An agency relationship consists of the principal and the agent where the principal gives the agent legal permissions to act on the principal's behalf. In this type of relationship, agents should not have any conflicts of interest in executing any act the principals appoint them to do. This relationship that exists between principal and agent is appropriately called the "agency."  The law of agency has well-established specifications for this legal relationship.

The law of agency permits individuals to hire others to do their job, sell their merchandise, and purchase property on their behalf as if the principal were there in person. The principal can give the agent authorization to perform several duties or the agent can be curtailed to do particular tasks. No matter what the tasks are, the authority given to the agent is representative of the principal and the principal's control.

Defining the Principal-Agent Relationship

The official stipulations of a particular principal-agent relationship are generally specified in a contract. The principal-agent relationship consists of any consenting and capable parties for the intent of performing any legal undertaking. In plain terms, the principal of the agency relationship is a single individual who appoints an agent to perform certain duties.

There are agency relationships by this description that can have principals that are:

  • Corporations
  • Nonprofit organizations
  • Government agencies
  • Partnerships

The agent is usually an individual who is adept at understanding the task that's delegated by the principal and can execute the assignment with no problems.

Simple instances of the principal-agent relationship are:

  • Commissioning a contractor to do home repairs.
  • Hiring an attorney to do legal work.
  • Employing an investment advisor to diversify a stock portfolio.

In these situations, the principal is the individual requesting the assistance of a professional, and the agent is the individual performing the skilled work. Frequently, principals are business owners that commonly employ or choose other individuals to carry out jobs on their behalf. Agency law supplies the set of rules controlling the manner in which the agency relationship functions between a principal and an agent.

Principal and Agent Responsibilities

The principal-agent relationship produces an association that is held in trust among the parties involved, whether the principal-agent relationship is explicit using a written contract or insinuated through deeds or behavior. This indicates that the agent who becomes employed to operate as a representative of the principal is to perform the appointed duties with the principal's well-being as their prime concern.

Actual authority — the "express" power granted to an agent by the principal — happens when the agent performs a duty representing the principal and he rationally assumes that the principal wants this deed done. “Express” authority is the instance when the principal instructs the agent on what and how things need completing. “Implied” authority is when the agent takes the necessary actions to achieve the purpose of the agency.

The principals are able to restrict the agents' jurisdictions or invalidate them if they want. For instance, a principal who had originally assigned an agent to buy a parcel of real estate property can change the instructions to curb the agent's privilege to lease the property rather than purchasing it.

Agent are duty-bound to finish the jobs assigned to them by the principal providing that the principal contributes plausible instructions. Also, it's expected that the agent is able to complete the jobs with a particular degree of expertise and caution and will not purposely or carelessly finish any task in an inappropriate way. An obligation of allegiance is also insinuated as part of the principal-agent relationship, which necessitates that agents avoid placing themselves in situations that lead to or prompt discord between the interest of principals and the agent's own interests.

Questions About Agency Relationship

The agency relationship consists of the principal and the agent, which is an arrangement where the principal legally elects an agent to represent them, to act in the interest of the principal. If you want to learn more about the agency relationship or you have any legal questions concerning this subject, speaking with a lawyer is the best way to get answers.

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