Key Takeaways

  • The law of agency governs the relationship between a principal and an agent, defining how one party can legally act on behalf of another.
  • Agency relationships can be formed through written contracts, verbal agreements, or implied by conduct.
  • Agents owe fiduciary duties to principals, including loyalty, care, and obedience.
  • Principals are generally liable for the acts of their agents performed within the scope of authority.
  • There are different types of agency relationships: universal, general, and special agency.
  • Termination of agency can occur through mutual agreement, fulfillment of purpose, or by law.
  • Real estate, employment, and business dealings are common contexts where agency law applies.
  • The doctrine of respondeat superior makes employers liable for torts committed by employees acting within their job scope.

The definition of agency law deals with agent-principal relationships; that is a relationship where one party has the legal authority to act in place of another. Relationships that are commonly associated with agency law include employer-employee, administrator-decedent or executor, and guardian-ward.

Agreements that result in the formation of agency-type relationships can be implied or express, and both the principal and the agent can be an entity (such as partnership or corporation) or individual.

Agency refers to an agreement, explicitly stated or implied by which one party, called the principal, entrusts the management of a business to another party, called the agent, to carry out transactions on his account or in his name, and the agent agrees to carry out the business and render an account of his proceedings.

Implied or Express

If the agency is express, it is created by deed, verbally without writing or in writing. If the agency is implied, it can be inferred from the relation between the parties and the nature of the employment (without proof of express appointment).

The agency must be subsequently adopted or given in advance. In the former case, there must be acquiescence on the part of the agent (from which recognition can fairly be implied) or express acknowledgment.

Creation of Agency

An agency is created when the principal names an individual as an agent by virtue of a contract or asks someone to make a delivery. This means that the principal is responsible for all actions taken by the agent, while the actions of the agent are analogous to those of the principal. This type of agency is usually enforced by a written agreement created through the power of attorney.

Types of Agency Relationships

Under the law of agency, the scope and authority of the agent determine the classification of the relationship. Common types include:

  • Universal Agency: Grants the agent broad authority to act on behalf of the principal in all matters. This is rare and typically used in power of attorney arrangements.
  • General Agency: Authorizes the agent to perform a range of activities related to a particular business or role. For example, a property manager acting on behalf of a landlord.
  • Special Agency: Limits the agent to a specific task or transaction, such as selling a property or negotiating a one-time deal.
  • Agency Coupled with an Interest: Occurs when the agent has a financial interest in the subject matter of the agency. This type of agency is irrevocable by the principal without the agent's consent.

Legal Authority to Act on Principal's Behalf

If an individual is injured by a delivery truck, under agency law, the injured person can hold the truck driver's employer liable for injuries, even though the employer was not directly responsible. This is because the driver and employer are in a principal-agent relationship where the driver, who in this case is the agent, has the legal authority to act on the employer's (i.e. the principal's) behalf.

Principals Are Liable for the Outcome of Agent's Actions

Agency law allows an individual to employ another to acquire property, carry out work, and sell goods and services on his/her behalf. A principal can authorize the agent to carry out various functions or restrict the agent to the performance of specific functions. However, regardless of the scope of authority that the principal gives the agent, the agent is under the control of the principal and represents his/her interests. More importantly, principals are held liable for the outcome of actions that they direct the agent to perform.

Agency relationships are created by the mutual consent of both the principal and the agent. Although principal-agent relationships can be created via a contract, the contract is unnecessary if it is sufficiently clear that both parties want to act as agent and principal. Their intent can either be implied by conduct or expressed by words.

Scope of Authority in Agency Law

An agent’s authority to act on behalf of the principal can be classified in three ways:

  • Actual Authority: Can be either express (clearly communicated by the principal) or implied (inferred from the agent's role).
  • Apparent Authority: Arises when a third party reasonably believes the agent has authority based on the principal's conduct, even if no actual authority exists.
  • Ratified Authority: When a principal retroactively approves actions taken by someone who acted without authority at the time.

Understanding these distinctions is critical, as they determine when a principal is legally bound by an agent’s actions.

Respondeat Superior's Rule

Agency relationships also come up in personal injury cases when the victim or plaintiff sues both the defendant and his/her employer under the respondeat superior's rule, which state that the employer and the defendant who works for the employer are both responsible when negligence on the part of the employee causes injury to a third party.

Responsible for Injuries to Third Parties

If an agency relationship exists, the principal is also responsible for any injuries caused by the agent to other parties. These may include injuries to a third party's financial interests, emotional injuries, or physical injuries.

Termination of Agency Relationships

Agency relationships do not last indefinitely and can end through various means:

  • Mutual Agreement: Both parties consent to end the relationship.
  • Expiration: If the agency was for a specified term or task, it terminates upon completion.
  • Revocation or Renunciation: A principal can revoke authority, or an agent may renounce it, though liability may still arise.
  • Operation of Law: Agency ends automatically under certain conditions such as the death or incapacity of either party, bankruptcy, or destruction of the subject matter.

Even after termination, certain fiduciary duties—such as confidentiality—may survive.

Duties of Agents

Agents have the following duties to their principal:

  • A duty to account for monies received or spent while acting on behalf of the principal.
  • A duty to protect the confidential information of the principal.
  • A duty of dealing with a third party or the principal in good faith.
  • A duty to act in the best interests of the principal.
  • A duty of loyalty to the principal.
  • A duty to act with reasonable care and skill at all times.
  • A duty to follow and obey the instructions of the principal.

If an agent fails to carry out any of the above duties, resulting in the principal suffering damage of any kind, the principal may win a tort case against the agent for breach of duty.

Common Examples of Agency in Practice

The law of agency plays a vital role in everyday business and personal dealings. Common scenarios include:

  • Real Estate Transactions: A realtor acts as an agent for buyers or sellers.
  • Employment: Employees act as agents for employers in business matters.
  • Legal Representation: Attorneys act on behalf of clients in legal contexts.
  • Business Contracts: Sales representatives enter agreements that bind their employers.

Understanding these applications helps clarify when an agency relationship exists and the responsibilities that come with it.

Fiduciary Obligations and Consequences of Breach

The law of agency imposes fiduciary obligations on agents. These obligations require agents to act in utmost good faith and prioritize the interests of the principal. A breach of these duties can lead to:

  • Legal Liability: The principal may recover damages for losses caused by the agent’s misconduct.
  • Disgorgement of Profits: Agents may be required to forfeit profits earned through breaches of duty.
  • Termination and Blacklisting: Repeated or serious breaches can end the agency relationship and harm the agent's professional reputation.

Frequently Asked Questions

  1. What is the main purpose of the law of agency?
    To define and regulate the relationship where one party (the agent) has the legal authority to act on behalf of another (the principal).
  2. Can an agency relationship be created without a contract?
    Yes, an agency relationship can be implied from the conduct of the parties, even if no formal contract exists.
  3. Are principals always liable for an agent's actions?
    Only if the agent acts within the scope of their authority. Principals may also be liable under apparent or ratified authority.
  4. What is an agent’s fiduciary duty?
    It refers to the agent’s obligation to act in the best interest of the principal with honesty, loyalty, and care.
  5. When does an agency relationship end?
    It can end through mutual consent, completion of the task, expiration of time, revocation, renunciation, or by operation of law.

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