Explain the concept of agency law and relationship

Law of agency - Wikipedia

explain the concept of agency law and relationship

Know the types of agents. Understand how the agency relationship is created. Introduction to Agency Law. Why Is Agency Law Important, and What Is an Agent ?. An Agent is defined as a relationship between two parties called PRINCIPAL and AGENT, whereby, the function of the agent is to create. You may improve this article, discuss the issue on the talk page, or create a new article, as appropriate. (April ) (Learn how and when to remove this template message). The law of agency is an area of commercial law dealing with a set of contractual, agents and principals (internal relationship), known as the principal-agent.

The existence of agents does not, however, require a whole new law of torts or contracts. A tort is no less harmful when committed by an agent; a contract is no less binding when negotiated by an agent. What does need to be taken into account, though, is the manner in which an agent acts on behalf of his principal and toward a third party.

Introduction to Agency and the Types of Agents

Recurring Issues in Agency Law Several problematic fact scenarios recur in agency, and law has developed in response. He is said to have been the first person from the Mayflower to set foot on Plymouth Rock in ; he was a carpenter, a cooper barrel makerand a diplomat. He had, however, a conflict of interest.

explain the concept of agency law and relationship

He attempted to carry out the assignment, but he did not perform according to expectations. Eventually, he wound up with the prize himself. Here are some questions to consider, the same questions that will recur throughout the discussion of agency: Could he, if he committed a tort, have imposed liability on his principal?

Could the pedestrian have sued Standish? Suppose Alden had injured himself on the journey. Would Standish be liable to Alden?

explain the concept of agency law and relationship

As these questions suggest, agency law often involves three parties—the principal, the agent, and a third party. It therefore deals with three different relationships: These relationships can be summed up in a simple diagram see Figure In the next chapter we will turn to relationships involving third parties. Types of Agents There are five types of agents. General Agent The general agent Someone authorized to transact every kind of business for the principal.

The general agent may be the manager of a business or may have a more limited but nevertheless ongoing role—for example, as a purchasing agent or as a life insurance agent authorized to sign up customers for the home office. Normally, the general agent is a business agent, but there are circumstances under which an individual may appoint a general agent for personal purposes.

This is a delegation of authority to another to act in his stead; it can be accomplished by executing a simple form, such as the one shown in Figure Ordinarily, the power of attorney is used for a special purpose—for example, to sell real estate or securities in the absence of the owner. But a person facing a lengthy operation and recuperation in a hospital might give a general power of attorney to a trusted family member or friend.

Suppose Sam, the seller, appoints an agent Alberta to find a buyer for his property. As a special agent, Alberta had authority only to find a buyer; she had no authority to sign the contract.

The literary agent also acts as a collection agent to ensure that his commission will be paid. By agreeing with the principal that the agency is coupled with an interest, the agent can prevent his own rights in a particular literary work from being terminated to his detriment.

Subagent To carry out her duties, an agent will often need to appoint her own agents. These appointments may or may not be authorized by the principal.

An insurance company, for example, might name a general agent to open offices in cities throughout a certain state.

If the principal breaches this duty, the agent can recover based on a breach of contract claim. The agent spent time and money starting this new venture, but then the seller changed his mind and terminated the contract. The court held there was a breach of contract and the agent was entitled to whatever benefits he would have received under the agreement. Duty to indemnify the agent: As an example, a landowner hired two agents to dig a ditch, but did not tell the agents that a phone line ran where the trench was going to be dug.

The agents severed the line and the phone company sued them. Duty to deal fairly and in good faith with the agent: The principal must refrain from taking actions that could foreseeably result in loss for the agent, when the agent is not at fault. A principal can also be held directly liable for a tort committed by the agent if the principal directs the agent to commit a tort.

Where the extent of the compensation is not spelled out by the parties, the trial court may determine reasonable compensation. For example, in Howard v. Gobel, the principal hired an agent to oversee the construction of the Illinois State Capitol building. Buskits development in the two legal systems was independent and went systematically different ways.

Nevertheless, the results obtained in concrete situations by the courts of both systems often seem rather similar. A similar disparity marked the development of the doctrine within Europe itself, with the formulation of different rules in the French system, which largely identifies authority and mandate, and in the German system, which distinguishes the two ideas.

explain the concept of agency law and relationship

Another general tendency that has arisen in both legal systems has been to objectify the more subjective aspects of the doctrine, thus making the legal consequences more certain and predictable.

Today both Anglo-American and continental courts permit the legal consequences of an agency relationship to result even when the principal is not willfully responsible for the appearance of authority. Similar situations can also lead to opposite approaches in some matters.

explain the concept of agency law and relationship

Here also it depends in the first instance upon whether the principal or the third party must bear the risk, since in general an agent acting without authority is not personally responsible.

The question arises as to whether and to what degree the authority of the agent to bind his principal is affected by the death of the principal. According to the traditional English view Campanari v. In contrast, the continental legal systems have evolved less doctrinaire solutions to this question based more on considerations of protection of the concerned parties. Article of the French Civil Code even goes so far as to treat all transactions of an agent who acts in ignorance of the death of his principal as valid.

