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A consensual relationship created by contract or by law where one party, the principal, grants authority for another party, the agent, to act on behalf of and under the control of the principal to deal with a third party. An agency relationship is fiduciary in nature, and the actions and words of an agent exchanged with a third party bind the principal.
An agreement creating an agency relationship may be express or implied, and both the agent and principal may be either an individual or an entity, such as a corporation or partnership.
Under the law of agency, if a person is injured in a traffic accident with a delivery truck, the truck driver's employer may be liable to the injured person even if the employer was not directly responsible for the accident. That is because the employer and the driver are in a relationship known as principal-agent, in which the driver, as the agent, is authorized to act on behalf of the employer, who is the principal.
The law of agency allows one person to employ another to do her or his work, sell her or his goods, and acquire property on her or his behalf as if the employer were present and acting in person. The principal may authorize the agent to perform a variety of tasks or may restrict the agent to specific functions, but regardless of the amount, or scope, of authority given to the agent, the agent represents the principal and is subject to the principal's control. More important, the principal is liable for the consequences of acts that the agent has been directed to perform.
A voluntary, Good Faith relationship of trust, known as a fiduciary relationship, exists between a principal and an agent for the benefit of the principal. This relationship requires the agent to exercise a duty of loyalty to the principal and to use reasonable care to serve and protect the interests of the principal. An agent who acts in his or her own interest violates the fiduciary duty and will be financially liable to the principal for any losses the principal incurs because of that breach of the fiduciary duty. For example, an agent who accepts a bribe to purchase only the goods from a particular seller breaches his fiduciary duty by taking the money, since it is the agent's duty to work only for the best interests of the principal.
An agency relationship is created by the consent of both the agent and the principal; no one can unwittingly become an agent for another. Although a principal-agent relationship can be created by a contract between the parties, a contract is not necessary if it is clear that the parties intend to act as principal and agent. The intent of the parties can be expressed by their words or implied by their conduct.
Perhaps the most important element of a principal-agent relationship is the concept of control: the agent agrees to act under the control or direction of the principal. The extent of the principal's control over the agent distinguishes an agent from an Independent Contractor, over whom control and supervision by the principal may be relatively remote. An independent contractor is subject to the control of an employer only to the extent that she or he must produce the final work product that she or he has agreed to provide. Independent contractors have the freedom to use whatever means they choose to achieve that final product. When the employer provides more specific directions, or exerts more control, as to the means and methods of doing the job—by providing specific instructions as to how goods are to be sold or marketed, for example—then an agency relationship may exist.
The agent's authority may be actual or apparent. If the principal intentionally confers express and implied powers to the agent to act for him or her, the agent possesses actual authority. When the agent exercises actual authority, it is as if the principal is acting, and the principal is bound by the agent's acts and is liable for them. For example, if an owner of an apartment building names a person as agent to lease apartments and collect rents, those functions are express powers, since they are specifically stated. To perform these functions, the agent must also be able to issue receipts for rent collected and to show apartments to prospective tenants. These powers, since they are a necessary part of the express duties of the agent, are implied powers. When the agent performs any or all of these duties, whether express or implied, it is as if the owner has done so.
A more complicated situation arises when the agent possesses apparent authority. In this case, the principal, either knowingly or even mistakenly, permits the agent or others to assume that the agent possesses authority to carry out certain actions when such authority does not, in fact, exist. If other persons believe in good faith that such authority exists, the principal remains liable for the agent's actions and cannot rely on the defense that no actual authority was granted. For instance, suppose the owner of a building offers it for sale and tells prospective buyers to talk to the rental agent. If a buyer enters into a purchase agreement with the agent, the owner may be liable for breaching that contract if she later agrees to sell the building to someone else. The first purchaser relied on the apparent authority of the agent and will not be penalized even if the owner maintains that no authority was ever given to the agent to enter into the contract. The owner remains responsible for acts done by an agent who was exercising apparent authority.
The scope of an agent's authority, whether apparent or actual, is considered in determining an agent's liability for her or his actions. An agent is not personally liable to a third party for a contract the agent has entered into as a representative of the principal so long as the agent acted within the scope of her or his authority and signed the contract as agent for the principal. If the agent exceeded her or his authority by entering into the contract, however, the agent is financially responsible to the principal for violating her or his fiduciary duty. In addition, the agent may also be sued by the other party to the contract for Fraud. The principal is generally not bound if the agent was not actually or apparently authorized to enter into the contract.
With respect to liability in tort (i.e., liability for a civil wrong, such as driving a car in a negligent manner and causing an accident), the principal is responsible for an act committed by an agent while acting within his or her authority during the course of the agent's employment. This legal rule is based on respondeat superior, which is Latin for "let the master answer." The doctrine of Respondeat Superior, first developed in England in the late 1600s and adopted in the United States during the 1840s, was founded on the theory that a master must respond to third persons for losses negligently caused by the master's servants. In more modern terms, the employer is said to be vicariously liable for injuries caused by the actions of an employee or agent; in other words, liability for an employee's actions is imputed to the employer. The agent can also be liable to the injured party, but because the principal may be better able financially to pay any judgment rendered against him or her (according to the "deep-pocket" theory), the principal is almost always sued in addition to the agent.
A principal may also be liable for an agent's criminal acts if the principal either authorized or consented to those acts; if the principal directed the commission of a crime, she or he can be prosecuted as an Accessory to the crime. Some state and federal laws provide that a corporation may be held criminally liable for the acts of its agents or officers committed in the transaction of corporate business, since by law a corporation can only act through its officers.
