A principal-agent relationship is established through the use of an agency agreement. Here, one party (the principal) gives another party (the agent) the authority to represent them in legal proceedings. Agency agreements typically include broad guidelines for how the relationship will be handled or how the project will be accomplished.
When a manager gives a worker permission to complete a specific task while they are employed, that is an example of an agency agreement in action. Here, a contract outlining the various responsibilities of the agent may be drafted.
What Is an Agent?
Agents are those who consent to stand in for other people. The principal is the person that an agent represents.
Typically, two parties enter into agreements to form an agency partnership. Depending on the agreement, agents are only permitted to act on behalf of the principal in relation to certain matters.
Agents behave similarly to workers, except that they represent the principal in particular situations and transactions while working with the principal. In corporate situations, an agent is also given various forms of power and authority to act on behalf of another person or group of people.
What Is an Administrator?
A principal is a person who consents to having another person, an agent, act on their behalf occasionally. When it comes to the responsibilities that are delegated to the agent by the principal, the principal has the right to control the agent’s behavior entirely.
What Does an Agency Relationship Entail?
Because agents can enter into legally enforceable contracts on behalf of principals, the relationships between agents and principals are crucial. Although a principal-agent relationship may exist, an agent must still be authorized to sign contracts on behalf of the principal.
An agent must be acting within the bounds of their authority for their contract to be enforceable against the principal. For a contract to be binding, an agent must have at least one of the following sorts of authority: express authority, implied authority, apparent authority, or ratification.
Express terms, which are clearly spelled out in the written agreement between the principal and the agent, are what give rise to express power.
For instance, the principal might specify in the contract that they “authorize (name of agent) to sign all documents pertaining to sales transaction #50.” The conditions may expressly limit the powers of the agent under the contract.
The behavior or activities of the agent may imply authority. Suppose the agent is acting in a way that is typically understood to be approved by the principal, either through customs or traditions. In that case, there may also be an implied authority present. For instance, an agent who is explicitly permitted to interact with computers may also be implicitly permitted to buy the computer components they require.
When a third party thinks the agents are able to act on behalf of the principals, they are said to have seeming authority. The question of seeming authority focuses on whether the third party thinks the agent is authorized to act on the principal’s behalf.
For instance, it may be assumed that the agent is working under the principal’s authority if the agent is carrying out a specific assignment at the time designated for that task while donning an identifying badge and uniform issued by the principal.
Ratification happens when the principal, who was unaware of the contract and had not given the agent permission to engage in it on their behalf, accepts the agreement’s benefits after learning about it.
Consider the scenario when an agent buys and delivers a sports automobile to the principal. The main cannot claim they did not sanction the purchase or shipment if they accept the delivery of the car and drive it.
What Should an Agent Do for the Principal?
Agents owe a number of obligations to principals. A breach of contract or tort liability may result from failing to fulfill these obligations. Similar to employee responsibilities, an agent’s responsibilities also include:
- Loyalty: Agents are only allowed to behave in the principal’s best interests; they are not permitted to act for their own benefit. Furthermore, any information pertaining to the agency relationship must be kept private;
- Performance: An agent must carry out their tasks for the principal in an acceptable way, which entails exercising reasonable skill and responsibility;
- Notification: The need to inform is another name for notification. Agents must keep principals updated on all issues pertaining to the scope of the agency relationship. For instance, if a painter employs an agent to sell their paintings and the agent discovers a potential client won’t be able to pay, the agent is required to notify the principal of this information; and
- Obedience: Agents are expected to follow the principal’s instructions and should not take any action without the principal’s consent, with the following exceptions: If the principal requests that the agent breaks the law, the agent may decline without failing to uphold this responsibility.
In an emergency, an agent may stray from the principal’s directions.
What Obligations Does a Principal Have Towards an Agent?
The principal owes their agent obligations as well. A breach of contract or tort responsibility may result from the principal’s failure to carry out those obligations, just like with the agent. The responsibilities of the principal are quite similar to those of an employer and include:
- Agents anticipate receiving fair compensation because principals employ them: What is deemed reasonable will depend on the facts and the agreement between the parties. Additionally, the principal is responsible for covering any out-of-pocket costs incurred by the agent while fulfilling their tasks;
- Cooperation: Principals must cooperate with and support agents, and they must permit agents to carry out their obligations.
Principals are required to offer safe working conditions to their agents. Principals should, for instance, alert agents to dangerous circumstances when they are carrying out certain tasks.
Agency Agreements: When Are They Used?
When one party needs to act on behalf of the other, agency agreements are frequently employed. This can apply to instances like:
- Working matters
- Business initiatives
- Representation in court
- The passing on of contractual rights
- Medically-related agreements
What Should an Agency Agreement Contain?
Information like this should be included in an agency agreement:
- The principal, agent, and other significant parties’ names and contact information
- The extent of the agent’s obligations (limitations on what the agent may and may not do)
- Possible repercussions for agreement term violations
- Cancellation of the agency relationship
What Happens If an Agency Contract Is Broken?
If an agency agreement is broken, a lawsuit can be started, and the non-violating party may receive a damages award. In some circumstances, the agent can be responsible for the principal’s losses (for instance, if the principal lost business profits because the agent did not follow the agreement). Alternatively, the principal may be held accountable for breaching their contract with the agent (such as failing to compensate them for labor).
Finally, the principal or agent may frequently be sued by other parties. The principal assigning an agent to perform building work for a client is an illustration of this. Depending on the circumstances, either the principal or the agent may be held accountable for the losses if the building is subpar.
Do I Require Legal Assistance with an Agency Agreement?
Many commercial and employment partnerships have agency agreements as a key component. You may need to consult a contract attorney if you have any legal inquiries or concerns relating to agency agreements. You can learn more about the pertinent laws in your area from your lawyer. In the event of a lawsuit, your lawyer can support you in submitting your claim and in securing a monetary damages award.