The more balanced solution offered by the courts on the Continent, however, is to make the good faith of the third party the determinative factor, since in the usual case the real interest of the agent is simply to avoid any personal obligation. The hidden principal is not concerned by the effects of the transaction at all. Such conditions include that the agent had power to make the contract and that the parties eventually learn their respective identities.

This wider concept of agency has no counterpart in continental legal tradition. The use of this basic doctrine in the common-law countries gives rise to questions regarding the identity of the undisclosed principal, the election of remedies that must be made by the third party, the extent of the respective liabilities, the right of the third party to setoff the amount of its own damages from any sum that might be awarded itetc.

A solution to these conflicts of interests must in final analysis rest upon an evaluation of the extent to which the relationship between the undisclosed principal and the agent should influence the contract made by the agent with a third party. The external, unilateral act of authorization It is still a characteristic feature of the French Civil Code and of other codifications following its model for instance, those of Spain, Portugal, Romania, and Brazil and other Latin-American countries that agency is not recognized as an isolated institution.

Law of agency

These legal systems conceive of agency only as a subordinate instance or external effect of mandate. The result is that they consider the power to act as an agent as a mere part of mandate and do not have a general concept of authorization as a distinct legal institution. In contrast to this approach, the more modern codifications of Scandinavia and of such countries as Germany, Switzerland, Japan, Poland, Italy, and Greece draw a sharp distinction between the unilateral organizational act on the part of the principal authorizing the agent to act and the internal contractual relations between the principal and the agent.

This distinction, one of the major achievements of 19th-century European legal scholars, is also followed by modern English and American legal writers, even though the classical concept of mandate is unknown in the common law. The insight that authority can exist independent of the underlying contract, and even without it, opens several new practical possibilities.

For example, it explains the rule that the authorization of a minor can be valid if he is in fact mentally and physically capable of transacting business, even though the minor is not competent himself to conclude the internal contract of employment for himself that establishes fiduciary duties. Thus, the minor is not subject to the liabilities ex contractu from or out of a contract of an adult agent although he is authorized. A few countries still prescribe a special form for every authorization.

According to the Russian and Brazilian codes, for example, an authorization must be given in written form. In spite of this express statutory language, German courts do require compliance with formalities in certain extreme situations under pressure of practical necessity, in order to avoid frustration of the aim of the formal requirement in the principal contract. This attitude thereby approaches the English rule according to which, in most cases, no particular formalities are required, even if the agent is to make an agreement for the sale or lease of land, an agreement that must be in writing.

More attention to the connection between the authorization and the act of the agent appears in provisions like that of the Greek Code ofwhich says that the authorization must take the form required for the legal transaction for which the authority is issued unless the particular circumstances lead to a different solution.

The consent of the principal may be given expressly by a written power of attorney or implied by his conduct, such as an established course of dealing. Generally, the formation of the contract of agency requires no formal ritual. The basic principle of agency is that the agent, in fulfilling his obligation, concludes legal transactions on the part of his principal. When these transactions result from the authorized legal acts of the agent, the result is that only the principal is bound by them.

This general rule that the agent does not become involved may change in the exceptional case of an authorization conferred for the benefit of the agent. Thus, such an agent has been held personally liable by German courts for mistakes made in the course of contract negotiations culpa in contrahendo. Rights and duties between principal and agent Continental European codifications generally do not treat the contract of agency as a separate type of contract.

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The standards governing the principal—agent relationship must therefore be derived from the general legal rules governing the mandate, the contracts for performing work, employment contracts, and partnership contracts, together with the more specific rules e.

Differing from this general approach, the common law has recognized a number of more specific rights and duties between principal and agent.

explain the concept of agency law and relationship

The primary duties of the agent to the principal are those of care, obedience, and loyalty—similar to those of a trustee. If an agent has received money or other property from or for his principal, he must account for it. An agent also may not normally delegate his task to a subagent, since the principal is assumed to have placed his confidence in the person of the agent and not in a subagent. Finally, the agent also has the abstract duty of conducting himself so as not to bring disrepute upon the principal.

Business Law: The Principal-Agent Relationship

Liability of principal for acts of agents Continental European law classifies the undertaking of transactions in the place of another as agency only when the transactions are legal.

It excludes other acts, including unlawful acts, so that, when dealing with the law of agency, the rules concerning the liability of a master for the torts of his servant do not come into consideration.

On the other hand, consequences flowing from an agency relationship rest on the idea that an authorized person performs legal acts within his competence not on his own behalf but for the principal. This doctrine of respondeat superior arose from the belief that, since the head of the household or of the economic enterprise exercises control, he should pay for the harm caused by its members. Generally, this includes conduct that is not a serious departure from that authorized, both in manner and space, by the master and that is actuated at least in part by a motive to serve the master.

For example, a principal is not liable for the harm caused by the negligent physical conduct of his nonservant agent.