Anaya Nolan
Common law agency governs the relationship between an agent and a principal, and their contractual liability to third parties. An agency relationship is created when an agent agrees to act on behalf of a principal, with the principal's consent. Agency law is primarily governed by common law and, to a lesser extent, statutory instruments. It is an area of commercial law that deals with a set of contractual, quasi-contractual, and non-contractual fiduciary relationships. In the context of employment, an employer (as principal) may authorize an employee (as agent) to represent them and act on their behalf when dealing with third parties.
| Characteristics | Values |
|---|---|
| Definition | The law of agency is an area of commercial law dealing with a set of contractual, quasi-contractual, and non-contractual fiduciary relationships. |
| Parties Involved | The agent and the principal. |
| Relationship | The agent is authorized to act on behalf of the principal to create legal relations with a third party. |
| Nature of Relationship | The principal-agent relationship is one of trust and confidence. |
| Common Law Agency vs Statutory Law | Common law is the rules of a society established by tradition and court decisions, while statutory law is enacted by legislatures and other governing bodies. |
| Nature of Common Law Agency | Common law imposes specified fiduciary duties that the agent owes the client. |
| Express Authority | The agent has express authority to take any actions requested by the principal. |
| Implied Authority | The agent has implied authority to take any action the principal's conduct indicates they should do. |
| Apparent Authority | A third party reasonably infers that someone is authorized to act on the principal's behalf due to the conduct of the principal. |
| Liability | The principal is always liable for torts committed while the agent completes their official responsibilities. |
| Scope of Employment | Generally, an employee's act falls within the scope of employment if the employee committed the act during work hours and at the employer's place of business. |
| Classification of Workers | The common law of agency focuses on how much control the employer has over the worker. |
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What You'll Learn
Common law agency and statutory law
Agency law is primarily governed by common law and, to a lesser extent, statutory instruments. Common law refers to the rules of a society established by tradition and court decisions. In the context of agency law, common law governs the relationship between an agent and a principal, where the agent is authorized to act on behalf of the principal. This relationship is founded on a position of trust and confidence, with the agent owing fiduciary duties to the principal, including duties of loyalty and care. These fiduciary duties require the agent to act dutifully and in good faith, negotiating on behalf of the principal and bringing them into contractual relationships with third parties.
Statutory law, on the other hand, refers to the laws, rules, and regulations enacted by legislatures and other governing bodies. In the context of agency law, statutory instruments play a supporting role in providing additional regulations and guidelines. For example, in the United Kingdom, the Commercial Agents Regulations 1993, implemented from a European Communities directive, outline specific requirements for agents and principals to act "dutifully and in good faith" in their relationships.
The interplay between common law and statutory law in agency law is essential for maintaining a smooth functioning of business. Common law provides the foundational framework for the principal-agent relationship, while statutory law adds further specificity and adapts to changing societal needs. For instance, with the growth of the "gig economy," the common law of agency has taken on greater importance in classifying workers as either employees or independent contractors, with statutory bodies like the Department of Labor issuing guidelines to clarify and expand upon the common law standard.
The distinction between common law agency and statutory law is crucial for understanding the dynamic between agents and principals. Common law agency emphasizes the traditional, court-established principles governing their relationship, while statutory law provides additional rules and regulations to address specific situations and industries, ensuring the protection of all parties involved.
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The principal-agent relationship
A principal-agent relationship is formed when an agent is given the authority to act on behalf of the principal, creating a legal relationship with a third party. The principal is the client, and the agent is authorised to work under their control and on their behalf. The agent is required to negotiate on behalf of the principal and bring them into contractual relationships with third parties. This relationship is underpinned by a high level of trust and confidence, with the agent owing fiduciary duties to the principal. These duties include performing assigned tasks with loyalty and care, not taking advantage of opportunities that belong to the principal, and not competing with the principal.
The principal authorises and consents to the agent repressing their interests, and the agent represents the principal in transactions. The agent is held in a position of special trust and confidence by the principal, and the principal may be bound by the contracts entered into by the agent, as long as the agent performs within the scope of the agency. The principal is always liable for torts committed while the agent completes their official responsibilities.
Agency relationships can arise in various contexts, such as in employment, where an employer (principal) authorises an employee (agent) to represent them and act on their behalf when dealing with third parties. This enables employees to negotiate and enter into contracts with individuals or other businesses, creating a legal relationship between the employer and the third party.
