THE IMPORTANCE OF AGENCY.—Now that we have finished our discussion of the general principles of contract law, it remains for us to apply these principles to the specific topics of commercial law. Of these, the law of agency is one of the most important. It is perfectly obvious that a man can be in only one locality at a given time. Under modern business conditions he may wish to perform acts in different places at the same time. When business men were first confronted with problems of this kind, the principles of the law of agency began to develop. They resorted to the simple expedient of having others represent them. If these representatives were properly instructed in their duties and faithful in discharging them, there was, of course, no reason why the will of the person who had appointed them was not as fully accomplished as if he had performed the act himself. The Latin maxim, "Qui facit per alium facit per se," that is, "He who acts through another, acts himself," is the basis of the law of agency. The growing importance of the law of agency is strikingly apparent in one branch of modern business. Fifty years ago, the great majority of business operations were conducted either by individuals or by partnerships. To-day, especially in conducting large business[Pg 122] enterprises, corporations have replaced individuals and partnerships. Although (as we shall see later in the chapter on corporations) in law a corporation is deemed a separate, legal entity, distinct from the stockholders, in actual practice we know that there is no such distinct physical being as a corporation. It follows, therefore, that every act performed by a corporation must be performed through an agent. With the enormous increase in the number of corporations in the last twenty-five years, and that increase still continuing, we can see that the law of agency is a most important branch of commercial law and very closely connected with corporation law.

AGENCY DEFINED.—Merely for purposes of convenience, it may be best to divide the whole subject of agency into three branches: Principal and agent; master and servant; employer and independent contractor. The term "agency," when used in the broad sense, indicates a relation which exists where one person is employed to act for another. At the outset, we should keep in mind the distinctions between the agent, the servant, and the independent contractor. It is difficult to indicate these distinctions with absolute certainty by definition. An illustration, however, will show clearly what the difference is. I own an apartment house in New York, but as I am not in the city, except infrequently, I employ the real estate firm of Smith & Jones to manage the apartments and collect the rents. They are, of course, my agents, to act in the premises. I own an automobile and I employ a chauffeur to operate the car for[Pg 123] me. He is my servant. I own a vacant lot in New York and on it plan to erect an office building. I employ the Smith Construction Company to erect the building. It is an independent contractor. What is the rule, then, to determine the distinction between these three persons? All three persons represent the principal, or the master, or the employer, but the line of distinction lies here: An agent is employed to bring the principal into new contractual obligations; a servant represents his master in the performance of ministerial, or mechanical acts or services, with no thought of bringing his master into new contractual relations with third persons. A person who is employed to perform ministerial or mechanical acts for another, as we have said, is a servant, but there are cases where the master retains no control or right of control of the means or methods by which such work is to be accomplished. In this latter case, the person performing the work is not a servant, but is an independent contractor.

HOW AGENCY MAY ARISE.—Although agency undoubtedly originated from the relationship of master and servant, and that relationship from the enforced service rendered by slaves to their master, to-day the law of agency in the broad sense is a contractual relationship. The agent or servant or independent contractor becomes such upon the express or implied request of the principal. Although agency may exist, in so far as third persons are concerned, without any formal contract between the principal and the agent, yet, in the great majority of cases, there[Pg 124] is an actual contract between the parties to the relation. Compensation, although usually an element in the contract, is not necessarily a requisite. For instance, I may be liable for the negligent act of my son in running my automobile in connection with my business, although he is acting without any compensation. There are four methods by which the relationship of agency arises: (1) By contract; (2) by ratification; (3) by estoppel; (4) by necessity.

WHO IS OR MAY BE AN AGENT.—The law of agency, as between principal and agent, is simply an application of the general law of contracts, but as between third parties and the principal, or agent, new questions arise. The first question is, who is an agent and who is a principal? Any employer is a principal and any employee is an agent. The employer is a principal whether he employs the employee for a single act or whether he employs him for a period of time. Besides the ordinary cases that you will think of under the head of employer and employee, an officer of a corporation is an agent, the corporation being the principal. The president of a corporation is as much an agent as a clerk in the employ of the corporation. A partner is an agent—of the firm. These different kinds of agents are distinguished chiefly in the different scope of the authority which they possess.

DISABILITY.—In our discussion of contracts, we found that certain persons were under disability so far as making contracts was concerned. We mentioned the case of infants, married women, insane persons, and the like. The same disabilities do not exist[Pg 125] in the law of agency, so far as the agent is concerned. Any person may act as an agent or servant. So infants, married women, slaves, and even lunatics, may be agents or servants whose acts will bind their principals. It has been held that even a dog may be an agent. As to who may be a principal, the ordinary rules of contracts, as we have discussed them, may be relied upon as giving the correct rule.

AGENCY BY CONTRACT.—Concerning agency which arises by contract, little need be said. A contract of agency must possess all of the elements of the ordinary contract, such as mutual assent, consideration, competent parties, legality of object, and in some cases, a particular form. The general principles of contract law as we have discussed them are applicable to this method of forming the agency relationship.

POWERS OF ATTORNEY.—In connection with the formation of agency by contract, special attention must be given to powers of attorney. A power of attorney must oftentimes be given in order to convince third persons that the agent really is an agent, with the powers which he claims to possess. A power of attorney is nothing more than a written statement that a particular person is the agent of another person, with the powers stated in the document. A power of attorney may be very broad, giving the agent very wide powers, or may be narrow, giving the agent or attorney power to do only a specific thing. Now, many powers, so far as the law itself is concerned, might just as well be oral as written, but you could[Pg 126] not induce third parties to deal with the agent and believe that he had authority unless he showed as proof of it a power of attorney. That is why a power of attorney is generally given; not that the law requires it, but that the agent may have evidence of his agency which will satisfy third persons that he is really the agent. A corporation would not transfer stock without a written power presented to it; yet, if it chooses to run the risk, there would be nothing illegal in doing so. But it does not choose, and an attempt to compel it to transfer would be held unreasonable unless the authority of the person claiming to be empowered to transfer the stock were in writing and shown to it.

