Key Takeaways

  • Definition of an Agent and Agency: An agent is a person authorized to act on behalf of a principal in legal or business matters. Agency is the legal relationship between the agent and principal.
  • Types of Agents: Includes general agents, special agents, sub-agents, co-agents, and brokers, each with specific duties and limitations.
  • Authority of Agents: Can be express, implied, or apparent, affecting their ability to bind the principal to contracts.
  • Liability Considerations: Agents may be held personally liable under certain conditions, including exceeding their authority or committing fraud.
  • Duties of Agents and Principals: Includes loyalty, obedience, and full disclosure from agents, while principals must compensate and indemnify agents.
  • Agency Dissolution: Can occur through mutual agreement, revocation, fulfillment of purpose, or by operation of law.
  • Regulation of Agency Relationships: Legal requirements vary depending on the type of agency, jurisdiction, and applicable contracts.
  • Industry-Specific Applications: Agency relationships are widely used in real estate, finance, insurance, and employment law.

Agent

Definition

  1. A person who performs services for another person under an express or implied agreement and who is subject to the other's control or right to control the manner and means of performing the services. The other person is called a principal. One may be an agent without receiving compensation for services. The agency agreement may be oral or written.
  2. The person to whom a power of attorney is given. An agent has authority to act on behalf of the grantor, as specified by the grantor in a power of attorney document.

Types of Agents

Agents can be categorized based on the scope of their authority and the nature of their responsibilities:

  • General Agent: Authorized to conduct all business for the principal in a particular area or field (e.g., a property manager).
  • Special Agent: Appointed for a specific transaction or purpose, such as a real estate agent.
  • Sub-Agent: A person appointed by an agent to perform duties under the original agent’s authority.
  • Co-Agent: Two or more agents working together under the same principal, sharing responsibilities.
  • Broker: Facilitates transactions between two parties, typically in real estate, insurance, or financial markets.

Each type of agent operates under different legal constraints, and their powers may be limited or broad, depending on the agency agreement.

Agency

Contracts

An agreement, express , or implied, by which one of the parties, called the principal, confides to the other, denominated the agent, the management of some business; to be transacted in his name, or on his account, and by which the agent assumes to do the business and to render an account of it. As a general rule, whatever a man do by himself, except in virtue of a delegated authority, he may do by an agent. Hence the maxim qui facit per alium facit per se.

When the agency is express, it is created either by deed, or in writing not by deed, or verbally without writing. When the agency is not express, it may be inferred from the relation of the parties and the nature of the employment without any proof of any express appointment.

The agency must be antecedently given, or subsequently adopted; and in the latter case there must be an act of recognition, or an acquiescence in the act of the agent, from which a recognition may be fairly implied.

Creation of Agency Relationships

Agency relationships can be established in multiple ways, depending on the agreement between the principal and agent:

  1. Express Agreement: A direct contract, either written or oral, where both parties agree to the agent's authority.
  2. Implied Agency: Based on the behavior and actions of the parties rather than a formal agreement.
  3. Apparent Authority: When a principal’s actions cause third parties to believe an agent has authority, even if no express agreement exists.
  4. Agency by Ratification: When a principal accepts and recognizes an agent's unauthorized actions as binding.

Proper documentation and clear communication are crucial to avoid disputes regarding agency formation.

Agency Dissolution

An agency may be dissolved in two ways:

  1. By the act of the principal or the agent.
  2. By operation of law.

The agency may be dissolved by the act of one of the parties. First, as a general rule, it may be laid down that the principal has a right to revoke the powers which he has given; but this is subject to some exception, of which the following are examples. When the principal has expressly stipulated that the authority shall be irrevocable, and the agent has an interest in its execution; it is to be observed, however, that although there may be an express agreement not to revoke, yet if the agent has no interest in its execution, and there is no consideration for the agreement, it will be considered a nude pact, and the authority may be revoked.

But when an authority or power is coupled with an interest, or when it is given for a valuable consideration, or when it is a part of a security, then, unless there is an express stipulation that it shall be revocable, it cannot be revoked, whether it be expressed on the face of the instrument giving the authority, that it be so, or not. The agency may be determined by the renunciation of the agent. If the renunciation be made after it has been partly executed, the agent by renouncing it, becomes liable for the damages which may thereby be sustained by his principal.

The agency is revoked by operation of law in the following cases:

First, when the agency terminates by the expiration of the period, during which it was to exist, and to have effect; as, if an agency be created to endure a year, or till the happening of a contingency, it becomes extinct at the end or on the happening of the contingency.

When a change of condition, or of state, produces an incapacity in either party; as, if the principal, being a woman, marry, this would be a revocation, because the power of creating an agent is founded on the right of the principal to do the business himself, and a married woman has no such power.

For the same reason, when the principal becomes insane, the agency is ipso facto revoked. The incapacity of the agent also amounts to a revocation in law, as in case of insanity, and the like, which renders an agent altogether incompetent, but the rule does not reciprocally apply in its full extent. For instance, an infant or a married woman may in some cases be agents, although they cannot act for themselves.