In the context of corporations, since a corporation can only act through natural person agents, the principal is bound by the contracts entered into by the agent, provided the agent acts within the scope of their authority. This scope of authority can be express or implied. Express authority refers to actions requested by the principal, while implied authority refers to actions the agent takes based on the principal's conduct or previous actions.
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Express and implied authority
Agency law deals with contractual, quasi-contractual, and non-contractual fiduciary relationships between a principal and an agent. The agent is authorized to act on behalf of the principal to create legal relations with a third party. The principal-agent relationship is governed by common law and, to a lesser extent, statutory instruments.
An agent has express authority when they are given permission by the principal, either in writing or verbally, to act or complete transactions on their behalf. Express authority also includes the authority to take any actions that are inherently necessary to accomplish the principal's requests.
Implied authority refers to the ability of an agent to make a legally binding contract on behalf of another person or organization. Implied authority is not written or stated explicitly but is assumed to be given to the agent in order to conduct business transactions and negotiate contracts for the principal. For example, in the real estate industry, a real estate agent has implied authority to act on behalf of the seller when they sign a binder with a client. Similarly, when an insurance company agent is given express authority to solicit applications for life insurance, they also gain the implied authority to telephone prospects to arrange sales appointments.
Implied authority can also be inferred from the conduct of the principal. If the principal fails to object to an agent's prior actions, this may create implied authority for the agent to repeat those actions in the future. Wearing a uniform or nametag bearing the logo or trademark of a business or organization can also indicate implied authority.
Apparent authority exists when a third party reasonably believes the agent has authority to act on behalf of the principal, even if such authority has not been expressly granted. A principal can be bound by the actions of an agent acting with apparent authority, even if they had explicitly stated that the agent could not perform that act. For example, a person with a widely recognized title like Hiring Director has apparent authority to accomplish anything a reasonable person would believe that title entails.
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Apparent authority
Agency law is a common law doctrine that controls the relationships between agents and principals. A principal-agent relationship is created when the agent is given the authority to act on behalf of the principal. An agent acting with apparent authority is known as an ostensible agent.
In determining whether the principal had represented their agent as having such authority, the court has to consider the totality of the company's conduct. The most common form of holding out is by permitting the agent to act in the conduct of the company's business. This is often inferred simply from allowing the agent to use a particular title, such as 'finance director'.
The doctrine of apparent authority is based on the concept of estoppel, thus, it prevents the principal from denying the existence of agency to a third party, provided that a representation, as to the agent's authority, has been made by the principal to the third party either through words or actions.
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Fiduciary duties
Agency law is a common law doctrine that controls the relationships between agents and principals. A principal-agent relationship is created when an agent is given the authority to act on behalf of the principal. Fiduciary duties are a key aspect of agency law, and they refer to the legal and ethical obligations of one party, the fiduciary, to act in the best interests of another party, the principal or beneficiary. Fiduciaries are typically entrusted with authority and are expected to act with fairness, loyalty, care, and within the law. They must also disclose any conflicts of interest and make prudent decisions.
In the context of common law agency, agents acting as fiduciaries for their principals must adhere to certain duties. These duties include acting "dutifully and in good faith" in performing their activities related to the principal. This means that agents must exercise a reasonable degree of care when conducting business on behalf of the principal and may be found negligent by a court of law if they fail to properly represent the principal's interests.
Violations of fiduciary duties can result in legal action, including lawsuits for breach of fiduciary duty. Remedies for breach may include monetary damages, equitable relief, or removal from fiduciary positions. The legal framework surrounding fiduciary duties can vary depending on the nature of the relationship and the jurisdiction, but common law principles, as well as statutory laws, play a significant role in governing these duties.
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Frequently asked questions
Common law agency is a set of rules that govern the relationship between an agent and a principal. It is primarily concerned with commercial law and the smooth functioning of business.
An agent is authorised to act on behalf of the principal, creating a legal relationship with a third party. The principal is the client, and the agent works under their control.
A business owner may rely on an employee to conduct business, and in doing so, the employee becomes an agent of the principal (the business owner).
Common law agency is governed by rules established by tradition and court decisions, whereas other types of agency, such as statutory law, are governed by laws and regulations enacted by governing bodies.
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