Agency is a tri-parte relationship between an agent, his principal and . Apart from contractual duties, which may or may not arise for example. It is a fiduciary and consensual relationship between two “persons” where one Agent has right to represent the principal and make contracts with 3rd parties on For example, a CPA is paid by a client whom the CPA audits, but the CPA is. A principal-agent relationship is often defined in formal terms described in a contract. For example, when an investor buys shares of an index.
The general agent is authorized with the ability to make decisions and take actions on behalf of the principal likely in certain areas or domains, but not in all. The general agent might have been authorized for all dealings with a specific banking institution, and thus, would have no liability for any actions he took with that banking institution on behalf of his or her client.
The third type of agent is a special agent, who is not authorized to exert even as much power as the general agent.
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The special agent is authorized only to use his power for one purpose, as designated in the initial formation of agent-principal contract. His actions regarding the banking institution, if outside of his specific duties as a special agent, would hold him liable, if not to external users, then to the principal, who could seek to obtain damages from the agent. The relationship between agent and principal is often best codified in a contract so as to avoid any problems in which, for instance, the agent opens an account in the principal's name at a banking institution, purportedly under the principal's orders.
Many discrepancies involving agency and contractual obligations involve a misunderstanding, as the agent sets up the new banking account for his or her principal only find out that the principal did not intend for the agent to do so.
In such a case, the only real way to determine who is in the right and who is in the wrong would be to examine exactly how much authority the agent had at the time of his acting.
So long as the agent was acting within the authority granted to him by the principal and was not acting against his principal's best interests, then the principal will be held liable to the agent's actions. This would also include an instance in which, for instance, the agent withdrew money from his or her own banking account in order to make a payment on behalf of the principal. In such a case, the principal would actually be held liable to the agent and would have to repay the agent for legitimately acting on the principal's behalf.
A business owner often relies on an employee or another person to conduct a business.
In the case of a corporation, since a corporation can only act through Natural person agents. The principal is bound by the contract entered into by the agent, so long as the agent performs within the scope of the agency. A third party may rely in good faith on the representation by a person who identifies himself as an agent for another.
It is not always cost effective to check whether someone who is represented as having the authority to act for another actually has such authority. If it is subsequently found that the alleged agent was acting without necessary authority, the agent will generally be held liable.
Brief statement of legal principles[ edit ] There are three broad classes of agent: General agents hold a more limited authority to conduct a series of transactions over a continuous period of time; and Special agents are authorized to conduct either only a single transaction or a specified series of transactions over a limited period of time.
Authority[ edit ] An agent who acts within the scope of authority conferred by his or her principal binds the principal in the obligations he or she creates against third parties. There are essentially three kinds of authority recognized in the law: Actual authority Actual authority can be of two kinds.
Either the principal may have expressly conferred authority on the agent, or authority may be implied.
Authority arises by consensual agreement, and whether it exists is a question of fact. An agent, as a general rule, is only entitled to indemnity from the principal if he or she has acted within the scope of her actual authority, and may be in breach of contract, and liable to a third party for breach of the implied warranty of authority.
In tort, a claimant may not recover from the principal unless the agent is acting within the scope of employment.
Law of agency
Express actual authority[ edit ] Express actual authority means an agent has been expressly told he or she may act on behalf of a principal. Implied actual authority[ edit ] Implied actual authority, also called "usual authority", is authority an agent has by virtue of being reasonably necessary to carry out his express authority.
As such, it can be inferred by virtue of a position held by an agent. For example, partners have authority to bind the other partners in the firm, their liability being joint and several, and in a corporation, all executives and senior employees with decision-making authority by virtue of their position have authority to bind the corporation. Other forms of implied actual authority include customary authority. This is where customs of a trade imply the agent to have certain powers.
In wool buying industries it is customary for traders to purchase in their own names. This must be no more than necessary  Main articles: Apparent authority and Estoppel Apparent authority also called "ostensible authority" exists where the principal's words or conduct would lead a reasonable person in the third party's position to believe that the agent was authorized to act, even if the principal and the purported agent had never discussed such a relationship.
For example, where one person appoints a person to a position which carries with it agency-like powers, those who know of the appointment are entitled to assume that there is apparent authority to do the things ordinarily entrusted to one occupying such a position.
If a principal creates the impression that an agent is authorized but there is no actual authority, third parties are protected so long as they have acted reasonably. This is sometimes termed "agency by estoppel " or the "doctrine of holding out", where the principal will be estopped from denying the grant of authority if third parties have changed their positions to their detriment in reliance on the representations made. Wills J held that "the principal is liable for all the acts of the agent which are within the authority usually confided to an agent of that character, notwithstanding limitations, as between the principal and the agent, put upon that authority.
It is sometimes referred to as "usual authority" though not in the sense used by Lord Denning MR in Hely-Hutchinson, where it is synonymous with "implied actual authority". It has been explained as a form of apparent authority, or "inherent agency power". Authority by virtue of a position held to deter fraud and other harms that may befall individuals dealing with agents, there is a concept of Inherent Agency power, which is power derived solely by virtue of the agency relation.
Even if the agent does act without authority, the principal may ratify the transaction and accept liability on the transactions as negotiated. This may be express or implied from the principal's behavior, e.
Liability[ edit ] Liability of agent to third party[ edit ] If the agent has actual or apparent authority, the agent will not be liable for acts performed within the scope of such authority, as long as the relationship of the agency and the identity of the principal have been disclosed.
When the agency is undisclosed or partially disclosed, however, both the agent and the principal are liable.