WITNESSED AND SEALED POWERS OF ATTORNEY.—A witness is not necessary on a power of attorney. A witness on a power of attorney has the same effect as on any other document where a witness is not absolutely required, and that is this: if the signature of a document is called in question and the signature is witnessed, the way which the law requires proof of the signature is by calling the witness to testify, and no other evidence is permissible until the witness is produced or his absence accounted for; that is, some adequate reason given and proved for not producing the particular man who witnessed the signature. For this very reason it is sometimes more difficult to prove a signature which is witnessed than one which is not. A signature which is not witnessed may be proved by anybody who has seen the person sign, or who is familiar with his signature,[Pg 127] and who can testify that the signature in question is his. The object of a witness is to provide certain evidence that a signature is genuine. The testimony of a witness may be more convincing in case of a dispute than testimony of one who merely recognizes the signer\'s handwriting. A witnessed power of attorney might be, however, more difficult to prove if the power of attorney were contested than if it was not witnessed, that is, if the witness could not be found. On the other hand, if you had your witness within reach it would be easy to prove the signature by him. The whole matter of witnesses to deeds and other documents, where a witness is not absolutely required, may be thus summarized: it is a good thing to have a witness if the witness is a reliable, well-known person who can always or generally be reached. It is a bad thing to have a witness who is a servant or a person whom you may lose sight of after some time has elapsed. The question may also be asked: How does a power of attorney, when given under seal, compare with one without a seal? One is as good as the other, except that if it is desired that the attorney or agent shall execute any instrument under seal, such as a deed of real estate, the power must itself be under seal; but a power to do anything which does not require the execution of a sealed instrument is just as good without a seal as with one. This, however, is true; if the power contains an agreement by the principal not to revoke the power, this agreement will not be binding if there is neither seal nor consideration, but will be binding without consideration[Pg 128] if under seal, in a State where seals still have their common-law effect. The principal will be able, it is true, even in such a case, to revoke the power, but he will commit a breach of contract if he does.

AGENCY BY RATIFICATION.—Where the assent of the principal to the act of the agent is given after the act is performed, it is in the nature of a ratification of the act, and is intended to clothe the act with the same qualities as if there had been a previous authority or appointment. Suppose, for example, A and B are acquaintances. Both are wealthy. A is a good judge of horses and knows B likes good horses. A discovers what he considers a good horse and buys it for B at a very low price. He tells B the next day what he has done and B goes to get the horse and tenders the price, but the dealer refuses to sell, as he has been offered a higher price. B has a cause of action for breach of contract, for by ratifying A\'s act, he has made a binding contract between himself and the dealer. Suppose in the same illustration, A had selected two horses for B, but when B saw them he decided to take only one of them. In that case, there would be no contract, for it is fundamental that a ratification, to be effective, must be of the whole contract, and not of a part. A ratification, once it is given, dates back to the original transaction and is irrevocable.

FORMATION OF AGENCY BY ESTOPPEL.—An estoppel may be said to arise where a person does some act which will preclude him from averring anything to the contrary. So, if one holds out another[Pg 129] as his agent, he is estopped to repudiate the acts of such a person within the scope of his ostensible authority. In the case of Bradish v. Belknap, 41 Vt. 172, the facts were that for a long time prior to 1863, B was the agent of the defendants in selling stoves. This fact was generally known and was well known to the plaintiff. In 1863 B ceased to be the agent of the defendant, but continued to sell stoves, which he purchased of the defendants. No public notice of the termination of the agency was given, nor was the fact known to the plaintiff. B continued to represent himself as agent of the defendants and was in the habit of taking notes for stoves sold, payable to the defendants, and this was known to the defendants. The plaintiff, believing B to be the agent of the defendant, offered to buy a stove of him and pay him in pine lumber. To this B assented and the lumber was accordingly furnished to B and the defendants, together with other lumber which the plaintiff charged up to the defendants. The defendants later attempted to escape liability for the lumber furnished in excess of the value of the stove. The court, holding them liable, said: "B during all this time was perfectly poor and irresponsible, and this fact was known by both parties. B represented himself as the agent of the defendants, and the conduct of the defendants was such as to justify the plaintiff in regarding them as the principals; and we can hardly conceive it possible under the circumstances that the defendants did not understand that the plaintiff so regarded them. And to allow them now to deny the agency and thus defeat the[Pg 130] plaintiff\'s right to recover for the balance of the lumber would be permitting them to perpetrate a palpable fraud on the plaintiff."

ESTOPPEL DEFINED.—This term will occur several times in the different topics of commercial law. An estoppel may be said to arise when a party by conduct or language has caused another reasonably to believe in the existence of a certain state of things and the other party acts on that belief, the first party is precluded from denying the existence of that state of things to any one who has justifiably relied on his language or conduct.

ILLUSTRATION.—There is a common saying in admiralty, that a seaman\'s claim for wages is nailed to the last plank of the vessel. So if boatswain John Silver is left unpaid by his vessel in London and he later finds the vessel in New York, although its ownership has entirely changed meanwhile, he may still file a libel for his wages and have the United States Marshal for the Southern District of New York seize the vessel. Suppose however you contemplate buying a vessel. You go on board with the present owner and while all the members of the crew are lined up on the main deck, you ask him in a voice loud enough to be heard by everybody whether there are any unpaid wage claims. He replies that everything is paid to date. The crew remain silent. You purchase the vessel and a few weeks later members of this same crew seek to collect from the vessel a wage claim of one year\'s standing. Their claims against the vessel or against you as owner are unenforcable. In other[Pg 131] words, they are estopped because of their conduct when you purchased the vessel. If a person does not speak when he ought, at times the law will not allow him to speak when he wishes. Boatswain Silver had never done anything to preclude him from asserting his wage claim. His, therefore, is not a case of estoppel.