The death of either principal or agent revokes the agency, unless in cases where the agent has an interest in the thing actually vested in the agent.

The agency is revoked in law, by the extinction of the subject-matter of the agency, or of the principal's power over it, or by the complete execution of the trust.

An attorney who transacts the business of another attorney. The agent owes to his principal the unremitted exertions of his skill and ability, and that all his transactions in that character, shall be distinguished by punctuality, honor and integrity.

International Law

One who is employed by a prince to manage his private affairs, or those of his subjects in his name, near a foreign government.

Contracts

One who undertakes to manage some affair to be transacted for another, by his authority on account of the latter, who is called the principal, and to render an account of it.

Consequences of Agency Termination

The termination of an agency relationship has significant legal and financial consequences:

  • Principal's Responsibilities: A principal may still be liable for contracts an agent entered into before termination.
  • Agent's Obligations: Agents must return any property, funds, or confidential information belonging to the principal.
  • Third-Party Impact: If third parties were engaged in transactions through the agent, they must be notified of the termination to avoid confusion or unauthorized agreements.

In some cases, termination may lead to legal disputes if either party believes their rights were violated.

Authority of Agents

There are various descriptions of agents, to whom different appellations are given according to the nature of their employments; as brokers, factors, supercargoes, attorneys, and the like; they are all included in this general term. The authority is created either by deed, by simple writing, by parol, or by mere employment, according to the capacity of the parties, or the nature of the act to be done. It is, therefore, express or implied. Vide Authority.

It is said to be general or special with reference to its object, i.e., according as it is confined to a single act or is extended to all acts connected with a particular employment.

With reference to the manner of its execution, it is either limited or unlimited, i. e. the agent is bound by precise instructions, or left to pursue his own discretion. It is the duty of an agent:

  1. To perform what he has undertaken in relation to his agency.
  2. To use all necessary care.
  3. To render an account.

Agents are either joint or several. It is a general rule of the common law, that when an authority is given to two or more persons to do an act, and there is no several authority given, all the agents must concur in doing it, in order to bind the principal.

This rule has been so construed that when the authority is given jointly and severally to three person, two cannot properly execute it; it must be done by all or by one only. Co. Litt. 181 b; Com. Dig. Attorney, C 11; but if the authority is so worded that it is apparent, the principal intended to give power to either of them, an execution by two will be valid.. This rule applies to private agencies: for, in public agencies an authority executed by a major would be sufficient.

The rule in commercial transactions however, is very different; and generally when there are several agents each possesses the whole power. For example, on a consignment of goods for sale to two factors, (whether they are partners or not,) each of them is understood to possess the whole power over the goods for the purposes of the consignment.

Limitations and Risks of Agent Authority

While agents act on behalf of principals, their authority is not unlimited. Key limitations include:

  • Scope of Authorization: If an agent exceeds their given authority, the principal may not be legally bound to the actions.
  • Fiduciary Duty Violations: If an agent acts in their self-interest rather than the principal's, legal consequences may arise.
  • Unauthorized Transactions: Third parties dealing with an agent must verify their authority to prevent fraud or misrepresentation.

Understanding these risks helps principals and third parties navigate agency relationships effectively.

Who Can Become an Agent?

As to the persons who are capable of becoming agents, it may be observed, that but few persons are excluded from acting as agents, or from exercising authority delegated to them by others. It is not, therefore, requisite that a person be sui juris, or capable of acting in his own right, in order to be qualified to act for others. Infants, femes covert, persons attainted or outlawed, aliens and other persons incompetent for many purposes, may act as agents for others.

But in the case of a married woman, it is to be observed, that she cannot be an agent for another when her husband expressly dissents, particularly when he may be rendered liable for her acts. Persons who have clearly no understanding, as idiots and lunatics cannot be agents for others.

There is another class who, though possessing understanding, are incapable of acting as agents for others; these are persons whose duties and characters are incompatible with their obligations to the principal. For example, a person cannot act as agent in buying for another, goods belonging to himself.

Industry-Specific Agency Relationships

Agency relationships vary across industries. Some of the most common applications include:

  • Real Estate: Agents act on behalf of buyers or sellers in property transactions.
  • Finance and Investment: Brokers and financial advisors manage assets for clients.
  • Employment and Staffing: Employment agencies place workers with companies, often as intermediaries.
  • Insurance: Agents represent insurance companies or clients in policy agreements.

Each industry has specific regulations governing the role and responsibilities of agents.

Agent Rights

An agent has rights which he can enforce, and is, liable to obligations which he must perform. These will be briefly considered: The rights to which agents are entitled, arise from obligations due to them by their principals, or by third persons.

Their rights against their principals are:

  • To receive a just compensation for their services, when faithfully performed, in execution of a lawful agency, unless such services are entirely gratuitous, or the agreement between the parties repels such a claim; this compensation, usually called a commission, is regulated either by particular agreement or by the usage of trade or the presumed intention of the parties;
  • To be reimbursed all their just advances, expenses and disbursements made in the course of their agency, on account of, or for the benefit of their principal and also to be paid interest upon such advances, whenever from the nature of the business, or the usage of trade, or the particular agreement of the parties, it may be fairly presumed to have been stipulated for, or due to the agent.

