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Agency

It is not uncommon for individuals to ask or authorize another person to perform a task on their behalf that involves a third person, such as I ask you to buy some groceries for me. In such a situation, a legal question that could arise is whether the grocer entered into a transaction with the second person (you) or with the first person (me). The law of agency is intended to address such situations.

"Agency is the relationship which results when one person, called the principal, authorizes another, called the agent, to act for the principal in dealing with third persons." N.D.C.C. §3-01-01.

Under general contract law, the parties negotiating an agreement (you and the grocer in the simple example above) are the only ones legally obligated to fulfill the agreement. However, the general rule under agency law is that an agent (you) has the authority to enter into an agreement with a third person (the grocer) for the benefit of the principal (me); and the principal (me), although not participating in the creation of the agreement, is bound to fulfill the agreement with the third party (the grocer).

Numerous issues arise in situations involving an agent; for example, did the principal authorize the agent to act on behalf of the principal, and did the third party recognize that the agent was acting on behalf of the principal. The North Dakota cases of Lagerquist v. Stergo, 2008 ND 138 and Johnson v. Production Credit Association of Fargo, 345 N.W.2d 371 (N.D. 1984) illustrate situations that gave rise to legal questions of whether an agency existed and whether a principal had an obligation to a third party. These and other issues are briefly addressed in the following sections.

How does an agency relationship arise?

An agency arises when 1) the agent is employed by the principal to serve as an agent (actual) or 2) when the principal, by their action, causes a third person to believe another person is the principal's agent (ostensible or apparent). N.D.C.C. §3-01-03.

What is the scope of the agent's authority?

"An agent may be authorized to do any acts which the ... principal might do, except those [acts] to which the principal is bound to give personal attention." N.D.C.C. §3-01-05. A special agency may also be established for a particular act or transaction. N.D.C.C. 3-01-02.

Agencies often pertain to some form of a contract; for example, see

Johnson v. Production Credit Association of Fargo, 345 N.W.2d 371 (N.D. 1984) -- sale of fuel
Lagerquist v. Stergo, 2008 ND 138 -- sale of scrap metal
Dunseith Sand & Gravel Co., Inc. v. Albrecht, 379 N.W.2d 803 (N.D. 1986) -- purchase of goods
Thompson v. ND Dept. of Agriculture, 482 N.W.2d 861 (N.D. 1992) -- purchase of livestock
Farmers Union Oil Co. of Dickinson v. Wood, 301 N.W.2d 129 (N.D. 1980) -- purchase of products and services

"Every act which legally may be done by or to any person [principal] may be done by or to the agent of such person for that purpose, unless a contrary intention clearly appears." N.D.C.C. §3-02-01.

"An agent has power to disobey instructions in dealing with the subject of the agency in cases when it is clearly for the interest of the agent's principal that the agent should do so and there is not time to communicate with the principal." N.D.C.C. §3-02-09.

"An agent must use ordinary diligence to keep the agent's principal informed of the agent's acts in the course of the agency." N.D.C.C. §3-02-12.

"An agent must not exceed the limits of the agent's actual authority as defined by this
title." N.D.C.C. §3-02-12.

What is the principal's obligation to a third party?

"... all the rights and liabilities which would accrue to the agent from the transactions .., if
they had been entered into on the agent's own account, accrue to the principal." N.D.C.C. §3-03-01.

"... a principal is responsible to third persons for the negligence of the principal's agent in the transaction of the business of the agency, including wrongful acts committed by the agent in and as a part of the transaction of the business, and for the agent's willful omission to fulfill the obligations of the principal." N.D.C.C. §3-03-09.

What is the third party's responsibilities when dealing with an agent?

"A third person dealing with a known agent must determine for himself, by the exercise of reasonable diligence and prudence, the existence or nonexistence of the agent's authority to act." Johnson v. Production Credit Association of Fargo

What is the agent's responsibility to the third party and to the principal?

"One who assumes to act as an agent thereby warrants to all who deal with that person in that capacity that the person has the authority which the person assumes." N.D.C.C. §3-04-01.

"One who assumes to act as an agent is responsible to third persons as a principal for that person's acts in the course of that person's agency ...

1. When, with that person's consent, credit is given to that person personally in a
transaction.
2. When that person enters into a written contract in the name of that person's principal without a good-faith belief in having the authority to do so.
3. When that person's acts are wrongful in their nature." N.D.C.C. §3-04-02.

"If an agent receives anything for the benefit of the agent's principal, to the possession of which another person is entitled, the agent on demand must surrender it, or so much of it as the agent has under the agent's control at the time of the demand, to such other person, on being indemnified for any advance which the agent has made to the agent's principal in good faith on account of the same. The agent is responsible therefor, if the agent delivers it to the agent's principal after notice from the owner. N.D.C.C. §3-04-03.

N.D.C.C. chapter 3-02

What do the court cases add to the explanation of agency law?

