Module 4
Agency and Sales
A. Relationship of Principal and Agent
By using agents, one person (the principal) may enter into any number of business
transactions as though he had personally carried them out, thus multiplying and
expanding his business activities. The law of agency, like the law of contracts, is basic to
almost every other branch of business law. Practically every type of contract or business
transaction can be created or conducted through an agent. Therefore, the place and
importance of agency in the practical conduct and operation of business cannot be
overemphasized.
Agency is a consensual relationship in which one person (the agent) acts as a
representative of or otherwise acts on behalf of another person (the principal) with power
to affect the legal rights and duties of the principal. Moreover, the principal has a right to
control the actions of the agent. As a general rule, a person may do through an agent
whatever business activity he may accomplish personally. Conversely, whatever he
cannot legally do himself, he cannot authorize another to do for him. Thus, a person may
not validly authorize another to commit an illegal act or crime. Any such agreement is
illegal and therefore unenforceable. Also, a person may not appoint an agent to perform
acts that are so personal that their performance may not be delegated to another, as in the
case of a contract for personal services. For example, Howard, a painter, contracts to
paint a portrait of Doris. But Howard has one of his students execute the painting and
tenders it to Doris. This is not a valid tender because the duty to paint Doris’s portrait is
not delegable.
Two other legal relationships overlap with agency: employer employee and
principal-independent contractor. In the employment relationship (historically referred to
as the master-servant relationship), for the purposes of vicarious liability discussed in the
next chapter, an employee is an agent whose principal controls or has the right to control
the manner and means of the agent’s performance of work. Restatement, Section 7.07(3).
All employees are agents, even those employees not authorized to contract on behalf of
the employer or otherwise to conduct business with third parties. Thus, an assembly-line
worker in a factory is an agent of the company employing her since she is subject to the
employer’s control, thereby consenting to act “on behalf” of the principal, but she does
