AGENCY

Agency in business law refers to the legal relationship between two parties in which one party (the
principal) gives the authority to act on their behalf to another party (the agent).

The law of agency governs this relationship and covers the responsibilities of both the agent and the
principal.

The scope of an agent's authority may be determined from the verbal authorization of the principal to
the agent, or it may be implied from things the principal says or does in relation to the agent, or from
the customs of the trade or business in which the principal and agent are involved.

An agency is a contract, either express or implied, by which one party confides to the other the
management of some activity or business, to be transacted in their name or on their account, by which
the other assumes to do the actions or business and to render an account of it

Creation of an Agency

An agency relationship in business law is created when one person or entity agrees to perform a task
for, and under the direction of, another individual or entity.

There are several ways to create an agency relationship, including:

Express appointment: An agency can be created by express appointment when the principal appoints
the agent by express agreement with the agent. This express agreement may be an oral or written
contract

Conduct: An agency can come into being by conduct, where the actions of the parties indicate that an
agency relationship exists

Ratification: An agency can be created by ratification, where the principal accepts the actions of
someone who was not previously authorized to act as their agent.

Operation of law: An agency can be created by operation of law, such as when a parent is held liable for
the actions of their child.

Duties of an agent

. An agent in business law owes specific duties to the principal, who is the person or entity that
authorizes the agent to act on their behalf. The duties of an agent include:

Duty of loyalty: The agent owes the principal a general duty of loyalty, which means that the agent must
act solely for the benefit of the principal in matters connected with the agency.

This duty includes avoiding conflicts of interest and protecting confidential information of the principal
.

Duty of care: The agent has a duty to act with care, competence, and diligence normally exercised by
agents in similar circumstances, as reflected by local standard.

This duty requires the agent to act reasonably, in good faith, and avoid negligence at all times

Duty of obedience: The agent must obey all the principal's instructions within the scope of the agency
unless they are illegal or unethical.

The agent must act within the scope of their actual authority and comply with reasonable instructions.

Duty of accounting: The agent has a duty to keep proper records to account for all the principal's money
and property given to the agent.

The agent must also provide relevant information to the principal pertaining to the subject matter of
the agency and that the agent knows the principal would wish to have

An agent in business law has certain rights that are recognized under the law. Here are some of the
rights of an agent:

Right to reimbursement: An agent has the right to be reimbursed by the principal for all expenses
incurred while performing the duties of the agency.

Right to indemnification: An agent has the right to be indemnified by the principal against all losses and
liabilities incurred by the agent while performing the duties of the agency.

Right of retention: In the absence of any contract to the contrary, an agent is entitled to retain goods,
papers, and other property, whether movable or immovable, of the principal received by the agent until
the amount due to the agent for commission, disbursements, and services in respect of the same has
been paid or accounted for to the agent.

Right to remuneration: An agent is entitled to remuneration in the absence of any special contract, after
the completion of the business

Right of lien: An agent is entitled to retain goods, papers, and other property, whether movable or
immovable, of the principal received by the agent until the amount due to the agent for commission,
disbursements, and services in respect of the same has been paid or accounted for to the agent

Right to indemnity: The employer of the agent is bound to indemnify the agent against the
consequences of all lawful acts done by the agent in the exercise of the agency

It is important to note that the rights of an agent are subject to the terms of the agency contract. The
agent must also act within the scope of their actual authority and comply with reasonable instructions

Liability is an important concept in business law that refers to the legal responsibility of parties for their
actions or inactions. Here are some key points about the liability of parties in business law:
Liability in Contracts:

Contractual liability means that one business agrees to pay for any losses or damages caused by another
party.

A contract must include clauses that limit liability, but these clauses must be reasonable.

The maker of a note and the acceptor of a draft are primarily liable for payment.

Signing parties are divided into two categories for contract liability purposes: primary parties and
secondary parties Indorses may disclaim contractual liability by indorsing “without recourse”.

A principal is always liable on a contract if the agent had authority, but the agent’s liability on a contract
depends on how much the third party knows about the principal.

Liability in Tort:

Tort liability is the obligation that the court requires the person that has caused injury to undertake in
compensating the harmed person

The nature of tortuous liability is that it is not based on the terms that were previously entered into by
the contracting parties

Joint and several liability is a legal term for a responsibility shared by two or more parties to a lawsuit

In comparative fault, multiple parties are assigned responsibility for a portion of the damages in relation
to the degree of fault that they bear for the harm

Overall, liability is an important concept in business law that affects the rights and responsibilities of
parties in contracts and torts. It is important for businesses to understand their liabilities and to take
steps to limit their exposure to risk.

