In legal terms an agency relationship is a legal relationship made up of a person, known as an agent, who agrees to represent another person or persons, who are known as the principal. When an agency relationship is formed, agents are granted certain authority and power to act on behalf of the principal that they represent.

A principal is a person who agrees to have an agent act on their behalf in a specified capacity. It is important to note that the principal has the right to control the agent’s conduct completely through an agreement executed by the principal and agent. Therefore, it is important that a principal both execute an agency agreement, and be careful in delegating powers to an agent, as the agreement will serve as the framework in which the agent will operate.

Some examples of the most common agency relationships include:

  • An attorney and client relationship;
  • A business hiring a professional agent to sell their goods;
  • A real estate professional hired by a home seller to sell their home; and
  • An employee employer relationship.

How Are Agency Relationships Formed?

Most commonly, principal agency relationships are formed by agreements between two parties. The agreements between an agency and principal occur through the execution of a legal contract between the two parties. Once again, it is important to clearly define the relationship between the agents and principals because agents will have the ability to operate within the framework of the relationship.

One of the most common powers delegated to an agent is the ability to enter into binding contracts on behalf of principals. However, even when an agency relationship exists, an agent is first required to be granted the authority to enter into the binding contracts on behalf of the principal. Thus, in order for the actions of an agent to be binding on the principal, an agent must act within the scope of their authority.

As such, an agent is required to have at least one of the following types of authority in order for their actions to become binding on the principal:

  • Express Authority: Express authority is authority that is granted to an agent by the express terms of the written contract between the principal and the agent. For example, the contract may expressly state that “I, (name of principal) authorize (name of agent) to sign all legal documents on my behalf involving the sale of goods associated with my business”;
  • Implied Authority: Implied authority is authority impliedly granted to an agent that is associated with the conduct or actions of the agent. The most common example of implied authority is the employer employee relationship. For instance, an agent who is expressly authorized to do service work may also be implicitly authorized to buy the supplies necessary to perform those services;
  • Apparent Authority: An agent is granted apparent authority when a third party believes that the agent has the authority to act on behalf of the principal. The third party must actually believe that the agent has the authority in order for an agent to have apparent authority. The most common example of apparent authority occurs once again within the employer employee relationship.
    • For example, if an agent employee is performing a task, and they are wearing a company uniform that was issued by the principal employer, it could be implied by a third party that the agent is acting on the authority of the principal; and/or
  • Ratification of Agent’s Authority: Ratification occurs when the agent initially acts without the authority of the principal, but then later on the principal accepts the benefits of the actions of the agent upon discovery of their actions. For instance, if an agent entered into a contract for the sale of goods, but the principal was unaware of the contract and did not authorize the contract, the principal could later ratify the actions of the agent by accepting the benefits of that contract. In other words, if the principal accepts the benefits of the agent’s actions, they cannot say later that they didn’t authorize the actions of the agent.

What Is a Lapse of Time in an Agency Relationship?

In legal terms, a lapse of time refers to one of the methods in which an agency relationship can be terminated. Once again, agency relationships occur when a principal legally agrees to let an agent make decisions on their behalf. The agency relationship itself is fiduciary in nature, which means that the principal is entrusting the agent to act as they would when the agent makes decisions.

Thus, if an agent does something wrong, liability can fall back on the principal. Therefore, it is important in an agency formation agreement for the agreement to specify certain ways in which the relationship can end.

Another way that an agency relationship can terminate outside the scope of the agreement is through a lapse of time. A lapse of time in an agency relationship may terminate the agency relationship in situations such as:

  • The termination date stated in the contract between the two parties has passed;
  • The contact terms and scope of services that the agent was given authority are performed completely;
  • The parties have not moved forward with the project as intended, and an excessive amount of time has passed; and/or
  • Enough amount of time has lapsed that implies that the agency relationship has ended.

As can be seen, one party may be able to avoid liability to the other if they can prove that the agency relationship has terminated due to lapse of time. For example, if someone is suing the principal due to the agent’s actions, the principal may be able to avoid liability if they can show that the agent has no authority to act on their behalf due to a lapse of time.

In addition to a lapse of time, another way that one party that is seeking to terminate the relationship may be able to terminate the relationship is if that party is able to terminate the relationship based on the wrongdoing of the other party. For example, the party seeking to terminate the agency relationship could demonstrate that the other party breached the contract.

Do I Need a Lawyer for Help with Lapse of Time in an Agency Relationship?

As can be seen, there are numerous reasons in which a principal agent relationship may or should be terminated. The main reason in which an agency relationship should be terminated is to remove potential civil liability on the principal. However, it is important to terminate an agency relationship as clearly as possible in order to ensure there is no further future liability. Further, proving that an agency relationship has been terminated due to a lapse of time, especially if there is a valid written contract, is difficult.

Thus, if you are involved in an agency relationship and wish to terminate it, especially if you are facing civil liability and believe the relationship terminated due to a lapse of time, you should consult with an experienced contract attorney. An experienced contract attorney will be able to help you assert the agency relationship terminated, and help you avoid liability for an agent’s actions. An attorney can also represent your interests in court, should legal action against an agent become necessary.