Agency Relationships

Agency

By Sterling Dunn and C.Camille NeSmith, Esq.

An agent is someone who acts on behalf of another. The agent must agree to represent the principal and it is required that there is some kind of control the agent has. When people consent to do business with one another, or when one decides to work for another, an agency relationship may arise.

An agency relationship is created when one person or entity, known as the “principal,” declares to another person or entity, known as the “agent,” that the agent shall act on the principal’s behalf and be subject to the principal’s control. The agent consents to act on the principal’s behalf in writing, orally, or by conduct. When the principal consents to the agent acting for him and the agent consents to being under the principal’s control and to act on the principal’s behalf, an agency relationship is formed.

An agency relationship can also be formed through Agency by Estoppel. This is when an agency relationship is imposed by law. A principal acts in such a way as to lead a third party to reasonably believe that another is the principal’s agent and that third party is injured by relying on and acting in accordance with that belief. A principal has a duty to correct a third party’s mistaken belief in an agent’s (imposter’s) authority to act on the principal’s behalf. If the principal could have corrected this misunderstanding but failed to do so, the principal is stopped from denying the existence of the agency relationship and is bound by the agent’s acts in dealing with the third party.

Actual Authority or Apparent Authority

Actual authority can be expressed or implied. Actual authority is created when an individual is expressly given the authority based on an agreement or implicitly by their position or title.

Apparent authority is created when a third party reasonably believes that the agent has authority to act on behalf of the principal and the belief is supported by the principal’s conduct.

Liability

A principal is liable for the actions of the agent if the agent was acting within the scope of his authority. If an agent causes harm to a third party while conducting business or doing work within the scope of his authority, the principal is liable for the harm caused to the third party by the agent.

A principal can be liable for an agent’s actions through ratification. Ratification occurs when no express consent was given for the agent’s action, but the principal has knowledge of the agent’s actions and does nothing to correct the mistaken belief of the agent’s authority or ability to act on behalf of the principal.

A principal can be disclosed, undisclosed, or unidentified. A principal is disclosed when their identity is known by a third party. When a principal is disclosed and an agent does business with a third party, the principal is liable for that business or contract, not the agent.

When an agent is working on behalf of an unidentified principal (where the third party knows that the agent is working on behalf of a principal but the principal is not identified to the third party), the principal is liable for the contract or business deal, not the agent, unless the agent and third party agree otherwise.

An agent may be liable to a third party when working on behalf of a disclosed or unidentified principal if the agent makes a false representation about the agent’s authority to the third party. An agent may be subject to liability to a third party for harm caused by an agent’s tortious conduct or when an agent breached a duty he owed to a third party.

When an agent is working on behalf of an undisclosed principal and makes a contract on the principal’s behalf with a third party, the principal is still considered a party to the contract but the agent is a part of the contract as well with the third party.

­This information provided should in no way be considered legal advice. The accuracy of any legal information provided is not guaranteed. Please seek professional help if there are concerns about specific legal issues.

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