AGENCY BY NECESSITY.—The authority of the agent may be enlarged by some particular necessity or sudden emergency in which case it is the duty of the agent to act, even though he cannot receive the advice or directions of his principal. This method of creating the agency relationship is one upon which the courts are not agreed, and there is great conflict in the decisions. The case of Gwilliam v. Twist, (1895) 1 Q. B. 557, and 2 Q. B. 84, is a good illustration of how close the line may be drawn. The facts were that the driver of an omnibus belonging to defendants became intoxicated while on duty and was taken from his seat by a policeman. A man who happened to be standing near volunteered to drive the omnibus to the defendant\'s yard, and the driver and conductor acquiesced, the former warning him to drive carefully. The volunteer in negligently turning a corner ran over and injured the plaintiff, who brought action for damages against the defendants, owners of the omnibus. The trial court held, with considerable hesitation, that the defendants were liable for the injury, placing its decision upon the ground of agency by necessity; but the court of appeal reversed the decision on the ground that the necessity[Pg 132] did not sufficiently appear, since the defendants might have been communicated with, and left open the question whether, if there had been an actual necessity, the defendants would have been liable.

RIGHT OF PRINCIPAL TO DILIGENT AND SKILLFUL SERVICE.—Let us consider, first, the rights of the principal and agent as between one another. The rights which the principal has against the agent are, first, a right to have the employee render reasonably diligent and skillful service. The amount of skill which the employer can fairly demand from his agent depends on the character of the contract between the two and on the circumstances justifying the principal in expecting a greater or less degree of skill. When a man employs an expert accountant to act for him he has a right to expect greater skill than if he were employing an ordinary bookkeeper. It depends on the character of the work and of the man employed. The amount of compensation paid to the employee may also have a bearing on the amount of skill the employer has a right to expect.

RIGHT OF PRINCIPAL THAT AGENT SHALL NOT EXCEED HIS AUTHORITY.—The second right that a principal has is to demand from his agent that the agent shall act in obedience to instructions and only within the limits of his authority. These limits may be fixed expressly in the contract between principal and agent, or they may be left wholly to implication from the nature of the employment. Perhaps more commonly they are partly[Pg 133] fixed by express agreement and partly fixed by natural implications which arise from the nature of the employment.

RIGHT OF PRINCIPAL TO ACCOUNTING.—Thirdly, the principal has a right in financial dealings with his agent, or in regard to financial dealings of the agent with third persons, to demand an account from his agent. It is not enough that the agent actually expend money intrusted to him correctly; he must furnish a correct account of expenses and of collections.

RIGHT OF PRINCIPAL TO FIDELITY.—Finally, the agent is under a duty of fidelity or loyalty to his principal. The principal is entitled to demand that the agent, unless the contrary is agreed, shall make the employment or agency his sole interest in regard to that particular thing. Of course, in many agencies the agent is undertaking a great deal of outside business besides the particular agency in question, and he has a right so to do so long as the principal has not engaged his whole time, and so long as one agency does not interfere with another. But that last is an important point. An agent who undertakes one task for one principal which occupies only one-tenth of his time cannot take another employment which is inconsistent with that. An agent to sell a particular kind of goods for one principal, even though his agency is not expected to take the agent\'s whole time, cannot undertake an agency for a competing principal. The two things are inconsistent, and the agent would be disloyal if he accepted.[Pg 134]

SIDE COMPENSATION.—Then, again, the agent must not get what may be called "side compensation" of any sort. His whole compensation as agent must be what is due him directly from the principal under the agreement. For instance, if a buyer for a department store gets paid a commission by a firm from which he buys goods, that is a side commission which the buyer as an agent has no right to take; and so strict is the law, that if an agent does take any such extra compensation the principal has a right to recover it from him. Of course, if the principal agrees to side compensation, it is all right for the agent to take it; when the principal agrees to it, it ceases to be what we have called side compensation and becomes part of the agent\'s direct compensation to which he is entitled under his bargain with his principal.

ACTING AS AGENT FOR BOTH PARTIES.—One of the most common difficulties that agents get into in regard to this requirement of fidelity, and sometimes with entirely good faith, is undertaking to act as agent for both parties. That cannot be done unless each party especially agrees that the agent may act for the adverse party. An attorney-at-law cannot represent two sides of a case. A real estate broker cannot represent buyer and seller, and a stock broker cannot represent buyer and seller. Stock brokers have one practice which perhaps may seem to infringe this rule. A customer comes into a broker\'s office and says he wants to buy 100 shares of New York Central. About the same time another customer[Pg 135] comes in and says he wants to sell 100 shares of New York Central. Now, must a broker go on the exchange and make a purchase for one customer and then a sale for the other, or may he, so to speak, negotiate through himself a sale for the customer who wants to buy from the one who wants to sell? What he frequently does, in fact, is this: He buys and sells from himself, but publicly, giving other brokers the chance to buy or sell if they wish. The broker, according to the rules of the New York Stock Exchange, cannot execute this transaction secretly in his office, but must offer the securities in question on the exchange, and the purchase and sale must be recorded on the ticker. If the bidding and asking prices are more than an eighth apart, he may offer the New York Central at a price midway between the bidding and asking quotations and buy it himself and charge each customer a commission, but he must actually make the offer or bid aloud on the floor. The broker is technically acting for both parties, but he is not fixing the price. He makes an open bid on the exchange, and it may be that would save the transaction.

AGENT\'S RIGHT TO COMPENSATION.—What are the rights of the agent against the principal? They are two. First, a right to compensation; that is, a right to the pay that has been agreed upon, or, if no pay was agreed upon but it was understood that there should be some compensation, then a right to reasonable compensation. It is perfectly possible to have an agency without compensation. Frequently[Pg 136] one man agrees to act for another without pay, and an agent who is acting without compensation, so long as he acts as agent, is bound to the same obligations to his principal as if he were receiving compensation, only he can withdraw from his agency whenever he sees fit since he is not paid for it. But unless circumstances show that an agency was understood to be without compensation, it would be implied that reasonable compensation was to be paid to the agent for his services.

AGENT\'S RIGHT TO REIMBURSEMENT.—The other right of the agent is the right to reimbursement and indemnity. As the agent is acting for the principal, the principal ought to pay all the bills of whatever kind incurred, so long as the agent is acting rightfully within his authority, and the principal is bound to pay all such bills. This obligation of the principal to pay all the bills of the agency means not simply that he must pay actual expenses, but that if liabilities of any kind arise by reason of third persons suing the agent or holding him liable, if the action of the agent was within his authority, the principal must indemnify against any loss.

