Principal and Agent

More often than not, a member of your congregation will volunteer to act on behalf of the church to complete a task. In doing so, a fine line is drawn with regard to that person’s responsibilities and liabilities. In the contractual sense, that volunteer may have curtain expressed or implied authority to act on behalf of the church (the principal), as its agent.

In General:

According to the California Civil Code, “An agent is one who represents another, called the principal, in dealings with third persons. Such representation is called agency.”  An agent may be either General, acting with the authority to conduct a series of transactions involving continuity of service, or all of the business of the principal, or Special, acting with the authority for a particular act or series of transactions not involving continuity of service.

Your minimum understanding should be that in an agency relationship, the principal delegates to the agent the right to act on their behalf and to exercise some degree of discretion in doing so. This agency relationship creates a fiduciary duty on the part of the agent to act in the best interest of the principal.

When acting as the agent for the church, an entity, the agent must exercise the utmost care with full and complete disclosure of all material facts in any given situation. They also have an absolute obligation to act fairly and honestly without fraud or deceit.

Creation:

A valid agency relationship must contain: 1) consent, by both the agent and principal; 2) capacity by both parties to enter into the relationship; 3) control by the principal of the agent’s objectives; and 4) certain formalities, (a writing is not necessarily required, nor is consideration).

In other words, the agency relationship may be formed through an expressed agreement, either written/oral, between the principal and agent or implied from the nature of the principal’s business or actions and the position of the agent under the circumstances. Agency relationships are frequently established by the conduct and communication of the parties in a particular situation.

Scope of Authority:

An agent’s authority is limited to that which has been actually or implicitly conferred by the principal. As per the California Civil Code, an agent has authority to: 1) do everything necessary or proper and usual, in the ordinary course of business, for effecting the purpose of his agency; and 2) make a representation respecting any matter of fact, not including the terms of his authority, but upon which his right to use his authority depends, and the truth of which cannot be determined by the use of reasonable diligence on the part of the person to whom the representation is made.

Additionally, the California Civil Code states in part that the agent has such authority as the principal actually or ostensibly confers upon the agent. Their actual authority is that which the principal intentionally confers upon the agent, or through the lack of ordinary care, allows the agent to believe that he or she possesses that authority. Implied or apparent authority is that authority a principal intentionally, or unintentionally through carelessness, causes or allows third persons to believe that the agent possesses. This authority is distinguishable from express or actual authority which is created by an agreement between the principal and agent which specifically identifies the activities which the agent is allowed to undertake.

Principal Liability:

An agent is generally not liable to a third party under a contract unless: 1) the principal and agent otherwise consent to such liability or the principal is undisclosed or partially disclosed; and 2) the third party had no reasonable basis to know of the existence of a principal. To be the agent of the principal, the principal has the right to control the means/performance of the object of the agency.

However, even with proper authority to act pursuant to the agency relationship, the agent may still be liable to the principal for the breach of a duty or for harm to third parties. Similarly, the principal may be liable for the breach of a duty to the agent or for harm to third parties as well.

Unless the limitations of the agency are known or can be readily ascertained, the principal may be bound by unauthorized acts of an agent through which a third party has sustained a loss if reasonable reliance on the agent’s authority is demonstrated.

Termination:

Although not always the case, the time frame for termination of an agency can be stipulated by operation of law or agreement. Additionally, the relationship is usually terminated by the act or agreement of the parties to the agency. However, if after the agreed-upon time specified in the agreement lapses and the parties continue their relationship, a rebuttable presumption is raised that their relationship shall continue to be governed by the original contract and that the contract is renewed for a similar period of time.

Basically, an Agency relationship can generally be terminated: 1) at the expiration of its term; 2) extinction of its subject matter; 3) death of the agent; 4) the agent’s renunciation of the agency; or 5) upon the incapacity of the agent to act as such.

An agency created for a specific purpose is usually terminated once the particular purpose for which it was created has been accomplished. After the termination of the agency, the agent is free of any fiduciary duty to the principal arising from the prior agency relationship.

Note:

The subject of agency and fiduciary duty is complex and not to be taken lightly. If a third person has no knowledge of the fact that the agent is acting for a principal, then both the agency and the “undisclosed” principal may be liable. The agent of an undisclosed principal can be held liable on the contract as the real obligor as if they were acting in that capacity.

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Disclaimer: Every situation is different and particular facts may vary thereby changing or altering a possible course of action or conclusion. The information contained herein is intended to be general in nature as laws vary between federal, state, counties, and municipalities and therefore may not apply to any given matter. This information is not intended to be legal advice or relied upon as a legal opinion, course of action, accounting, tax or other professional service. You should consult the proper legal or professional advisor knowledgeable in the area that pertains to your particular situation.

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