An agent is someone who agrees to represent another person, called a principal. An agency relationship is usually formed by an agreement between the two parties. An agent can only act on behalf of a principal for certain issues (depending on the agreement).
Ultimately, this depends on the agreement made between the principal and the agent. In general, there are two ways to determine the scope of an agent’s authority:
- Express: An agent’s authority can be expressly determined. If an agreement specifies an agent’s duties, an agent does not have authority to represent the principal beyond those duties.
- Implied: An agent’s authority can be implied by custom. Custom is determined by the express duties of other agents in the same position. For example, a realty company hires a real estate agent. It is implied that the agent has authority to help third parties buy and sell homes since it is the custom among real estate agents.
There are situations where an agent’s authority is created even if the person is not an agent. Here are examples of these different situations:
- Apparent Authority: A principal has a duty not to misrepresent another as his/her agent. When a principal (accidentally or purposefully) causes a third party to believe that someone is an agent, the principal is bound by the agent’s actions even if the person was not an agent. The third party must be reasonable in believing that the person was an agent. Also known as agency by estoppel.
- Emergency Powers: In an emergency situation, an agent may act beyond his/her authority even if the principal did not give the agent permission. For example, an agent might use company funds to provide medical attention to an injured employee. The agent may not have authority to do so, but the emergency situation would excuse the agent’s actions.
- Ratification: There are times when a principal will authorize the agent to act beyond his/her authority. As long as the principal knows about the stretch in authority and ratifies the action ahead of time, the agent has authority to act.
Agent authority often decides whether a principal or an agent is liable for a lawsuit. If the agent acts under the principal’s authority, then the agent was most likely under the principal’s control, thereby making the principal liable. In most instances, the principal has more money than the agent. As a result, injured parties want to go after a principal because that means more money, even though suing the agent would be easier.
If the agent was outside his or her scope of authority, then the principal is not liable for any injuries. The only exception is if the principal ratified an agreement. If the agent was acting outside the scope of authority, the agent may be liable for any injuries or breach of contract.
An agency relationship is similar to an employer-employee relationship. An experienced employment lawyer can assist you in issues dealing with issues involving agency law. For example, an employment lawyer can help you draft an agency agreement or inform you if any parties have violated their duties.