Principal and agent

A CONTRACT of agency arises where one person, called the principal, authorizes another, called the agent, who accepts the charge, to represent him, or act on his behalf, and undertakes to be answerable for what that other does within the scope of his authority.

This contract, like others, requires the mutual consent of the parties to it, and that consent may be express or implied in their actions and course of dealing. Thus not only is a wife the agent of her husband for the purpose of supplying herself with necessaries, but a woman with whom a man cohabits occupies the same position as long as the cohabitation continues, Indeed, agency may be constituted by ratification of acts done on behalf of another even without previous authorization. No special formality is required in appointing an agent except in the case of a corporation, or where the agent is authorized to execute a deed on behalf of the principal, in which case the appointment must be by deed.

Whatever a person may do by himself he may appoint an agent to do for him, qui facit per alium facit per se; and anyone of sound mind may be appointed an agent, even one who, like a minor, cannot enter into legally binding contracts for himself, An agent cannot delegate his authority to another, for delegatus non potest subdelegare. Agency is of different kinds, universal, general, or special. A universal agent is empowered to do any acts on behalf of his principal; a general agent is empowered to do all acts in some particular trade, business, or employment; a special agent is authorized to do some particular act for the principal; a del credere agent engages to be responsible to his principal for the purchase money of goods sold by him.

The rights and duties of principal and agent between themselves are settled by their intention as manifested or implied in the contract which they have concluded. In default of express or implied agreements to the contrary the duties of the agent implied by law are: to perform the contract of agency; to observe the limits of his authority and the instructions given him by the principal, as also the customs and usages of the business in which he is employed; in all things left to his discretion to act with the most perfect good faith in the interest and for the benefit of his principal; to exercise due skill, care, and diligence, according to the nature of the business entrusted to him and the terms of the agency; to keep the money and property of his principal separate from his own; to pay over to the principal all moneys received to his use, and to account to him for all secret profits and commissions. No agent is allowed to enter into any transactions in which he has a personal interest at variance with his duty to his principal or from which he obtains any personal benefit or profit, except with the consent of the principal; and any secret commissions or profits which he acquires are considered as received for the principal’s use. This rule of law is just, and it should be adhered to when the agent obtains a fair and equitable remuneration for his services from the principal. It is obvious that the agent may keep secret commissions which he receives from others with the express or implied consent of his principal, and he may be excused in conscience if he retains for his own use the fruits of special and extraordinary diligence which he was not bound by his contract to employ, together with gifts and presents made to him personally to secure or retain his custom, provided that the interests of his principal in nowise suffer in consequence.

The principal on his part is bound to pay a fair remuneration to the agent for his services, to accept the obligations lawfully entered into by the agent in his behalf, and to indemnify him for all expenses and losses that he has incurred in the course of his agency.

Even if a universal or general agent exceeds his authority in a particular instance, yet the principal will be liable if the act came within the agent’s ordinary authority. This is not the case with a special agent, for in this case it is the duty of those who contract with him to satisfy themselves as to the extent of his powers.

As a general rule, the agent incurs no personal liability, for he acts on behalf of his principal, who alone is bound. Contrary to the general rule, the agent will be liable when he conceals his principal, or when he acts without authority, or when he exceeds that authority and fraudulently misrepresents its extent, or when he specially binds himself, though acting as an agent: When the fact of agency is not known, or when the agency is known but the principal is not disclosed, the principal, on being discovered, is held liable as well as the agent. In law, but not in conscience, the principal is liable for the fraud and wrong committed by the agent within the limits of his authority even without the sanction of the principal.

A contract of agency is determined by the death of the principal, by the revocation by the principal of the agent’s authority, by the agent’s renunciation of office with the principal’s consent, by the principal’s bankruptcy, by the effluxion of time, and by the fulfilment of the object for which the agency was created.

I. Notion of mandate. Mandate is a contract by which someone entrusts to another some affair to be managed in his, that is, the mandator's, name, and the other, the mandatary, undertakes to manage it in that way. A general and a special mandate are distinguished, according as the mandator commits all affairs or only one affair or several affairs to the mandatary.

II. Form of mandate. With attention paid to natural law, it can be entered into both orally and in writing; but civil law should be inspected.

III. Obligations of the mandator. The mandator is bound: 1° to fulfill the obligations which the mandatary undertook within the limits of the mandate; those which he undertook by exceeding the limits of the mandate do not bind the mandator, unless he has expressly or tacitly ratified them; 2° to compensate the mandatary for the expenses to be made by him, and likewise the damages which he has suffered inculpably in executing the mandate; 3° to pay the agreed wage.