Agents acting for undisclosed principals

An undisclosed principal in business law is a person who uses an agent for negotiations with a third
party who has no knowledge of the identity of the agent's principal. In such situations, the agent
pretends to be acting for themselves, and the third party does not know to look to the real principal in a
dispute

. Here are some key points about the liability of parties in an agency relationship where the principal is
undisclosed:

Liability of the agent: The agent of an undisclosed principal can be held liable on the contract as the real
obligor as they contracted in that capacity. An agent will be held liable if they fail to disclose the agency
and the identity of the principal while making the contract.
 In such a case, the agent will be subject to all the liabilities created by the contract, in the same way as
if the agent were the principal.

Liability of the principal: An undisclosed principal can also be held liable as they must assume the
burdens of the contract. Even where an undisclosed principal has previously forbidden the agent to take
some action or incur some debt, the undisclosed principal may be liable for the action or debt so long as
the third party would reasonably believe the agent would have had the authority to take the action or
incur the debt under the same circumstances had the principal been disclosed.

Alternative liability: The liability of an undisclosed principal and the agent is normally an alternative
liability. It means that the third party can only make either the principal or the agent liable and not both
of them together.

A third party can decide whether to make the principal or the agent responsible only after the discovery
of the principal and the opportunity to make an intelligent choice. However, once an election is made by
a third party, it is generally irrevocable.

Overall, an undisclosed principal can be held liable to a third party who justifiably is induced to make a
detrimental change in position, even if the agent lacked actual authority to act on behalf of the principal

. The liability of the agent and the principal is normally an alternative liability, and the third party can
decide whether to make the principal or the agent responsible only after the discovery of the principal
and the opportunity to make an intelligent choice

the differences between a disclosed and an undisclosed principal in agency law:

Disclosed Principal:

A disclosed principal is one whose existence and identity is known to the third party contracting with the
agent.

The third party has notice that there is an agent acting for the principal and has been given notice of the
principal's identity.

The principal is entirely liable to the third party, while the agent remains not liable.

The agent is not bound by the contract, and the principal is the only one who can enforce the contract
and hold the third party liable.

Undisclosed Principal:

An undisclosed principal is one whose identity and existence are both unknown to the third party.

The third party has no notice that the agent is acting for a principal.

The principal is liable to the third party unless there is a side agreement between the agent and the third
party
The agent can be held liable on the contract as the real obligor as they contracted in that capacity

The liability of an undisclosed principal and the agent is normally an alternative liability, meaning that
the third party can only make either the principal or the agent liable and not both of them together

Termination of Agency

Termination of an agency relationship in business law refers to the end of the legal relationship between
the principal and the agent. The establishment, duration, and termination of the agency relationship are
generally governed by the agreement between the principal and agent. In the absence of an express
agreement, several default rules apply regarding the point at which the agency relationship terminates.
key points about the termination of agency in business law:

Methods for Terminating an Agency Relationship:

Withdrawal by either principal or agent

 Termination by the principal.

 Renunciation by the agent.
 Death or incapacity of the agent.
 Death or incapacity or bankruptcy of the principal
 Mutual agreement between the parties.

Penalties for Wrongful Termination:

If one party terminates the agency without having a valid reason, the other party can file a lawsuit to
recover damages.

Valid bases for termination include time lapse, achieved purpose, mutual agreement, and qualifying
events like death or incapacitation.

The party terminating the agency must show good cause.

Terminating an agency relationship can carry legal consequences depending on the situation

It is important to note that the termination of an agency relationship means that the agent can no
longer act on behalf of the principal.

Any actions made by the agent holding themselves out as acting on behalf of the principal after
termination has occurred will be considered unlawful on the part of the agent.

The methods for terminating an agency relationship can vary depending on the terms and conditions of
the agency agreement, the nature and duration of the agency relationship, and the events that trigger
the termination.

Special types of agency

In business law, there are different types of agency relationships that exist between the principal and
the agent. Here are some special types of agency in business law:

General Agent: A general agent is one who is authorized to transact all the principal's business of a
particular kind or at a particular place.

General agents have the authority to act on behalf of the principal in a broad range of matters.

Special Agent: A special agent is one who is authorized to conduct a particular transaction or to perform
a specific act.

Special agents often include realtors, athlete’s agents, and employment recruiters.

Subagent: A subagent is an agent appointed by another agent to perform some of the functions of the
original agent.

The subagent is responsible to the original agent, who is in turn responsible to the principal.

Agency coupled with an Interest: An agency coupled with an interest is an agency relationship in which
the agent has an interest in the subject matter of the agency.

This type of agency is irrevocable by the principal.

Servant (or Employee): A servant or employee is an agent who is under the control and direction of the
principal.

The principal is responsible for the actions of the servant or employee while they are acting within the
scope of their employment.

Overall, the type of agency relationship that exists between the principal and the agent will depend on
the nature and scope of the agency agreement. The different types of agency relationships have
different rights and responsibilities for both the principal and the agent.