Continental European law classifies the undertaking of transactions in the place of another as agency only when the transactions are legal. It excludes other acts, including unlawful acts, so that, when dealing with the law of agency, the rules concerning the liability of a master for the torts of his servant do not come into consideration.

Following the lead of Justice Oliver Wendell Holmes, Jr., the opposite view has been taken in English and American literature. The predominant opinion treats the liability of a master for the tortious conduct of his servant as a part of agency law since these cases logically come within the maxim qui facit per alium, facit per se (“he who acts through another, acts himself”). The doctrine of respondeat superior (“that the master must answer”) is therefore treated as a part of agency law, even though the rationale behind the master’s liability is that he has assigned to a servant under his control a task that unforeseeably results in damage to a third person. On the other hand, consequences flowing from an agency relationship rest on the idea that an authorized person performs legal acts within his competence not on his own behalf but for the principal. A growing view in the modern literature recognizes, however, that “the two basic relations are strange bedfellows.”

According to English and American law, the liability of a principal for his agent’s torts in the ordinary course of his employment depends upon the existence of a master–servant relationship. If the principal and agent stand in a master–servant relationship to each other, the master is vicariously liable for his servant’s tortious conduct committed within the course of his employment irrespective of any personal fault on the master’s part. This doctrine of respondeat superior arose from the belief that, since the head of the household or of the economic enterprise exercises control, he should pay for the harm caused by its members.

Such a relationship presupposes a degree of physical control by the master over his servant, which may exist, for example, over the driver of the principal’s delivery truck but is lacking over the principal’s factor or broker. The other major limitation to the doctrine is that the servant’s tortious conduct must be committed within the servant’s course of employment. Generally, this includes conduct that is not a serious departure from that authorized, both in manner and space, by the master and that is actuated at least in part by a motive to serve the master. Under this principle, the master’s vicarious liability extends in some instances even to claims arising from the servant’s intentional torts.

If no master–servant relationship exists between the parties, the principal’s liability for the torts of his agent is far more restricted. For example, a principal is not liable for the harm caused by the negligent physical conduct of his nonservant agent. He is liable, however, for any other torts of his agent that either are authorized or the commission of which normally are made possible by the agent’s position. The chief example of such conduct is tortious misrepresentation by the agent.

Termination of agency

With the termination of actual authority, questions often arise as to whether the authority was usual, was special or general, arose out of necessity, or was also apparent. Questions concerning the external and internal agency relationships create special problems, particularly in this area. A principal’s termination of the agency relationship does not necessarily have the same effect vis-à-vis the agent as it has with respect to the third party. It may be that the principal can terminate the real authority but not the apparent authority toward a third party.

In theory, the principal may revoke the real authority of his agent or the agent may terminate his authority by renunciation or revocation at any time. If the revoking party has previously agreed not to do so, the revocation remains valid, but the other party may maintain a breach of contract action against him. The agency relation can also terminate by operation of law in case of death, insanity, bankruptcy, or war, particularly where the principal is concerned. The question then arises as to whether the unknowing agent is protected by the law, since he might be personally liable on the contract.

A major exception to the principal’s power of revocation occurs when the agent possesses “authority coupled with an interest.” Here the agent who has part ownership in something that is to be disposed of also has power to dispose of his principal’s remaining interest in this thing. Such a power for the purpose of effectuating any security or of protecting or securing any interest of the agent cannot be revoked without the agent’s consent.