PRINCIPAL BOUND TO THIRD PERSONS BY AUTHORIZED ACTS OF AGENT.—Now let us turn from the rights of principal and agent as between one another to the rights of third persons. When do third persons get rights against the principal? In the first place, whenever the agent, acting in accordance with his authority, enters into a transaction with a third person on behalf of the principal,[Pg 137] the principal is bound to the third person to just the same extent as if he himself had entered into the transaction; but it is not only in cases where express authority is given to the agent that this principle applies.

IMPLIED AUTHORITY OF AGENT.—In many cases the authority given an agent is not expressly stated. One has to rely on the general course of business and on the nature of the employment to determine the extent of the agent\'s authority. A third person deals with a cashier of a bank, or deals with the paying teller, or he deals with the president; now whether the bank is bound by that dealing depends on what is by general custom, or course of business, the authority of a cashier or a paying teller or a president. If cashiers or paying tellers or presidents generally have certain authority, then it is a fair assumption that this particular officer has such authority.

AUTHORITY TO DO PARTICULAR ACTS.—An agent to sell has generally no authority to make a sale on credit or to receive anything but money; he cannot barter or exchange the property even in part, nor pledge or dispose of the property to be sold in payment of his own debts. For the sale of land an agent\'s authority ought always to be under seal, and the provisions contained in this power of attorney will be strictly construed. In a sale of personal property, an agent has implied authority to do whatever is usual and necessary in such transactions. He may receive payment if he has possession of the goods, but not otherwise, and warrant the quality, if such goods[Pg 138] are customarily sold with a warranty by agents. He cannot sell on credit unless such is the custom, as in the case of commission merchants, nor pledge or mortgage the goods. The agent may not buy on credit unless so authorized, or it is the custom of the trade; but a principal\'s direction to purchase, without supplying the agent with funds, will imply authority to purchase on credit. The agent must purchase precisely as directed. An agent to manage has an authority co-extensive in scope with the business, and possesses the same power and authority as the principal, so far as management goes, but the agent may not sell or dispose of a business, nor mortgage the property used in carrying it on, nor engage in new and different enterprises. Public agents, i. e., public officers, cannot involve their principals, the municipal corporations whose officers they are, in contract liabilities with third parties unless actually authorized to do the act in question; and all persons dealing with them must inform themselves of the scope of their legal powers.

APPARENT AUTHORITY OF AGENT.—But it is not only in cases where the agent is expressly authorized, or authorized by such implication as we have just alluded to, that the principal is bound. There is the further case where the agent has apparent authority, although, as a matter of fact, he has no authority. Take the case of a cashier certifying a check. We will suppose that cashiers, generally, have authority to certify checks. With most cashiers that would be what we have called an implied authority,[Pg 139] as it arises from the general nature of their positions though nothing was ever said about it by the bank directors. But suppose in a particular bank it was a rule of the bank, expressly stated and voted by the directors, that the cashier should not have power to certify checks. Now, no one can say that his power here is either express or implied; it is certainly not express, and any implication that might otherwise arise from his position is negatived by the express vote of the directors, and yet if that cashier should certify a check to any person ignorant of this limitation on his authority the bank would be bound by the certification because the cashier has apparent authority. He looks to the world as if he had authority, and seems to the public like any other cashier. Most of the difficult cases in agency, so far as liability of the principal to third persons is concerned, relate to this matter of apparent authority.

ILLUSTRATIONS.—Compare the following case with the case of the cashier above alluded to: A man who is giving some support financially to a book dealer writes a note in which he says, "I authorize A B to buy a stock of books not exceeding, at any one time, $5,000." The book dealer shows that written authority to persons from whom he wishes to buy books. They sell him books, and, unknown to the last person who thus sells him books, he has just before bought a quantity which makes the total largely exceed $5,000. Is the principal liable to the persons who last sold books to the dealer? The answer is no. And what is the difference between that case and the[Pg 140] cashier case? In the book case the last seller saw the paper giving authority to the book dealer to purchase. He had no reason to know that the day before a large quantity of books had been purchased. He acted in entire good faith and the deception was natural. Still, the employer, or the writer of the letter, has done nothing here to make the last seller suppose that $5,000 worth of books had not already been bought, nor does the course of business justify the last seller in supposing they might not already have been bought. It was a hard question for him to find out, but on the face of the letter it was evident that any one who dealt with the bookseller might have to determine this question or rely at his peril on the bookseller\'s word. Here is another case: a town treasurer was authorized to borrow a certain sum of money. He gets a certified copy of the vote and goes to one bank and borrows the money, and goes to another bank with that same certified copy of the vote and borrows the money over again. Is the town liable to the second bank? No; on the face of the paper there was but one loan to the town authorized, and any one who lends the money must at his peril find out whether a loan has already been made. When we say, therefore, that a principal is bound if his agent had apparent authority, we do not mean that whenever a third person is deceived into the belief that the agent has authority, the principal is bound. Quite to the contrary, the principal must have in some way been the cause of that deception; he must have caused it either by some express representations, or he must have[Pg 141] caused it by putting a man in a place where the general course of business would induce the public to believe the agent had greater powers than he had.

GENERAL AND SPECIAL AGENTS.—It is much easier to find a case of apparent authority, which will bind the principal, if the agent is a general agent than if he is a special agent. A special agent is an agent authorized to do one act, as this town treasurer was authorized to make one loan. The cashier is a general agent, authorized to do any of the great variety of acts which cashiers ordinarily do, and if the directors vote to take away one of the normal powers of the cashier, they must make the limitation public or the bank will be bound by the cashier\'s act.

UNDISCLOSED PRINCIPAL.—Not only may the third person hold the principal liable in cases where the agent purports to act for the principal, but also in cases where the agent does not disclose his principal at all and purports to act as a principal himself, so long as it is true that the agent really was acting in the principal\'s business. Suppose a selling agent for a manufactory enters into a contract for the sale of goods produced in the manufactory. The selling agent, we will further suppose, contracts—as selling agents often do—in his own name; but he contracts in regard to the sale of the product of the principal, the manufacturer, and on his behalf. Now, assume that this contract of the sales agent was authorized; the third person may sue the manufacturing company, though he did not know of the existence of the manufactory at the time he entered into the contract,[Pg 142] and supposed he was contracting simply with the agent. As it is phrased in law, an undisclosed principal is liable, and conversely, the undisclosed principal may sue on this contract made by the sales agent.

