Agency law is a fundamental concept in legal transactions globally. Essentially, it involves one party authorizing an individual to act on their behalf for a specific purpose. Although both parties must agree to enter into this type of relationship, no intent or express contract is required to form an agency relationship. This concept is most often seen in an employee/ employer relationship. The employee would be considered an “agent,” and the employer would be considered the “principal.” The employer (principal) manifests assent to the employee (agent) to act on the employer’s behalf, for the benefit of the employer. The employee is subject to the employer’s control, and the employee manifests assent or otherwise consents to act. Once this relationship is formed, the agent owes fiduciary responsibilities to the principal and must act in the best interests of the principal.
Agency relationships have both inward-looking consequences, and outward-looking consequences. Inward-looking consequences refer to the duties owed between the principal and the agent themselves. Outward-looking consequences come about because principals can be held liable for the negligent actions of their agents and can be required to fulfill contracts into which their agents have entered into.
Inward-Looking Consequences Of Agency – Agent’s Fiduciary Duties To Principals
Principals and agents owe duties to each other within an agency relationship according to a personal injury lawyer. The principal’s duties include performance of contract obligations, to compensate the agent as agreed, and to act in good faith and fair dealing. The agent’s duties include performance of contract obligations, the duties of care, competence, diligence, obedience, disclosure, and most importantly the duty of loyalty to the principal.
Outward-Looking Consequences Of Agency – Principal’s Duties To Third Parties
Agents can legally bind principals if they acted within the authority granted to them by the principal. A principal is legally bound by a contract or tortious conduct of their agent if the agent acted within the authority granted to them by the principal. There are two forms of authority that a principal can grant to an agent: actual authority or apparent authority.
Actual authority can be given by the principal to an agent either through express authority, or implied authority. Express authority is actual authority that a principal has stated in very specific or detailed language. For example, if a company hires a lawyer to negotiate a contract with a supplier, and the company explicitly tells the lawyer they have the authority to negotiate the terms of that contract on behalf of the company, the lawyer has been granted express authority by the company. On the other hand, implied authority stems from either what is necessary, usual, and proper to accomplish their job, or from an agent’s reasonable interpretations of the principal’s manifestations in light of the objectives and other facts known by the agent. For example, if a company hires an accountant to manage its finances, the accountant may have implied authority to open a bank account in the company’s name in order to carry out their duties.
Apparent authority seeks to protect third parties who have reasonably relied upon an agent. Apparent authority exists when a third party reasonably believes, based on manifestations by the principal, that the agent is authorized to act on the principal’s behalf. In other words, apparent authority is the power of an agent to act on behalf of a principal, even though not expressly or impliedly granted. Apparent authority can lead to the principal being held liable for the agent’s tortious conduct or contractual liability. A common example of this would be a sales employee who handles phone calls and administrative duties, but has not been given the actual authority to enter into contract agreements. The employee (agent) answers a phone call from a customer (third party), the customer asks this employee to draft a contract, and this employee drafts a contract with the customer and signs on the company’s (principal’s) behalf. Although this employee did not have the actual authority to sign the contract, the third party reasonably believed the employee had the authority to do so, since the company manifestly gave the employee authority to answer calls on their behalf. Therefore, the company would be legally responsible for carrying out the terms of the contract.
If you have more questions about agency duties, contact a lawyer located near you for help.
Thanks to Eglet Adams for their insight on the basic concepts of agency relationships.
