Figures: tax year 2026
A principal engages an agent to act on the principal's behalf and subject to the principal's control, with both parties assenting. Agency creates responsibilities between them, while the agent's dealings can also affect outsiders.
Common-law agency supplies the governing framework for duties and liabilities of agents and principals. A scenario's stated jurisdictional rule controls when it modifies the general principles below.
The claim determines the necessary findings:
- Establish agency status from assent, action on another's behalf, and the relevant right of control.
- Identify the duty, its beneficiary, and the conduct that allegedly violated it.
- For a contract claim, determine authority and which persons became parties to the agreement.
- For a tort claim, establish the actor's wrongdoing and any separate basis for imposing liability on the principal.
- Connect the breach to recoverable loss when damages are sought; examine other agency remedies under their own conditions.
A supplier's contract claim against a principal differs from that principal's claim against a disobedient agent arising from the same purchase.
Common mistakes
- Wrong duty direction. Returning collected receipts is the agent's accounting obligation; repaying the agent's proper outlay concerns reimbursement.
- A good price cures conflicts. Acceptable lease terms do not replace both principals' informed consent to dual representation.
- Disclosure arrives too late. Identification after contracting does not retroactively place the agent outside an unidentified-principal contract.
Bottom line
- Agents owe principals loyalty, obedience to lawful instructions, reasonable care, accounting, and communication of material information.
- Legally sufficient informed consent can permit a loyalty conflict where the governing law allows it; confidentiality obligations can survive termination.
- Principals owe earned compensation, qualifying reimbursement and indemnification, and cooperation according to the agreement and applicable rules.
- Actual authority, apparent authority, and ratification can bind principals, while disclosure at contracting affects the agent's personal contract liability.
Exam shortcut
Start with the claimant and defendant. Circle whether the stem concerns a principal's internal claim, an agent's payment claim, or an outsider's contract or tort claim. For a contract, test binding authority before disclosure. Freeze the counterparty's knowledge at contracting, then inspect personal undertakings, disclaimers, defenses, and any later release. For a duty question, match the decisive conduct: secret benefit, ignored instruction, careless performance, retained receipts, or withheld information.
The full lesson (about 6,677 words, 45 min read) adds 7 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- II.A2
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