RATIFICATION.—If an agent acts beyond his authority, the principal, if he chooses, may ratify the acts of the agent. Occasionally in an emergency it becomes necessary for an agent who has his principal\'s interest at heart to take a chance and act beyond the authority given him. In such a case, if the principal ratifies it, it is all right, both as far as the agent is concerned, and as far as the third person is concerned; but, of course, the principal is under no legal obligation to ratify.

RIGHTS OF PRINCIPAL AGAINST THIRD PERSONS.—Now, the right of the principal against the third person is the converse of the right of the third person against the principal, of which we have been speaking. Generally when a transaction is of such a sort that the third person would have a right of action against the principal, if the principal fails to do as he agreed, the principal will have a right of action against the third person if the latter breaks his agreement.

PRINCIPAL IS LIABLE FOR TORTS OF AGENT.—Not only is the principal liable for the contracts of his agent, but he is also liable for any tort which an agent may commit, so long as he is acting in the course of his business. Of course, accident cases present the commonest type of that sort of liability.[Pg 143] A street railway is liable for the results of its motor-man\'s neglect, so long as the motorman was running the car. If the motorman got off the car on a frolic of his own, the street railway would not be liable for anything he might do then. The same principle may be found in other cases than accident cases. Suppose officers of a corporation wrongfully overissue stock. If those officers were the officers authorized to issue stock, and, therefore, were acting in the general course of their business, the corporation would be liable for that tortious act in overissuing stock.

AUTHORITY MAY GENERALLY BE ORAL AS WELL AS WRITTEN.—The authority given by a principal to an agent may in general be oral as well as written; it is just as good. There are, however, a few exceptions to that. In the first place, an authority given to an agent to execute an instrument under seal must itself be not only written but under seal. An oral or a written authority, if not under seal, given to an agent to convey land, which must be conveyed by a sealed deed, would not enable the agent to make a valid deed. Where the effect of seals is abolished this principle is of course no longer applicable. Generally an agent orally authorized to make a contract to buy or sell land may bind his principal by entering into such a contract. The contract the agent enters into, must, because of the Statute of Frauds, be in writing, and signed, but the agent\'s authority generally need not be written. In some States, however, written authority is required by statutes.[Pg 144]

PROXIES.—A proxy is simply a written power of attorney to an agent, authorizing him to vote for a stockholder, and there, too, a corporation would be held justified in refusing to recognize any proxy that was not in writing, or any agent who did not have a written proxy even though proxies were not required to be in writing.

LIABILITY OF AGENT TO THIRD PERSONS.—How about the rights and duties of the agent as against the outside world? The agent is liable to a third person if he commits a tort. It does not make any difference that the principal is also liable, the agent is liable too. The third person may sue either the principal or agent as he prefers; he cannot get compensation for his injury more than once, but he can get that either from the principal or agent, whichever is more convenient. The third person may hold the agent liable if the agent contracts for an undisclosed principal. In the case of the sales agent referred to a moment ago, where the agent was really acting as agent for a manufacturer but did not say so, the third person might sue the manufacturer on the contract; but he might sue the agent, and if the agent was held liable the agent would have to seek reimbursement from the principal.

AGENT WARRANTS HIS AUTHORITY.—An agent is liable in one other case to the third person with whom he deals. If the agent did not have authority to do what he purported to do, the third person can sue him, though the third person could not sue the principal in this case, since the agent was[Pg 145] exceeding his authority. An agent is said to warrant his authority to third persons with whom he does business.

AGENT CANNOT DELEGATE AUTHORITY.—An important rule in agency is that an agent cannot delegate his authority. If A is appointed to do certain work, A must do it himself, and cannot empower B to do it if it proves inconvenient to do it himself. There are three exceptions to this rule. The first is that if he is given express permission to delegate his authority, he may do so, and, of course, if the principal should ratify an unpermitted delegation of authority, the ratification would here, as always, serve as well as original authority. The second case is where the usage of business is such that the principal must be presumed to have understood that there was to be a delegation, or partial delegation, of authority, and in such a case, though the principal has not expressly authorized delegation, he will be treated as if he had authorized it by virtue of business usage. The third case where delegation is authorized is in regard to what are called ministerial or mechanical acts, that is, acts which involve no exercise of judgment or skill. The principal is entitled to the agent\'s judgment and skill, but if there are parts of the work that do not require skill and that, from their nature, any ordinary clerical assistant can do, then such acts may be delegated.

TERMINATION OF AGENCY BY ACT OF PARTIES.—The parties may have agreed in their contract that it should terminate at a certain time or[Pg 146] on the happening of a certain event. The arrival of that time or the happening of the event would of course end the relation as between them. It would not so operate as between principal and third parties, however, unless the third parties were informed. So, performance of the purpose for which the relation was created terminates the relation as between principal and agent. The parties may make a subsequent agreement to terminate the relation, and such an agreement would be good, the abandonment of the rights of each party created by the original contract being a sufficient consideration for the promise of each to surrender his own rights.

REVOCATION.—Except in the case of irrevocable agency noted below, the principal may revoke at any time the agent\'s authority as to matters not already executed. Any other rule would enslave the principal to his agent by forcing him, at the agent\'s will, and against his own consent, into contracts with third parties. But, while the principal has this right, the exercise of it may subject him to liability to his agent. If the contract of employment is for a definite time, and the principal, without cause, revokes the agent\'s authority before that time arrives, the principal is liable to the agent for breach of contract; if no time is fixed for the termination of the agency, it is an agency at will, and the principal, with or without cause, may revoke at any time without incurring liability to his agent. The acts which will amount to a revocation by the principal are various. For instance, if an agent has exclusive authority to represent[Pg 147] the principal, the appointment of another agent would amount to a revocation. As to making the revocation effective, a revocation operates on the agent from the time he has notice of it. It is effective as to third parties only when notice is given to those who have dealt with the agent that the agent\'s authority is revoked. Without such notice the principal does not escape liability to third persons by reason of further acts on his agent\'s part. Where an agent is appointed in a particular business, parties dealing with him in that business have a right to rely upon the continuance of his authority until in some way informed of its revocation. This notice must be actual to those who have dealt with the agent, and general, as by publication in newspapers, where persons have not before dealt with the agent.