An agent's authority can be terminated only in accordance with the agency contract that first created the principal-agent relationship. A principal can revoke an agent's authority at any time but may be liable for damages if the termination violates the contract. Other events—such as the death, insanity, or Bankruptcy of the principal—end the principal-agent relationship by operation of law. (Operation of law refers to rights granted or taken away without the party's action or cooperation, but instead by the application of law to a specific set of facts.) The rule that death or insanity terminates an agent's authority is based on the policy that the principal's estate should be protected from potential fraudulent activity on the part of the agent. Some states have modified these common-law rules, allowing some acts of the agent to be binding upon other parties who were not aware of the termination.
Gregory, William A. 2001. The Law of Agency and Partnership. 3d ed. St. Paul, Minn.: West Group.
Hynes, J. Dennis. 2001. Agency, Partnership, and the LLC in a Nutshell. 2d ed. St. Paul, Minn.: West Group.
n. the relationship of a person (called the agent) who acts on behalf of another person, company, or government, known as the principal. "Agency" may arise when an employer (principal) and employee (agent), asks someone to make a delivery or names someone as an agent in a contract. The basic rule is that the principal becomes responsible for the acts of the agent, and the agent's acts are like those of the principal (Latin: respondeat superior). Factual questions arise such as: was the agent in the scope of employment when he/she ran down the little child, got drunk and punched someone, or sold impure wheat? There is also the problem of whether the principal acted in such a way as to make others believe someone was his agent--this is known as "apparent" or "ostensible" authority. When someone who is or is not an employee uses company business cards, finance documents, or a truck with the company logo, such use gives apparent authority as an agent. (See: authority, agent, scope of employment, respondeat superior)
agencya legal arrangement (which is not a TRUST), utilized especially in business, under which one person acts on behalf of another. An agency maybe expressly created or be implied from a course of dealing or conduct; it maybe limited to a particular transaction or cover a whole course of dealing; it may be limited as to time, or not. Thus, an agent is a person appointed by another (the principal) to represent that other or to act on his behalf Often an agent will negotiate contractual arrangements on behalf of his principal with third parties.
In the law of PARTNERSHIP, every partner is an agent of the firm and of his other partners for the purposes of the business of the partnership.
Under the rules of company law, directors are agents of the company for which they act, and as such the general principles of the law of agency in many respects regulate the relationship of the company and its directors.
Agents are obliged to keep proper accounts of money and assets passing through their hands in the course of their agency and to render such accounts to their principals. An agent is under a strict duty to make full disclosure of any interests he may have in the transaction he is to perform. An agency may be terminated by operation of law:
- (i) by the death of either party
- (ii) by the insanity of either party
- (iii) by the bankruptcy of either party
- (iv) by frustration of the agency agreement.
Where a person signs a bill as drawer, indorser or acceptor and adds words to his signature indicating that he signs for or on behalf of a principal, he will not be personally liable thereon. However, merely designating himself as agent without intimating for whom he is signing will not be sufficient to confer this immunity.
There is a special European regime for commercial agents, which requires, among other things, that such contracts be in writing, that reasonable payment is presumed and that compensation is paid on termination.
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. Combee's Case, 9 Co.
75. Hence the maxim qui facit per alium facit per se.
2. When the agency express, it is created either by deed, or in writing not by deed, or verbally without writing. 3 Chit. Com. Law 104; 9 Ves. 250; 11 Mass. Rep. 27; Ib. 97, 288; 1 Binn. R. 450. 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. 1 Wash. R. 19; 16 East, R. 400; 5 Day's R. 556.
3. 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. 9 Cranch, 153, 161; 26 Wend. 193, 226; 6 Man. & Gr. 236, 242; 1 Hare & Wall. Sel. Dec. 420; 2 Kent, Com. 478; Paley on Agency; Livermore on Agency.
4. An agency may be dissolved in two ways - 1, by the act of the principal or the agent; 2, by operation of law.
5.-1. The agency may be dissolved by the act of one of the parties. 1st. 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. Story on Ag. 477; Smith on Merc. L. 71; 2 Liv. on Ag. 308; Paley on Ag. by Lloyd, 184; 3 Chit. Com. f. 223; 2 Mason's R. 244; Id. 342; 8 Wheat. R. 170; 1 Pet. R. 1; 2 Kent, Com. 643, 3d edit.; Story on Bailm. Sec. 209; 2 Esp. R. 665; 3 Barnw. & Cressw. 842; 10 Barnw. & Cressw. 731; 2 Story, Eq. Jur. Sec. 1041, 1042, 1043
6.-2. 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. Story on Ag. Sec. 478; Story on Bailm. Sec. 436; Jones on Bailm. 101; 4 John r. 84.
7.-2 The agency is revoked by operation of law in the following cases: 1st. 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.
8.-2. 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. 8 Wheat. R. 174, 201 to 204; Story on Ag. Sec. 481; Story on Bailm. Sec. 206. 2 Liv. on Ag. 307. 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. Co. Litt. 52a.
9.-3. 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. 8 Wheat. R. 174; Story on Ag. Sec. 486 to 499; 2 Greenl. R. 14, 18; but see 4 W. & S. 282; 1 Hare & Wall. Sel. Dec. 415.
10.-4. 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. Story on Bailm. Sec. 207, Vide generally, 1 Hare & Wall. Sel. Dec. 384, 422; Pal. on Ag.; Story on Ag.; Liv. on Ag.; 2 Bouv. Inst. n. 1269-1382.