Besides the personal remedies which an agent has to enforce his claims against his principal for his commissions and, advancements, he has a lien upon the property of the principal in his hand.

The rights of agents against third persons arise, either on contracts made between such third persons and them, or in consequence of torts committed by the latter.

The rights of agents against third persons on contracts, are:

  • When the contract is in writing and made expressly with the agent, and imports to be a contract personally with him, although he may be known to act as an agent; as, for example, when a promissory note is given to the agent as such, for the benefit of his principal, and the promise is to pay the money to the agent.
  • When the agent is the only known or ostensible principal, and therefore, is in contemplation of law, the real contracting party. As, if an agent sell goods of his principal in his own name, as if he were the owner, he is entitled to sue the buyer in his own name; although his principal may also sue. And on the other hand, if he so buy, he may enforce the contract by action.
  • When, by the usage of trade, the agent is authorized to act as owner, or as a principal contracting party, although his character as agent is known, he may enforce his contract by action.

For example, an auctioneer, who sells the goods of another may maintain an action for the price, because he has a possession coupled with an interest in the goods, and it is a general rule, that whenever an agent, though known as such, has a special property in the subject-matter of the contract, and not a bare-custody, or when he has acquired an interest, or has a lien upon it, he may sue upon the contract. But this right to bring an action by agents is subordinate to the rights of the principal, who may, unless in particular cases, where the agent has a lien, or some other vested right, bring a suit himself, and suspend or extinguish the right of the agent.

Agents are entitled to actions against third persons for torts committed against them in the course of their agency. First, they may maintain actions, of trespass or trover against third persons for any torts or injuries affecting their possession of the goods which they hold as agents. When an agent has been induced by the fraud of a third person to sell or buy goods for his principal, and he has sustained loss, he may maintain an action against such third person for such wrongful act, deceit, or fraud.

Agents are liable for their acts:

  • To their principals.
  • To third persons.

Agent Liability

The liabilities of agents to their principals arise from a violation of their duties and obligations to the principal, by exceeding their authority, by misconduct, or by any negligence or omission, or act by which the principal sustains a loss. Agents may become liable for damages and loss under a special contract, contrary to the general usages of trade. They may also become responsible when charging a del credere commission.

Agents become liable to third persons; first, on their contract:

  • When the agent, undertakes to do an act for another, and does not possess a sufficient authority from the principal, and that is unknown to the other party, he will be considered as having acted for himself as a principal.
  • When the agent does not disclose his agency, he will be considered as a principal and, in the case of agents or factors, acting for merchants in a foreign country, they will be considered liable whether they disclose their principal or not, this being the usage of the trade; but this presumption may be rebutted by proof of a contrary agreement.
  • The agent will be liable when he expressly, or by implication, incurs a personal responsibility.
  • When the agent makes a contract as such, and there is no other responsible as principal, to whom resort can be had; as, if a man sign a note as "guardian of AB," an infant; in that case neither the infant nor his property will be liable, and the agent alone will be responsible.

Agents become liable to third persons in regard to torts or wrongs done by them in the course of their agency.

A distinction has been made, in relation to third persons, between acts of misfeasance and non-feasance: an agent is, liable for the former, under certain circumstances, but not for the latter; he being responsible for his non-feasance only to his principal.

An agent is liable for misfeasance as to third persons, when, intentionally or ignorantly, he commits a wrong, although authorized by his principal, because no one can lawfully authorize another to commit a wrong upon the rights or property of another.

An agent is liable to refund money, when payment to him is void ab initio, so that, the money was never received for the use of his principal, and he is consequently not accountable to the latter for it, if he has not actually paid it over at the time he receives notice of the take. But unless "caught with the money in his possession," the agent is not responsible.

This last rule is, however, subject to this qualification, that the money shall have been lawfully received by the agent; for if, in receiving it, the agent was a wrongdoer, he will not be exempted from liability by payment to his principal.

Frequently Asked Questions

  1. What is the difference between an agent and an agency?
    An agent is an individual authorized to act on behalf of another, while an agency refers to the legal relationship between the agent and principal.
  2. Can an agent be personally liable for their actions?
    Yes, an agent can be personally liable if they exceed their authority, act fraudulently, or fail to disclose their principal when required.
  3. How does an agency relationship end?
    An agency relationship can end through mutual agreement, fulfillment of its purpose, revocation by the principal, or by law (such as death or bankruptcy).
  4. What is the role of a real estate agent in an agency relationship?
    A real estate agent acts as an intermediary between buyers and sellers, negotiating contracts and ensuring compliance with property laws.
  5. How can businesses ensure proper agency agreements?
    Businesses should draft clear contracts, define agent authority limits, and document agreements in writing to prevent misunderstandings.

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