RENUNCIATION.—The agent may renounce his employment at any time, but if he contracted to serve for a certain time, and renounce before that time arrives, he is liable to the principal for breach of contract, unless he has ground for renunciation, such as the principal\'s breach of faith with him. The sickness of the agent is a ground for renouncing the relation, even though the sickness be caused by his own negligence or wrong. The principal should inform third persons of the agent\'s renunciation if he would fully protect himself against further acts of the agent.

TERMINATION OF AGENCY BY OPERATION OF LAW.—As in the case of ordinary contracts, a contract of agency may be terminated by the rules of law upon the happening of certain events.[Pg 148] Thus, the destruction of the subject-matter of the agency terminates the relation, if the parties contemplated the continued existence of the subject-matter as the foundation for what was to be done. A change in the law, as the enactment of a statute declaring illegal agencies of a certain nature, that previously had been legal, terminates the relation. So also certain changes affecting the parties to the relation—i. e., the principal or the agent—effect a termination. The death of the principal brings the relation to an end, and this is so although the agent had no notice of it and subsequently dealt on behalf of his principal with third persons; such contracts do not bind the principal\'s estate. The death of the agent necessarily ends the relation. The occurrence of the principal\'s insanity terminates the relation, and a judicial finding of insanity is notice to all; but without notice of the insanity third persons who deal with the agent in good faith are protected. The bankruptcy of the principal terminates the relation as to all matters affected by the bankruptcy. Impossibility to continue the relation brought about by restraint of law terminates the relation.

IRREVOCABLE AGENCIES.—An agency to do an act touching a thing in which the agent has an interest, or in which he is subject to an obligation, cannot be terminated by act of the principal alone. The principal cannot terminate the relation so as to leave the agent under obligations to third persons, thereby shifting his obligations upon the agent; nor can he do so when the agent has an interest in the[Pg 149] subject-matter of the agency. It is difficult to state concisely what will constitute such an interest that the principal cannot terminate the relation, but it may be said to be some ownership or right in the matter dealt with, such that the agent may deal with it in his own name, and not a mere benefit to be obtained from the performance of the contract of agency, as a commission to be realized from sales. Possession of personal property with the right to sell, with authority to apply the proceeds to a debt due from the principal to the agent, is sometimes held to constitute an agency coupled with an interest such that the principal may not revoke it; on the other hand, an interest arising from commissions or the proceeds of a transaction, is not an interest which will prevent revocation. The courts carefully examine agencies claimed to be irrevocable because coupled with an interest, and are inclined to rule against them.

MASTER AND SERVANT.—As we have said, the function of the servant is to perform ministerial or mechanical acts for the master. The chief subject-matter under the law of principal and agent is contracts, while the chief subject-matter of the law of master and servant is tort. The servant, in performing acts for his master, may, inadvertently or wilfully, cause injury to a third person or to the property of a third person. The question arises: What is the master\'s responsibility? We shall consider this from two standpoints; the relationship of the master and servant, inter se (between themselves), and the[Pg 150] relationship of the master and servant as to the outside world. For example: the driver of a delivery truck, operated by Lord & Taylor, negligently runs over a pedestrian. The truck was going at the rate of twenty-five miles an hour, although the instructions issued by Lord & Taylor to all their servants is not to run cars more than fifteen miles per hour in the congested parts of New York City. Is Lord & Taylor liable to the pedestrian? This question involves the relationship of master and servant as to outside parties. The same servant, while operating the delivery truck for Lord & Taylor is run into, negligently, by a delivery truck operated by R. H. Macy & Co. Is the master, Lord & Taylor, responsible to its servant for the injury which he suffers as the result of the collision? This question involves the relationship of master and servant inter se. We shall consider this latter relationship first.

THE COMMON LAW GOVERNING THE RELATIONSHIP OF MASTER AND SERVANT INTER SE.—What is the liability of the master towards the servant if the servant is injured? We shall see in the chapter on torts that a tort is defined to be a breach of duty imposed by law for which a suit for damages may be maintained. Hence it follows that the master\'s liability in tort flows from a breach of duty owed by him to his servant. If there is no legal duty, correspondingly there is no legal liability. These legal duties which the common law developed over a long period of years may be summed up as follows: (1) To provide a reasonably safe place for[Pg 151] the servant to work. (2) To provide reasonably safe, suitable, and sufficient tools and appliances with which the servant is to perform his work. (3) To provide reasonably careful and competent fellow workmen and in sufficient number for the work in hand. (4) To warn the servant of any unusual dangers connected with the work. (5) Generally so to conduct the work as not to expose the servant to dangers which could be avoided by the exercise of reasonable diligence. From the servant\'s standpoint, it was said that he assumed the ordinary risks inherent to the kind of business in which he was employed. These rules of the common law were the outgrowth of conditions surrounding the small shop and involving the use of simple or no machinery. Under modern industrial conditions they have proved wholly inadequate. We have been unduly conservative in recognizing this. Strangely enough the Workmen\'s Compensation Acts, with which we are now so familiar, had their origin in Germany in 1884. Nearly all the countries of continental Europe recognized the situation about thirty years ago, and England in 1897, and the United States within the last few years.

THE OBJECTION OF THE COMMON LAW THEORY.—Under the old theory, if the master had observed the duties which we have mentioned, he had performed his whole obligation to his own servant; thus, if two fellow workmen were working on the twentieth story of a new steel skyscraper being erected by the Institute Construction Co., and through the carelessness of servant A, servant B was[Pg 152] precipitated to the street and killed, there would be no recovery on the part of the estate of the deceased servant, although he may have left a wife and several children dependent wholly upon him for support. Even admitting that the Institute Construction Co. had exercised due care in selecting competent fellow servants for the deceased to work with, and had, therefore, performed all of its obligations on this score, nevertheless, it is better, from the standpoint of society, that the wife and children of servant B should receive fair compensation rather than be thrown upon the mercy of the public. The great object of the Workmen\'s Compensation Act is to shift the burden of such economic waste from the employer to the industry, in order that it may ultimately be borne by the consumer as a part of the necessary cost of construction and production. Thus we are asking the master to assume a greater financial responsibility for injuries to his servant under this new theory than he has assumed heretofore. This can be taken care of by the increased price he charges for his work and this in turn will ultimately pass the added burden to the community at large.

