in which it is of great importance that different nations should understand each other's system, differs only slightly from the law of the rest of Europe.

In a general view of the law of agency it is necessary to have regard to the rights and duties of the principal, the agent, and the public. The agent should not do what he has no authority for; yet if he be seen to have authority, those with whom he deals should not be injured by secret and unusual conditions. The employer is bound by what his agent does in his name, but the public are not entitled to take advantage of obligations which are known to be unauthorized and unusual. The agent is entitled to demand performance by the principal of the obligations undertaken by him within the bounds of his commission, but he is not entitled to pledge him with a recklessness which he would certainly avoid in the management of his own affairs. It is in the regulation of these powers and corresponding checks in such a manner that the legal principle shall apply to daily practice, that the niceties of this branch of the law consist.

Agents are of different kinds, according to their stipulated or consuetudinary powers. The main restraint in the possible powers of an agent is in the old maxim, delegatus non potest delegare, designed to check the complexity that might be created by inquiries into repeatedly-deputed responsibility. The agent cannot delegate his commission or put another in his place; but in practice this principle is sometimes modified, for it so may arise from the nature of his office that he is to employ other persons for the accomplishment of certain objects. Thus, there is nothing to prevent a commercial agent from sending a portion of the goods entrusted by him to his own agent for disposal.

In the general case agency is constituted by the acceptance of the mandate or authority to act for the principal, and the evidence of this may be either verbal or in writing. The English statute of frauds requires an agent to have authority in writing for the purposes of its 1st, 2nd and 3rd clauses relating to leases. "And it is a general rule, that an agent who has to execute a deed, or to take or give livery or seisin, must be appointed by deed for that purpose. Moreover, as a corporation aggregate can in general act only by deed, its agent must be so appointed, though it would seem that some trifling agencies, even for corporations, may be appointed without one." (Smith's Mercantile Law, B. I. ch. iv.). It is a general rule that those obligations which can only be undertaken by solemn formalities cannot be entered on by a delegate who has not received his authority in writing. But it is often constituted, at the same time that its extent is defined, by mere appointment to some known and recognised function - as where one is appointed agent for a banking establishment, factor for a merchant, broker, supercargo, traveller, or attorney. In these cases, usage defines the powers granted to the agent; and the employer will not readily be subjected to obligations going beyond the usual functions of the office; nor will the public dealing with the agent be bound by private instructions inconsistent with its usual character. While, however, the public, ignorant of such secret limitations, are not bound to respect them, the agent himself is liable for the consequences of transgressing them. Agency may also be either created or enlarged by implication. What the agent has done with his principal's consent the public are justified in believing him authorized to continue doing. Thus, as a familiar instance, the servant who has continued to purchase goods for his master at a particular shop on credit is presumed to retain authority and trust, and pledges his master's credit in further purchases, though he should, without the knowledge of the shopkeeper, apply the articles to his own uses. The law is ever jealous in admitting as accessories of a general appointment to any particular agency the power to borrow money in the principal's name, to give his name to bill transactions, and to pledge him to guaranties; but all these acts may be authorized by implication, or by being the continuation of a series of transactions, of the same kind and in the same line of business, to which the principal has given his sanction. Thus an employer may, by the previous sanction of such operations, be liable for the bills or notes drawn, indorsed and accepted by his clerk or other mandatary; nay, may be responsible for the obligations thus incurred after the mandatary's dismissal, if the party dealing with him knew that he was countenanced in such transactions, and had no reason to suppose that he was dismissed. In questions of this kind the distinction between a general and a special agent is important. A general agent is employed to transact all his principal's business of a particular kind, at a certain place - as a factor to buy and sell; a broker to negotiate contracts of a particular kind; an attorney to transact his legal business; a shipmaster to do all things relating to the employment of a ship. Such an agent's power to do everything usual in the line of business in which he is employed is not limited by any private restriction or order unknown to the party with whom he is dealing. On the contrary, it is incumbent on the party dealing with a particular agent, i.e. one specially employed in a single transaction, to ascertain the extent of his authority. The law applicable to a mercantile agent's power to pledge or otherwise dispose of the goods entrusted to him being in an unsatisfactory state, a statutory remedy was applied to it by an act of 1825 (6 Geo. IV. c. 94), amended in 1842 (5 & 6 Vict. c. 39) and replaced by the Factors Act 1889.

The obligations of the principal are: to pay the agent's remuneration, or, as it is often called, commission, the amount of which is fixed by contract or the usage of trade; to pay all advances made by the agent in the regular course of his employment; and to honour the obligations lawfully undertaken for him. The agent is responsible for the possession of the proper skill and means for carrying out the functions which he undertakes. He must devote to the interests of his employer such care and attention as a man of ordinary prudence bestows on his own - a duty capable of no more certain definition, the application of it as a fixed rule being the function of a jury. He is bound to observe the strictest good faith; and the law even interposes to remove him from temptation to sacrifice his employer's interests to his own (see Commission: Secret). Thus, when he is employed to buy, he must not be the seller. When an agent is employed to sell, he must not be the purchaser. He ought only to deal with persons in good credit, but he is not responsible for their absolute solvency unless he guarantee them. A mercantile agent guaranteeing the payments he treats for is said to hold a del credere commission.

See also Auctions and Auctioneers; Broker; Factor; Guarantee, &c.; also Smith's Mercantile Law (i i th ed., 1905); Bowstead, On Agency (4th ed., 1909).