IV. Obligations of the mandatary. The mandatary is bound: 1° to execute the mandates diligently; 2° to keep himself within the limits of the mandate; otherwise he acts in his own name, and therefore does not oblige the mandator toward the third party. To what extent he can retain the excess of price, if he sells above the price assigned by the mandator or buys below it, see n. 902.

V. Cessation of mandate. Mandate ceases: 1° by legitimate revocation of the mandator, intimated to the mandatary; 2° by legitimate renunciation of the mandatary, intimated to the mandator; 3° by the affair for which the contract was entered into having been finished; 4° by the death of the mandator or of the mandatary. Some indeed teach, or hold as probable, that a mandate of donating does not expire by the death of the donor, so that the mandatary can execute the mandate of donating even after the death of the donor; but it is not clear by what reason a donation of some thing could be made in the name of a person already deprived by death of every right to the thing to be donated.

VI. Management of affairs is had when someone without mandate of the owner undertakes to manage another's affair.

Question 1. Does the manager of affairs have a right to a wage?

Response. It must be denied if he had the intention of rendering the service gratuitously. Otherwise it is disputed. Some deny it, because that right cannot arise except from a contract with the owner. But with St. Alphonsus (III, 825, at the end) and others, it seems that it must be affirmed in the case in which the owner wanted, for example, to buy something. The reason is that one who wishes, for example, to buy something also wills the normal conditions necessary for the purchase. But a normal condition is that he wishes the thing to be bought by another if he himself cannot buy it. This being posited, there is a contract, implicit on the part of the owner, between the owner and the manager of the affair, who buys the thing and receives a right to a wage.

Question 2. Is the owner bound to ratify the things which the manager of affairs prudently managed?

Response. It must be affirmed insofar as, according to the things just explained, a contract had place between him and the manager of affairs.

Note. What civil law establishes regarding the management of affairs, see in the code of one's country.

588. Mandate (mandat, procuration; lastgeving) is the act by which some business is committed to someone to be managed gratuitously; but if it is undertaken by him, the contract is perfected (a. 1984). Hence it is a contract by which one commits something to another, to be done in his name, and the other undertakes to manage it gratuitously. Hence mandate by its nature is a gratuitous contract, because it is connatural to mandate that the business be undertaken and managed gratuitously; unless, however, the contrary is stipulated (a. 1986), in which case it is a letting of work.

One mandate is special, by which the mandator commits one only or several designated businesses; another is general, by which he commits all his affairs to the mandatary (a. 1987). Yet this, conceived in general words, pertains only to acts of administration; wherefore for alienation, or for conceding a mortgage, or for any other acts of dominion, an express or special mandate is required (a. 1988).

589. The obligations of the mandatary are (a. 1991 sq.):

1. To manage the affairs committed to him diligently and usefully, and as if they were his own; whence he is held concerning defects committed in the management and damages following from them.

2. To complete the business begun, even when the mandator has died, if there is danger in delay.

3. Not to exceed the limits of the mandate, for example, to spend a greater sum than the mandator prescribed.

4. To render an account of the execution of the mandate committed to him, and to restore the gain which he received from the mandate, unless by accident gain follows from special industry or undue labor.

5. Not to demand a wage, unless it was promised.

590. The obligations of the mandator are (a. 1998 sq.):

1. To fulfill obligations contracted in his name by the mandatary and consonant with the mandate; but not what has been done beyond the mandate, unless that has been expressly or tacitly ratified (a. 1998).

2. To refund to the mandatary expenses made for the execution of the mandate, and to pay the stipend if it was promised, even if the matter did not have a prosperous success (a. 1999).

3. To indemnify the mandatary concerning damages which, culpable imprudence being set aside, he suffered on the occasion of the mandate (a. 2000).

591. Mandate is dissolved:

1. By revocation of the mandatary made by the mandator: for the latter can revoke the mandate at any time;

2. By renunciation of the mandatary: for the latter cannot be forced to continue unwillingly to bear a burden gratuitously undertaken;

3. By natural death, interdiction, and insolvency (deconfiture) of either the mandator or the mandatary (a. 2003 sq.).

592. Management of affairs. Affine to mandate is negotiorum gestio (zaakwaarneming), by which someone undertakes to manage usefully the affairs of an absent person, even one who is ignorant of it, as if from his reasonably presumed commission. Hence it is a quasi-contract arising from the act of him who spontaneously manages the affairs of another, whether the latter knows it or not (a. 1372).

The manager of the affair is held (a. 1372-74): 1. to administer it diligently; 2. once begun, to complete it; 3. to render an account of the things which he has managed.