Johnson v. Production Credit Association of Fargo, 345 N.W.2d 371 (N.D. 1984)

"(1) One is presumed to act for himself and not as the agent of another; (2) One who deals with an agent does so at his peril; (3) Where the existence of an agency relationship is denied, the burden of proof is upon the party affirming its existence to establish it by clear and convincing evidence; (4) The existence of an apparent or ostensible agency must rest upon conduct or communications of the principal which, reasonably interpreted, causes a third person to believe that the agent has authority to act for and on behalf of the principal; and (5) A third person dealing with a known agent must determine for himself, by the exercise of reasonable diligence and prudence, the existence or nonexistence of the agent's authority to act."

" Where the existence of an agency relationship is denied, the burden of proof is upon the [third] party affirming its existence to establish it by clear and convincing evidence. "

Lagerquist v. Stergo, 2008 ND 138

"An apparent or ostensible agency must rest upon conduct or communications of the principal which, reasonably interpreted, causes a third person to believe that the agent has authority to act for and on behalf of the principal."

"In order for ostensible agency to bind the principal to a contract made by an ostensible agent on the principal's behalf, the principal must cause or allow a third person to believe the agent actually has such authority."

Dunseith Sand & Gravel Co., Inc. v. Albrecht, 379 N.W.2d 803 (N.D. 1986)

In this case, the third party argued that there was NO agency and that the buyer was personally liable for the unpaid debt. The buyer, however, argued that he was merely an agent for a principal, the principal owed the payment to the third party, and the buyer has no personal obligation to the third party.

"The action was commenced by Dunseith Sand & Gravel Co., Inc., [third party] against Ivanlee Albrecht [Albrecht] for [an amount owed] on a past due open account for goods allegedly sold to him personally by Dunseith Sand & Gravel Co., Inc. [Dunseith]. Albrecht argues that any amounts owing to Dunseith are an obligation incurred by "Ivanlee's Construction and Supply, Inc." [as the principal] and are not his personal obligation [as an agent]."

Farmers Union Oil Co. of Dickinson v. Wood, 301 N.W.2d 129 (N.D. 1980)

"Agency is created and authority is conferred by a prior authorization or a subsequent ratification of the act ... "Ostensible" or "apparent" authority is authority which the principal intentionally or by want of ordinary care allows a third person to believe the agent possesses ... An agent never has actual or ostensible authority to do an act which is, and is known or suspected by the [third] person with whom he deals to be, a fraud upon the principal ...

"When an agent exceeds his authority, his principal is bound by [the agent's] authorized acts so far only as they can be plainly separated from those which are unauthorized ... A principal is bound by acts of his agent under a merely ostensible authority to those persons only who in good faith and without ordinary negligence have incurred a liability or parted with value upon the faith thereof ...

"In Lander v. Hartson, ... we held that a presumption exists that a person acts for himself and not as the agent of another."

When does an agency terminate?

An agency is terminated by expiration of its term, extinction of its subject, death of the agent, death of the principal, renunciation by the agent, revocation by the principal, incapacity of the agent, or incapacity of the principal to contract. N.D.C.C. §3-01-11.

Additional Examples of Agency

• Partnership -- N.D.C.C. §45-15-01

"Each partner is an agent of the partnership for the purpose of its business. An act of
a partner, including the execution of an instrument in the partnership name, for
apparently carrying on in the ordinary course the partnership business or business of
the kind carried on by the partnership binds the partnership, unless the partner had
no authority to act for the partnership in the particular matter and the person with
whom the partner was dealing knew or had received a notification that the partner
lacked authority.

"An act of a partner which is not apparently for carrying on in the ordinary course the
partnership business or business of the kind carried on by the partnership binds the
partnership only if the act was authorized by the other partners."

• Durable Power of Attorney -- N.D.C.C. chapter 30.1-30

An example of an agency that is contrary to the general rule for the termination of an agency (N.D.C.C. §3-01-11).

"A durable power of attorney is a power of attorney by which a principal designates another as the principal's attorney ... showing the intent of the principal that the authority conferred is exercisable notwithstanding the principal's subsequent disability or incapacity, and, unless it states a time of termination, notwithstanding the lapse of time since the execution of the instrument." N.D.C.C. §30.1-30-01.

• Health Care Directives -- N.D.C.C. chapter 23-06.5

Another example of a special agency.

"The purpose of this chapter is to enable adults to retain control over their own health care during periods of incapacity through health directives and the designation of an individual to make health care decisions on their behalf." N.D.C.C. 23-06.5-01.

"Principal" means an adult who has executed a health care directive.

"Agent" means an adult to whom authority to make health care decisions is delegated under a health care directive for the individual granting the power.

"Health care directive" means a written instrument that complies with this chapter and includes one or more health care instructions, a power of attorney for health care, or both.

"Health care instruction" means an individual's direction concerning a health care decision for the individual, including a written statement of the individual's values, preferences, guidelines, or directions regarding health care directed to health care providers, others assisting with health care, family members, an agent, or others. N.D.C.C. 23-06.5-02.

In summary, agency law ?????

Last modified July 9, 2008

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