Law of agency
The law of agency is an area of commercial law dealing with a set of contractual, quasi-contractual and non-contractual fiduciary relationships that involve a person, called the agent, that is authorized to act on behalf of another (called the principal) to create legal relations with a third party.[1] Succinctly, it may be referred to as the equal relationship between a principal and an agent whereby the principal, expressly or implicitly, authorizes the agent to work under their control and on their behalf. The agent is, thus, required to negotiate on behalf of the principal or bring them and third parties into contractual relationship. This branch of law separates and regulates the relationships between:
Concepts[edit]
The reciprocal rights and liabilities between a principal and an agent reflect commercial and legal realities. 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.
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. Where the principal is not bound because the agent has no actual or apparent authority, the purported agent is liable to the third party for breach of the implied warranty of authority.
Liability of agent to principal[edit]
If the agent has acted without actual authority, but the principal is nevertheless bound because the agent had apparent authority, the agent is liable to indemnify the principal for any resulting loss or damage.
Liability of principal to agent[edit]
If the agent has acted within the scope of the actual authority given, the principal must indemnify the agent for payments made during the course of the relationship whether the expenditure was expressly authorized or merely necessary in promoting the principal's business.
An agent owes the principal a number of duties. These include:
An agent must not accept any new obligations that are inconsistent with the duties owed to the principal. An agent can represent the interests of more than one principal, conflicting or potentially conflicting, only after full disclosure and consent of the principal. An agent must not usurp an opportunity from the principal by taking it for himself or passing it on to a third party.
In return, the principal must make a full disclosure of all information relevant to the transactions that the agent is authorized to negotiate.
Partnerships and companies[edit]
This has become a more difficult area as states are not consistent on the nature of a partnership. Some states opt for the partnership as no more than an aggregate of the natural persons who have joined the firm. Others treat the partnership as a business entity and, like a corporation, vest the partnership with a separate legal personality. Hence, for example, in English law a partner is the agent of the other partners, whereas in Scots law "a [partnership] is a legal person distinct from the partners of whom it is composed"[9] and so a partner is the agent of the partnership per se. This form of agency is inherent in the status of a partner and does not arise out of a contract of agency with a principal. The Partnership Act 1890 of the United Kingdom (which includes both England and Scotland) provides that a partner who acts within the scope of his actual authority (express or implied) will bind the partnership when he does anything in the ordinary course of carrying on partnership business. Even if that implied authority has been revoked or limited, the partner will have apparent authority unless the third party knows that the authority has been compromised. Hence, if the partnership wishes to limit any partner's authority, it must give express notice of the limitation to the world. However, there would be little substantive difference if English law was amended:[10] partners will bind the partnership rather than their fellow partners individually. For these purposes, the knowledge of the partner acting will be imputed to the other partners, or to the firm if a separate personality. The other partners or the firm are the principal and third parties are entitled to assume that the principal has been informed of all relevant information. This causes problems when one partner acts fraudulently or negligently and causes loss to clients of the firm. In most states, a distinction is drawn between knowledge of the firm's general business activities and the confidential affairs as they affect one client. Thus, there is no imputation if the partner is acting against the interests of the firm as a fraud. There is more likely to be liability in tort if the partnership benefited by receiving fee income for the work negligently performed, even if only as an aspect of the standard provisions of vicarious liability. Whether the injured party wishes to sue the partnership or the individual partners is usually a matter for the plaintiff since, in most jurisdictions, their liability is joint and several.
Allograph[edit]
An allograph may be the opposite of an autograph – i.e. a person's words or name (signature) written by someone else.[15] In law, an allograph is a document not written by any of the parties involved.[16] In American law, Cheques (checks) written by an agent of behalf of, and with the authority of, a principal are allographs for that principal.[17]