Keith Mack
Agency law is a common law doctrine that governs the relationships between agents and principals. It is a branch of commercial law that deals with a set of contractual, quasi-contractual, and non-contractual fiduciary relationships. An agent is a person or entity that is empowered to act on behalf of another person or entity, known as the principal. The agent is authorized to act under the control and on behalf of the principal, negotiating or bringing them into contractual relationships with third parties. This concept is inherent in various relationships, including employment, sales, and business structures, and is a fundamental aspect of legal transactions.
| Characteristics | Values |
|---|---|
| Definition | Agency law is a common law doctrine controlling relationships between agents and principals. |
| Agency relationship | An agency relationship is created when an agent is given authority to act on behalf of the principal. |
| Express authority | An agent has express authority to take any actions requested by the principal as well as the authority to take any actions inherently necessary to accomplish those requests. |
| Implied authority | An agent has implied authority to take any action the principal’s conduct indicates they should do. |
| Apparent authority | An agent has apparent authority when, despite having no existing authority, a third party reasonably infers that they are authorized to act on the principal’s behalf due to the conduct of the principal. |
| Liability | A principal is always liable for torts committed while the agent completes their official responsibilities. |
| Termination | If the parties did not fix an appropriate time for the termination of the agency arrangement, the contract is deemed to be terminated after a "reasonable time." |
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What You'll Learn
The principal-agent relationship
The creation of a principal-agent relationship involves the granting of authority by the principal to the agent. This authority can be express or implied. Express authority refers to specific instructions or requests made by the principal, while implied authority arises from the conduct of the principal, where the agent is authorised to take actions that are reasonably perceived to be within the scope of their duties. The agent's authority can also be inferred from the nature of their position or widely recognised titles.
In the context of a business, the principal-agent relationship is prevalent. Business owners or corporations often rely on employees or agents to conduct business and make decisions on their behalf. For example, a real estate agent acts on behalf of a principal (buyer or seller) in a property transaction, utilising their expertise and knowledge of the market. Similarly, attorneys act as agents for their clients in legal matters, and stockbrokers are agents who make investment decisions for their clients.
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Express and implied authority
The law of agency is an area of commercial law that deals with contractual, quasi-contractual, and non-contractual fiduciary relationships. It involves a person, called the agent, who is authorized to act on behalf of another, called the principal, to create legal relations with a third party.
On the other hand, implied authority is a somewhat more complex concept. It refers to the ability of an agent to perform acts that are reasonably necessary to accomplish the purpose of an organization or the principal. This type of authority is not explicitly written into a contract but is assumed to be granted to the agent in order to transact business for the principal. Implied authority is often incidental to express authority, as not every detail of an agent's authority can be spelled out in a contract. For example, when a real estate agent signs a binder with a client, they are given implied authority to act on behalf of the seller.
In some cases, implied authority can be created when the principal fails to object to an agent's prior actions, indicating that the agent has the authority to repeat those actions in the future. It is important to note that implied authority does not authorize an agent to do something that is expressly prohibited by the principal.
Both express and implied authority are essential concepts in understanding the scope of an agent's power to act on behalf of the principal and create legal relationships with third parties.
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Apparent authority
The doctrine of apparent authority is based on the concept of estoppel, which prevents the principal from denying the existence of an agency relationship to a third party. This means that even if the principal has expressly stated that the agent does not have the authority to perform a certain act, they may still be bound by the agent's actions if a third party reasonably believed that the agent had the authority. For example, in New York, it was held that a company manager has the apparent authority to bind the company to contracts, regardless of whether they have actual authority.
It is important to note that apparent authority is distinct from real authority, which refers to the agent's legal power to act on behalf of the principal, along with the privilege to ensure that their conduct is lawful. In the case of apparent authority, the agent only possesses the external legal power to act without the corresponding internal justification.
The development of the doctrine of apparent authority has differed between common law countries and continental European countries. In continental Europe, agency rules are restricted to cases where the agent acts openly in another's name. In contrast, common law allows an undisclosed principal to sue or be sued by a third party under certain conditions, such as when the agent had the power to make the contract and the parties eventually learn their respective identities.
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Termination of agency
Termination of the agency relationship can occur in several ways. Firstly, the relationship may be terminated by mutual consent, or by an express agreement of the parties to end the agency at a certain time or upon a certain occurrence. Alternatively, the agency relationship may be unilaterally revoked by the principal, unless the agency is coupled with an interest, or it may be renounced by the agent.
The agency relationship will also terminate upon completion of the business of the agency, or by the death or incapacity of either party. Additionally, the principal may revoke their authority if the agent becomes insolvent. The agency will also terminate if its purpose becomes illegal.
The agency agreement may also contain a provision for termination upon written notice of a specified duration. If no such provision exists, reasonable notice must generally be given to the other party to terminate the agency.
It is important to note that even after termination, an agent's apparent authority may persist, and they may still bind the principal. This situation can occur when third parties are unaware of the termination and reasonably believe that the agent still has authority.
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Vicarious liability
In the context of vicarious liability, it is important to understand the different types of authority an agent may possess. Express authority is granted when a principal explicitly authorises an agent to take specific actions. Implied authority, on the other hand, is inferred from the principal's conduct, where the agent is authorised to take actions necessary to fulfil the principal's requests. Additionally, apparent authority occurs when a third party reasonably believes the agent is authorised to act on the principal's behalf, even if no such authority exists.
The determination of whether an agent's actions constitute a detour or a frolic depends on factors such as the level of control exerted by the principal and the economic benefits derived from the agent's actions. This distinction plays a crucial role in establishing the liability of the principal for the agent's tortious conduct.
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Frequently asked questions
An agent is a person or entity that is empowered to act on behalf of another person or entity. Agents are often hired for their knowledge, contacts, or background information. They are generally paid through fees, compensation, or other payment methods.
The person or entity for whom the agent acts and from whom the agent derives authority is called the principal. The agent acts for and represents the principal, and acquires their authority from them.
The principal-agent relationship is a fiduciary relationship, whereby the principal expressly or implicitly authorises the agent to work under their control and on their behalf. The agent is required to negotiate on behalf of the principal or bring them into contractual relationships with third parties.
Agency law is a common law doctrine that controls the relationships between agents and principals. It deals with a set of contractual, quasi-contractual, and non-contractual fiduciary relationships.
