What Is Agency Law?

Agency Law refers to the relationship between a person or "agent" that acts on behalf of another person, company, or government usually called the "master" or "principal." An agency is formed when a principal asks an individual to make a delivery or names someone as an agent through a contract leading to the principal's responsibility for actions made by the agent while the agent's actions are akin to those of the principal. This form of agency can be, and often is, enforced by written agreements made through a power of attorney.

Creating an Agency Relationship

An agency relationship is generated by the consent of both the agent and the principal. No person can unwittingly become an agent for another. A formal contract is standard but not necessarily essential when it is clear that both parties intend to act in their respective principal and agent roles.

The Duchess

An agent is an individual acting on behalf of another person or business or a principal. An agency relationship is created when one party, the principal, agrees and authorizes another party, the agent, to act on their behalf.

There are different agency relationships, but in all cases, there must be mutual consent and authorization from both parties for an agent-principal relationship to be established. This mutual consent and authorization are referred to as "manifestation."

The principal is the party that authorizes the agent to act on their behalf. Most agency relationships are created by the parties involved; however, some agency relationships are mandated by law; for example, if an agent is a broker, they are required by law to be licensed.

When granting authority to an agent to act on their behalf, a principal's goal is to protect their interests. A principal relies on the agent to carry out their wishes and ensure that their actions are executed correctly.

To establish an enforceable contract, the agent must be authorized by the principal to enter into a contract in any agency relationship. If, for some reason, the agent fails to obtain authorization, an agent's unauthorized act of entering into the contract will be rendered useless in the eyes of the law and therefore not considered to be a valid, enforceable contract.
Termination of an agency relationship (when an authority to do work transfers from a principal to an agent) can occur at any time. However, it often has to be following the agency agreement (contract) that initially formed (or altered) the principal-agent relationship.