Agency by Agreement is a formal relationship established through a mutual agreement between a principal and an agent, where the agent is authorized to act on behalf of the principal. This type of agency is fundamental in both business and legal contexts, typically involving contractual obligations and certain fiduciary duties.
Key Elements of Agency by Agreement
Authorizing Act
The principal provides the agent with the authority to perform specific acts or transactions on their behalf. This authority can be broad or limited, depending on the agreement.
Mutual Consent
Both the principal and the agent must consent to the formation of the agency relationship. This is usually documented through a written or verbal agreement.
Fiduciary Duty
The agent is expected to act in the best interest of the principal, adhering to duties of loyalty, care, and diligence.
Types of Agency by Agreement
Express Agency
In an express agency, the agreement is clearly stated and articulated, whether orally or in writing.
Example
A company (principal) hires a sales representative (agent) and provides a written contract specifying the terms and conditions of the employment.
Implied Agency
An implied agency is formed by the actions or conduct of the parties, indicating an intention to create an agency relationship.
Example
A business owner allows an employee to negotiate deals with clients on their behalf without a formal agreement, implying agency by their actions.
Special Considerations
- Contract Validity: The contract establishing the agency must be valid and enforceable under law.
- Scope of Authority: The scope of the agent’s authority should be clearly defined to avoid potential disputes.
- Termination: The agreement should outline circumstances under which the agency can be terminated by either party.
Historical Context
The concept of agency by agreement has origins in common law, where the need for individuals to act on behalf of others became fundamental as commerce and trade expanded. Over time, this legal doctrine was codified and expanded in various jurisdictions to accommodate the complexity of modern transactions.
Applicability in Modern Business
Agency by agreement is prevalent in numerous industries, facilitating a wide range of business activities, including:
- Real estate transactions
- Corporate governance
- Sales and marketing
- Financial investments
Comparisons and Related Terms
Agency by Operation of Law
Unlike agency by agreement, this type of agency is established through legal necessity rather than mutual consent.
Power of Attorney
A legal document granting an agent the authority to act on behalf of the principal in specified circumstances.
FAQs
What are the primary duties of an agent?
Can an agency by agreement be terminated at any time?
What happens if an agent acts outside their scope of authority?
References
- Restatement (Third) of Agency
- Black’s Law Dictionary
- “Agency Law in Business” by Peter A. Nelson
Summary
Agency by Agreement is a foundational concept in legal and business contexts, enabling one party to act on behalf of another through mutual consent. It requires a clear definition of authority, duties, and responsibilities, often formalized through contractual agreements. Understanding this concept is crucial for navigating various professional and commercial relationships effectively.