ILLUSTRATION.—Again, even if the servant did have a cause of action against his master, because of the master\'s failure to observe the common law requirements we have mentioned, nevertheless, the expense of litigation and the interminable delays connected with it, amounting at times to two or three years before the case was finally disposed of by the court of last resort, all tended to make litigation for the[Pg 153] servant all but impossible. He would ordinarily have no money with which to begin this long litigation, and would be obliged to retain the services of a lawyer, who would take the case on a contingent fee basis, and often take from the workman, should the decision finally be in his favor, a third, a half, or even a greater portion of the amount that he recovers. Perhaps this was no greater compensation than the lawyer was entitled to because of the labor involved and the prospect of no pay if he lost the case, but regardless of this it was hard on the client. The Supreme Court of Washington, in the case of Stertz v. The Industrial Insurance Commission, 91 Wash. 588, has summed up the objections against the whole system as follows: "Both had suffered under the old system, the employers by heavy judgments of which half was opposing lawyers\' booty, the workmen through the old defenses or exhaustion in wasteful litigation. Both wanted peace. The master in exchange for limited liability was willing to pay on some claims in future where in the past there had been no liability at all. The servant was willing not only to give up trial by jury but to accept far less than he had often won in court, provided he was sure to get the small sum without having to fight for it.... To win only after litigation, to collect only after the employment of lawyers, to receive the sum only after months or years of delay, was to the comparatively indigent claimant little better than to get nothing. The workmen wanted a system entirely new. It is but fair to admit that they had become impatient with[Pg 154] the courts of law. They knew, and both economists and progressive jurists were pointing out, what is now generally conceded, that two generations ought never to have suffered from the baleful judgments of Abinger and Shaw."

WORKMEN\'S COMPENSATION ACT.—To meet the objections we have just mentioned, the workmen\'s compensation act principle was developed on the continent of Europe. Practically all of continental Europe had placed laws of this character on its statute books before the end of the nineteenth century; in 1906 England passed similar legislation, and within the last few years, we have adopted the same principles. With the exception of a few Southern States, every State and territory of the United States has a Workmen\'s Compensation Act. We cannot consider these acts in detail. The principle underlying them is the same throughout the country. They are designed to compensate servants for "accidents" "arising out of," and "during the course of" their employment, and this, regardless of whether the servant was at fault or not. The whole theory of the common law had been that the master must be at fault in order that the servant may recover. The new theory is that the community at large can better stand the loss suffered by a servant than the individual servant. For example: a steel girder falls upon a workman engaged in structural steel work, through no fault on his part and also through no fault on the part of his employer. Under the common law, he would have to stand the loss himself. Under the Workmen\'s Compensation[Pg 155] Act, such an event is an "accident"; it "arose out of" and "in the course of" his employment. Therefore, he is entitled to a fixed compensation, and he secures it almost immediately through a workmen\'s compensation bureau, or whatever body the act of the particular State creates for the purpose of settling such matters. This is a burden on the employer, it is true; he was in no way to blame. Neither was the workman. The employer may protect himself against the claims of his workmen by insurance under a plan provided by the State law, or if the State law does not provide for it, by arrangements with private companies the same as any other accident insurance is obtained, and by figuring his cost upon the particular job, he can charge as a part of his operating expense, the cost of his insurance and include that in his charge for work. The loss suffered by the individual workmen is then passed to the community at large. From an economical and sociological standpoint, this situation is undoubtedly better than that existing under the theory of the common law.

THE INTERPRETATION OF WORKMEN\'S COMPENSATION ACTS.—Although these acts are comparatively new in this country, there has been a great amount of litigation, and it is not practical to enter into a discussion of all the close questions which are raised in interpreting such acts. A vast amount of the litigation has been concerned with the interpretation of the three expressions, common to almost all the acts, "accident" "arising out of" and "during the course of." While the courts have shown a broad-minded[Pg 156] spirit in interpreting these expressions, it is undoubtedly true that some decisions will suggest further legislation in order to correct certain evils which exist at the present time. For example, in defining the term "accident," the leading English case said: "The expression \'accident\' is used in the public and ordinary sense of the word, as denoting an unlooked-for event which is not expected or designed." And Judge Siebecker of Wisconsin says "accidental" contemplates "an event not within one\'s foresight and expectation, resulting in a mishap causing injury to the employee," and Mr. Justice Pound of New York says that the statute contemplates injuries "not expected or designed by the workman himself." To illustrate: A window-dresser is decorating the window in Woolworth\'s. He swallows a pin. This is an "accident" within the contemplation of the act, and entitles him to recovery. Again, a workman is employed in a white-lead factory. During his six months period of service in the factory, he contracts tuberculosis. This is not an "accident" because you must be able to put your finger upon a definite time when the unlooked-for event happened. This leads us to the general statement that Workmen\'s Compensation Acts in this country, as at present drawn, do not generally cover occupational diseases. Separate legislation is undoubtedly desirable to extend the principle in such cases, for if it is sound that the window-dresser in Woolworth\'s should recover, it should be equally sound that the workman who contracted tuberculosis should recover. Again, the other[Pg 157] two expressions "arising out of," and "during the course of" have caused much litigation. Perhaps the most satisfactory statement about these expressions is in the leading Massachusetts case, In re McNicol, 215 Mass. 497. Here the court says: "The injury must both arise \'out of\' and also be received \'in the course of\' the employment. Neither alone is enough. It is not easy * * * to give a comprehensive definition of these words. * * * An injury is received \'in the course of\' the employment when it comes while the workman is doing the duty which he is employed to perform. It \'arises out of\' the employment, when there is * * * a causal connection between the conditions under which the work is required to be performed and the resulting injury. * * * If the injury can be seen * * * to have been contemplated by a reasonable person familiar with the whole situation, * * * then it arises \'out of\' the employment. * * * The causative danger must be peculiar to the work and not common to the neighborhood. * * * It need not have been foreseen or expected, but after the event it must appear to have had its origin in a risk connected with the employment, and to have flowed from that source as a rational consequence." An illustration will show how these phrases are applied. The janitor of a building is alone in the building. An old enemy who has not seen him for years, learns his whereabouts, comes into the building, shoots him in the leg, causing him to have it amputated. Is the master liable? It is an "accident," and clearly it arose "during the course of" employment, but did it arise "out[Pg 158] of" his employment? Manifestly not. The guilty party would have shot the man had he met him in Central Park, or any other place. It was purely personal vengeance on his part which caused the act. The night watchman in a bank is shot by a robber at night in the bank, while on duty. May he recover from his master? Clearly he can. It is an "accident." It arose "during the course of" his employment, it arose "out of" his employment also, because the robber would not have shot him were he not in the bank as a watchman, standing between the robber and the accomplishment of his purpose, the securing of money from the bank.

