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.