This article has been written by Fatima Kabir, pursuing a Crack California Bar Examination – Test Prep Course from LawSikho and edited by Shashwat Kaushik.

It has been published by Rachit Garg.

Introduction

In the hurly-burly of our everyday lives, it becomes impossible to execute every act and duty by ourselves. It almost becomes indispensable not to employ another extra helping hand. This extra helping hand is the “agent,” and the contract under which he is appointed is called “agency.” The law of agency is based on the legal maxim “qui facit per alium facit per se,” which means “he who does an act through another does it by himself.”

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Agent and agency under California Civil Code

Title 9 (sections 2295-2400) of the California Civil Code talks about the agency. Under Chapter 1, Article 1, Section 2295, ‘agent’ is defined as a person who makes a representation on behalf of another; the person on whose behalf he’s making a representation is called the principle, in dealing with third persons. Such an arrangement is called an agency. In this chapter, essential components of an agency are also mentioned, such as the fact that any person having the capacity to contract may be appointed as an agent, and any person having the capacity to enter into a contract can be appointed as an agent. Furthermore, the chapter sheds light on the types of agencies under California Civil Law. According to Section 2298, an agency may be ostensible or actual. Actual agency is defined by Section 2299 as an agency where the agent is employed directly by the principal. Ostensible agency is defined by Section 2300 as an agency where the principal intentionally causes a third party to believe that another is his agent who is not actually his employee or where the principal fails to exercise ordinary care. Ostensible authority has two requirements: the third party must believe the agent has authority, and this belief must be the result of some action or inaction on the part of the person holding the position. In the case of Pacific Ready-Cut Homes, Inc. vs. Seeber (1928), the Court said “all parties to this controversy concede that it is settled law that ostensible agency cannot be created alone by the representations of the purported agent himself but that there must be some act or conduct on the part of the principal by which he either intentionally or by want of ordinary care causes or allows a third person to believe that the agent possesses the authority to bind him as principal.”

Authority of agent under California Civil Code

Article 2 of Chapter 1 (sections 2304-2326)  prescribes the authority of the agent. Section 2304 states that an agent may be authorised to do any act that his principal might do, except those that require the personal attention of the principal himself. In other words, a principal cannot assign a non-delegable duty to the agent and shall not employ the agent to do an act that the principal personally cannot do. For example, a principal cannot hire or employ an agent to commit murder or arson. Furthermore, every act that, according to the California Civil Code, may be done by or to the agent of such a person for that purpose, unless a contrary intention clearly appears. In order to establish an agency, consideration is not an essential element as per the California Civil Code. An agency can be created, and authority can be conferred, by prior authorization or subsequent ratification. An oral authorization by the principal to the agent is sufficient for any purpose, except where an authorization to enter into a contract is needed in writing as per the requirements of any law that is in force. A ratification is not valid unless, at the time of ratifying the act, the principal has the power to confer authority for such an act. A ratification of a part of an indivisible transaction is a ratification of the whole transaction.

Agent’s authority as enumerated under Section 2319

The authorities of an agent as enumerated under Section 2319 are: 

  • To take all necessary actions in the regular course of business for achieving the goals of the agency; and
  • To represent any matter of fact, excluding the terms of his authority,

In Madden vs. Kaiser Foundation Hospitals (1976), the Supreme Court of California explained that the Board of Administration of the State Employees Retirement System was authorised to negotiate health plans on behalf of state employees. In that capacity, a health plan was negotiated that contained an arbitration clause. In light of the aforementioned provisions of Civil Code Section 2319, the Supreme Court identified the issue of the enforceability of the arbitration clause and the authority of an agent as follows. “This preliminary doctrinal recitation sets the stage for the principal issue of this appeal whether the board, as agent of the employees, had implied authority to agree to a contract that provides for arbitration of all disputes, including malpractice claims, arising under that contract. That issue turns on the application of Civil Code Section 2319, which authorises a general agent “To do everything necessary or proper and usual … for effecting the purpose of his agency.” For the reasons explained below, the court concluded that arbitration is a ‘proper and usual’ means of resolving malpractice disputes, and thus that an agent empowered to negotiate a group medical contract has the implied authority to agree to the inclusion of an arbitration provision.”

Obligations of agents to third parties

The obligations of agents to third parties are mentioned under Chapter 1, Article 4 (sections 2342-2345). The first obligation of an agent to a third party is that one who steps into the shoes of an agent thereby warrants to all who deal with him in that capacity that he has the authority which he assumes (Section 2342). Here we can see that the principle of estoppel is also at work. In the case of Borton vs. Barnes (1920), the secretary was held liable as a principal in a real estate broker’s action to recover the reasonable value of services rendered under a written contract because he induced the broker to enter into the contract when he knew he lacked authority to execute it.

The second duty of the agent to the third party is covered by Section 2343. One who purports to act as an agent is liable to third parties as a principal for his acts in the course of his agency in any of the following circumstances and in none of the others:

  • When the credit is given to him personally with his consent 
  • Without good faith and authority, he enters into a written contract in the principal’s name.
  • When he commits some wrongful acts.

In the case of Ruiz vs. Herman Weissker, Inc. (2005), the California Court of Appeal held that under the peculiar risk doctrine, the trial court properly granted summary judgment for the hirer’s agent in an action brought by the estate of an independent contractor’s employee who was electrocuted on the job site. The agent’s failure to exercise control in the face of unsafe work practices by the independent contractor’s crew was not actionable.

Section 2344 mentions the third responsibility an agent has to a third party. According to the Section, if an agent receives something for the benefit of his principal that another person is entitled to possess, he is responsible if, after receiving notice from the owner, he delivers it to his principal. He must also surrender whatever portion of the item is under his control at the time of demand, as well as any advance he may have made to his principal in good faith on account of the item. In the case of Tribeca Companies, LLC vs. First American Title Insurance Co. (2015), it was held that an investment company failed to prove the essential element of cause in fact under Civ. Code, §§ 1709, 3300, and 3333, as to its claims of breach of contract, breach of fiduciary duty, negligence, fraud, and negligent misrepresentation arising from an escrow agent’s release of an investor’s deposit because the investor never lost title to the deposit.

Conclusion

Thus, to draw curtains, agency depends on the true nature of a relationship. In legal phraseology, every person who acts for another cannot be deemed an agent. A domestic servant renders his master a personal service; a labourer may till a landlord’s field; but these relations will create agency for a simple reason because they are not representing their masters in front of a third person. Only when a person represents another person to a third person does the relationship of principal and agent arise.

Similarly, when the agent starts representing the principal to a third- party, that is when his liability arises, whether in a contract or a warranty of authority.  

References

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