THE RELATIONSHIP OF MASTER AND SERVANT AS RELATING TO OUTSIDE PARTIES.—If the relationship of master and servant exists, the question arises, is the master responsible for the torts committed by his servant, resulting in injury to third parties? It is, of course, essential that the wrongdoer must be the defendant\'s servant. It does not follow that a wrongdoer is the defendant\'s servant simply because of a certain relationship, as that of parent and child, husband and wife, or employer and employee. Within the last few years, a great number of automobile cases have been decided by the courts, and they are commonly spoken of as the "family automobile cases." To illustrate: I own a car which is used by the various members of my family. My son, while running the car, for his own pleasure, negligently runs over some one. Am I responsible? Granting the relationship of parent and child, that[Pg 159] would not constitute, per se (of itself), the relationship of master and servant. The injured man would have to show more than I have indicated in order to entitle him to recover for my son\'s negligence. Were members of my family in the car, being taken out for a ride by my son, I would be liable. Again, my wife, in discharging a servant, assaults her. Should the mere fact of the relationship of husband and wife make me liable on the theory of master and servant? Clearly not. Again, I employ John Smith as my chauffeur. I never operate my car on Sunday. John Smith, who lives in the town adjoining mine, is moving, and asks if he may borrow my car over Sunday to assist in the moving operations. While using the car for that purpose, he negligently runs over some one. Am I liable? Clearly not, for, although the relationship of master and servant exists between me and my servant at the time he did the injury, he was not acting for me as a servant. What is the rule to be applied to answer such questions?

THE SERVANT MUST BE ENGAGED IN HIS MASTER\'S BUSINESS.—It is clear from the foregoing that, in order to make the master liable, the servant must be engaged in his master\'s business, and he must be acting within the scope of his employment. The New York case of Rounds v. The Delaware, etc., Railroad, 64 N. Y. 129, states the general rule: "For the acts of the servant, within the general scope of his employment, while engaged in his master\'s business, and done with a view to the furtherance of that business and the master\'s interest, the master will be[Pg 160] responsible whether the act be done negligently, wantonly, or even wilfully." The Court of Errors and Appeals of New Jersey recently said in Holler v. Sanford Ross, 68 N. J. Law, 324: "The Supreme Court of Connecticut states the rule applicable to this class of cases about as clearly as it can be done, when it says: \'For all acts done by a servant in obedience to the express orders or direction of the master, or in the execution of the master\'s business, within the scope of his employment, and for acts in any sense warranted by the express or implied authority conferred upon him, considering the nature of the service required, the instructions given and the circumstances under which the act is done, the master is responsible; for acts which are not within these conditions, the servant alone is responsible.\'"

LIABILITY OF A PUBLIC AGENCY FOR THE NEGLIGENT ACTS OF ITS AGENTS.—It is an old saying that "the King can do no wrong." This principle of the English common law we have applied in this country, and the Federal Government cannot be sued unless it gives its consent. While the Court of Claims has been established, Congress has generally provided that suits may be brought against the Federal Government only in contract actions, and not in tort actions, so that ordinarily, if a person is injured through the negligence of an employee of the Federal Government, he may not recover against that Government. Thus, my only remedy in case of an injury, received through the negligent operation of an elevator in a post-office building owned by the Government,[Pg 161] would be the passing of special legislation by Congress compensating me. I would have no right to sue the United States for such injury. The same general principles are applied to the State governments. In regard to cities, the rule may be generally stated to be that a municipality is not liable for the negligence of its servants in those departments operated by the municipality in its governmental activities, as distinguished from its administrative activities, in which case it is liable. Thus, a city is not responsible for the negligence of its policemen or its firemen, although injury results from their negligence, these departments being examples of governmental activities of a municipality, while the city would be liable, generally, for the negligence of the employees of its water department, this being an illustration of its administrative activities. It is also generally held that public charities, such as hospitals, and the like, are not liable for torts committed by their servants, provided they have used reasonable care in the selection of their servants.

INDEPENDENT CONTRACTORS.—A distinction must be made between one whom we call an independent contractor and a master. When A desires a particular piece of work done, he has two options as to doing it. He may either hire a workman to do it, retaining control of the workman, and telling him how he shall do it, or he may let the work by contract, simply stipulating that it shall be done in accordance with plans and specifications which his architect has drawn up. He retains no control over the[Pg 162] contractor or over his method of work. His sole interest here is to have the piece of work turned over to him in its completed state. In the first case, we call the workman a servant; in the second case, he is an independent contractor. One who employs an independent contractor is not liable for the negligent acts of the contractor or his servants, except in a few special cases. In Berg v. Parsons, 156 N. Y. 109, the majority of the court states: "There are certain exceptional cases where a person employing a contractor is liable, which, briefly stated, are: Where the employer personally interferes with the work, and the acts performed by him occasion the injury; where the thing contracted to be done is unlawful; where the acts performed create a public nuisance; and where an employer is bound by a statute to do a thing efficiently and an injury results from its inefficiency." A few, but not many courts, add to this list one further fact, that the employer must use due care in the selection of a competent independent contractor, otherwise he is liable. This would seem eminently sound.