The definition of agency law deals with agent-principal relationships; that is a relationship where one party has the legal authority to act in place of another. Relationships that are commonly associated with agency law include employer-employee, administrator-decedent or executor, and guardian-ward.

Agreements that result in the formation of agency-type relationships can be implied or express, and both the principal and the agent can be an entity (such as partnership or corporation) or individual.

Agency refers to an agreement, explicitly stated or implied by which one party, called the principal, entrusts the management of a business to another party, called the agent, to carry out transactions on his account or in his name, and the agent agrees to carry out the business and render an account of his proceedings.

Implied or Express

If the agency is express, it is created by deed, verbally without writing or in writing. If the agency is implied, it can be inferred from the relation between the parties and the nature of the employment (without proof of express appointment).

The agency must be subsequently adopted or given in advance. In the former case, there must be acquiescence on the part of the agent (from which recognition can fairly be implied) or express acknowledgment.

Creation of Agency

An agency is created when the principal names an individual as an agent by virtue of a contract or asks someone to make a delivery. This means that the principal is responsible for all actions taken by the agent, while the actions of the agent are analogous to those of the principal. This type of agency is usually enforced by a written agreement created through the power of attorney.

Legal Authority to Act on Principal's Behalf

If an individual is injured by a delivery truck, under agency law, the injured person can hold the truck driver's employer liable for injuries, even though the employer was not directly responsible. This is because the driver and employer are in a principal-agent relationship where the driver, who in this case is the agent, has the legal authority to act on the employer's (i.e. the principal's) behalf.

Principals Are Liable for the Outcome of Agent's Actions

Agency law allows an individual to employ another to acquire property, carry out work, and sell goods and services on his/her behalf. A principal can authorize the agent to carry out various functions or restrict the agent to the performance of specific functions. However, regardless of the scope of authority that the principal gives the agent, the agent is under the control of the principal and represents his/her interests. More importantly, principals are held liable for the outcome of actions that they direct the agent to perform.

Agency relationships are created by the mutual consent of both the principal and the agent. Although principal-agent relationships can be created via a contract, the contract is unnecessary if it is sufficiently clear that both parties want to act as agent and principal. Their intent can either be implied by conduct or expressed by words.

Respondeat Superior's Rule

Agency relationships also come up in personal injury cases when the victim or plaintiff sues both the defendant and his/her employer under the respondeat superior's rule, which state that the employer and the defendant who works for the employer are both responsible when negligence on the part of the employee causes injury to a third party.

Responsible for Injuries to Third Parties

If an agency relationship exists, the principal is also responsible for any injuries caused by the agent to other parties. These may include injuries to a third party's financial interests, emotional injuries, or physical injuries.

Duties of Agents

Agents have the following duties to their principal:

  • A duty to account for monies received or spent while acting on behalf of the principal.
  • A duty to protect the confidential information of the principal.
  • A duty of dealing with a third party or the principal in good faith.
  • A duty to act in the best interests of the principal.
  • A duty of loyalty to the principal.
  • A duty to act with reasonable care and skill at all times.
  • A duty to follow and obey the instructions of the principal.

If an agent fails to carry out any of the above duties, resulting in the principal suffering damage of any kind, the principal may win a tort case against the agent for breach of duty.