He whose affair is well managed is held: 1. to observe agreements entered into in his name by the manager; 2. to keep him indemnified for all personal obligations which he undertook; 3. to refund to him all useful or necessary expenses which he made, even if the matter had a bad result (a. 1375).

Titius, a Catholic, became an agent for buying and selling shares in the public market (stock-exchange broker). When business did not succeed as he had hoped, he tried in various ways to increase his fortune. Having received an order to buy specified shares at the current price, since the price varied during the day, he reported the highest price to the client and retained for himself the difference between this and the true price at which he had bought the shares. When the price of certain shares had fallen, he bought them in a large quantity in his own name and afterward, when the price had risen, frequently sold them to clients at a great profit. In order that this business might succeed more surely, he placed articles in newspapers in which he praised more than was right the security and value of those shares in order to attract buyers. By these devices the affairs of Titius were in a better state; but, driven by scruples of conscience, he came to confession, and, since without doubt he had inflicted great losses upon many persons known and unknown, disclosed his manner of acting to the confessor. Hence it is asked:

1. What are the obligations of an agent?

2. To whom and by what law is restitution to be made when the creditor is uncertain?

3. What is to be said of the case?

1. What are an agent's obligations?

“In default of express or implied agreements to the contrary, the duties of an agent implied by law are: to perform the contract of agency; to observe the limits of his authority and the instructions given him by the principal, as also the customs and usages of the business in which he is employed; in all things left to his discretion to act with the most perfect good faith in the interest and for the benefit of his principal; to exercise due skill, care, and diligence, according to the nature of the business entrusted to him and the terms of the agency; to keep the money and property of his principal separate from his own; to pay over to the principal all moneys received to his use, and to account to him for all secret profits and commissions. No agent is allowed to enter into any transactions in which he has a personal interest at variance with his duty to his principal or from which he obtains any personal benefit or profit except with the consent of the principal.”¹

1 Manual of Moral Theology, vol. i, p. 545.

2. This question is answered above, p. 273.²

2 Compare the same work, p. 424.

3. The case. Titius, a stock-broker, on getting an order to buy a certain stock at the current rate, debited the highest price that ruled on the day in question to his client and pocketed the difference. In doing this he clearly committed an act of injustice, since he was bound to act for his principal, not for himself. He must restore his ill-gotten gains.

In buying stock on his own account when the price sank and selling afterward to his clients at a profit when the price rose, he acted within his rights, provided that he always sold at the current price. But when he unduly puffed such stock in the press in order to attract buyers and raise its price, and thereby caused loss to many, both known and unknown, he acted unjustly, and for this he is bound to make restitution. For to hold oneself out as an expert and then give damaging advice to clients for one’s own benefit is fraudulent and unjust. If Titius can not succeed on the stock exchange by honest means, he should try some other occupation.

Titius, the captain of a ship, put into a certain port in England to obtain coal for the use of the ship. As soon as he entered the port, behold, a letter was sent to him containing ten pounds in banknotes from a certain coal merchant, who asked him to be willing to favor him, since he affirmed that he had the best coal and that it was to be sold at no greater than the usual price. Although Titius knew well that the money had not been given entirely gratuitously, indeed, that without doubt the price of the coal would thereby be increased in some way, nevertheless, because almost everyone acted thus, he accepted the money and signified that he would buy the coal from the merchant. But since he was a Catholic and was not free from every scruple concerning the money accepted, he went to confession and opened his conscience to the confessor. The latter, however, doubts whether Titius sinned by accepting the money, or whether and to whom he is bound to make restitution. Hence it is asked:

1. In a contract of buying and selling, what is a just price and how is it determined?

2. What are the obligations of an agent?

3. What is to be said of the case?

1. This first question is answered above, p. 304.

2. This question is answered on p. 309.

3. The case. The captain of a ship went to a certain port to coal. In port he received £10 in notes from a coal merchant asking for the privilege of supplying him with excellent coal at the usual prices. The captain knew that the money was not a pure gift and that somehow the coal merchant would take it out of the coals, but he accepted the money, as everybody else did the same, and asked the merchant to supply him with coals. However, he was not without scruples and mentioned the matter in his next confession.

Titius can perhaps be excused from a sin against justice. The merchant without doubt had a right to make a reasonable profit on the transaction, and if the £10 which he gave to Titius came out of that profit, and the coal supplied was not deficient in quality or quantity according to the ordinary standard, neither party committed sin, and Titius may keep his secret commission. Titius, however, by taking the money made it difficult for himself to insist on the proper quantity and quality of coal being supplied, and if in fact the coal was deficient in either way, both parties sinned against justice and are bound to make restitution to the owners of the ship who were defrauded.