Agency relationship

Agency Relationship

An agency relationship is a legal relationship in which one party, known as the principal, authorizes another party, known as the agent, to act on their behalf. This relationship is established through a contract or agreement, either written or implied, and is governed by agency law.

Definition

In an agency relationship, the principal gives the agent the authority to perform certain tasks or make decisions on their behalf. The agent is then legally bound to act in the best interests of the principal, and can be held liable for any breach of this duty. This relationship is often used in business transactions, where the agent may be an employee, a lawyer, a real estate agent, or any other person authorized to act on behalf of the principal.

Formation of Agency Relationship

An agency relationship can be formed in several ways:

• Express Agency: This is formed when the principal and the agent explicitly agree to the relationship, usually in writing.
• Implied Agency: This is formed when the behavior of the principal and the agent implies that they have an agency relationship.
• Agency by Estoppel: This is formed when the principal's actions lead a third party to believe that an agency relationship exists, and the third party acts on that belief.
• Agency by Ratification: This is formed when the principal approves the actions of a person who has acted as their agent without prior authorization.

Duties and Responsibilities

In an agency relationship, both the principal and the agent have certain duties and responsibilities:

• Duties of the Agent: The agent has a duty to act in the best interests of the principal, to act within the scope of their authority, to perform the tasks assigned to them, and to account for any money or property received on behalf of the principal.
• Duties of the Principal: The principal has a duty to compensate the agent for their services, to reimburse the agent for any expenses incurred in performing their duties, and to indemnify the agent for any losses suffered as a result of acting on the principal's behalf.

Termination of Agency Relationship

An agency relationship can be terminated in several ways:

• By Agreement: The principal and the agent can agree to end the relationship.
• By Revocation or Renunciation: The principal can revoke the agent's authority, or the agent can renounce their role.
• By Operation of Law: The relationship can be terminated by death, insanity, bankruptcy, or any other event that affects the legal capacity of the principal or the agent.

See Also

• Contract law
• Fiduciary duty
• Power of attorney