A reader sent along an interesting email posing an agency law issue:
I am a professor teaching Agency and Partnership at [redacted] School of Law. We use the Agency, Partnerships, and Limited Liability Entities text that you co-authored. I also use the Foundation Press book you authored entitled, Agency, Partnerships and LLC's.
I taught the class the distinction that you made in the latter book (page 40) regarding co-agents and sub-agents and a student came up to me after class and pointed out from page 11 of the casebook, (MJ and Partners Restaurant Limited Partnership v. Zadikoff) that a sub-agent "stands in a fiduciary relation to the principal, and is subject to all the liabilities of an agent to the principal". Would you be so kind to help me to explain to this student how an agent is primarily liable for the acts of sub-agent in light of the MJ case?
Obviously I'm delighted to be of service under the circumstances! As for the question posed, there really is no conflict between the statement in the MJ case and the discussion in my text, which reads as follows:
Where one agent has authority to retain a second, they are usually treated as co-agents. In such cases, both agents are deemed to be agents of the principal and both have power to affect the principal’s legal relations. In some cases, however, the principal and agent may agree that the agent may delegate some responsibilities to other persons for whose conduct the agent agrees to be primarily responsible. Such a person is a subagent of the principal.[1] The distinction is important because an agent generally has no liability to either principal or third parties for the acts of a co-agent,[2] but an agent does have such liability with respect to the acts of a subagent.
In other words, both a sub-agent and a co-agent owe fiduciary duties to the principal. The distinction between a sub-agent and a co-agent is thus irrelevant with respect to the relationship between that individual and the principal. The distinction is also irrelevant with respect to the agent's ability to affect the relationships of the principal with third parties. Both co-agents and sub-agents have the power to make contracts legally binding on the principal. See, e.g., comment d to Agency Restatement Second sec. 5. Instead, the distinction between co-agents and sub-agents is relevant to the relationship between the appointing and the appointed agent. An agent who appoints a sub-agent is liable to the principal for wrongful acts of the sub-agent. See, e.g., comment f to Agency Restatement Second sec. 5. In contrast, the appointing agent generally is not liable to the principal for for a co-agent's wrongful conduct. See also Agency Restatement Second sec. 405 and 406.
[1] Restatement (Second) § 5(1).
[2] The appointing agent may be liable for a co-agent’s misconduct if the appointing agent was negligent in selecting the co-agent. Restatement (Second) § 405(2).
