What is agency?

Agency is a legal relationship between two persons, wherein one person (the agent) has the authority to affect the legal relationships of another person (the principal). These relationships, most often contractual relationships, are binding on the principal as if they had directly entered into them themselves.

What is an agency relationship?

Agency relationships are essential in business transactions, as they enable principals who may lack expertise or resources to effectively manage and promote their businesses. Examples of agency in business include sports agents, insurance agents, travel agents, booking agents, and stockbrokers.

In an agency relationship, there are two key aspects: the agent-principal relationship and the principal-outsider relationship. The law of agency, primarily derived from tort and contract law, provides rules to regulate and resolve complications arising from these relationships.

How are agency relationships created?

Agency relationships can be created through contract or conduct. In a business context, agency relationships often arise by contract, with the principal authorizing the agent to act on their behalf and the agent agreeing to do so in return for a fee or other remuneration. Agency relationships may also arise by conduct, when parties’ words or actions lead outsiders to believe that an agency relationship exists.

What is an agency agreement?

An agency relationship created by contract can be standalone, created expressly and only for that single purpose, or part of a broader contract, such as an employment contract. The agency agreement may be express or implied, oral, in writing, or in writing under seal. A special type of express agency agreement is the power of attorney, which grants authority under seal and permits the agent to sign documents on behalf of the principal under seal.

The concept of authority

The agent’s authority is a key aspect of the agency relationship, determining whether a contract between the principal and the outsider is binding. An agent’s authority can be actual or apparent.

Actual authority

Actual authority is the authority that the agent genuinely possesses, either expressed or implied:

• Express authority is the written or oral authority granted by the principal to the agent.
• Implied authority is inferred from the agent’s position, reasonably necessary to carry out the agent’s express authority, or arising by virtue of a well-recognized custom in a particular trade, industry, or profession.

Apparent authority

Apparent authority, also known as ostensible authority, is the authority that an outsider would reasonably believe the agent has, given the principal’s conduct. The principal will be bound by transactions within the agent’s apparent authority unless the outsider knew or reasonably should have known about the limitation on the agent’s authority.

Why are agency relationships important?

Agency relationships are important in business transactions and involve various aspects, including the creation of agency, the agent’s authority, and the binding effect of transactions on the principal. Understanding these aspects is essential for both agents and principals to effectively navigate and manage their legal relationships.

Get legal help

This answer is provided with the assistance of Roberts & Obradovic Law.

Navigating the complexities of creating an agency agreement and other business-related legal matters can be challenging. For legal advice and help, contact a business law lawyer.

								
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