Law of agency is a component of the broad array of commercial laws that seeks to provide contractual relationships in the business relationships between two or even more persons. Its functions are within commercial laws and deals with the aspect of contractual relationship where an agent has the legal authority of acting on behalf of his/her principal in forming legal relationships with other third parties.
It is the relationship between an agent and his principal in which the principal through either express or thereof implied powers gives authority to his agent on working under his optimal control as well as on his factual behalf. The agent is therefore provided with the power of negotiating on their principal’s behalf in bringing either him or other third parties into legal facts of contractual relationships (http://topics.law.cornell.edu/wex/agency
Law of agency is a control and guiding tool of regulation into relationships that is bound between:
The principal and their third parties in which case the agent is to deal on behalf of their relationship The agents and their third parties in which they perform on behalf of their principals, and The principals and their agents.
The functionality of law of agency is equated in terms of the principle of the common law which is defined by the Latin premise, qui facit per alium, facit per se, which implies that a person who is to act/acts via another person, is to act in her/his personal interest and that this action is deemed parallel to the concepts of both strict and vicarious liabilities. Accordingly, an individual person is deemed liable both in tortuous and criminal law parameters for the omissions and acts of another person.
Historically, the liabilities and rights of both the agents and their principals is a reflection of various legal provisions and needs for commercial transactions. The rise of law of agency came as a refuge to the wide spread business transactions where managers were unable to move and travel across different levels in making various business transactions. The growth in corporate business modalities that formulated fictitious legal persons that could only have acted through specific human agents necessitated the formulation of agency law.
The principle parametric functionalities in law of agency are to legalize independent contracts by businesses through such independent people in buying and selling services and goods on behalf of the business holdings. Through such agreements, law of agency provides contractual liability between the principal and the agents. The agent is at implied authority of acting directly as instructed by the principal which is legally synonymous as if his principal was him/herself involved in the action.
Generally, the advanced arms length of agency when expressed to a third party has the provisions that the agents as acting on behalf of their principals for such third parties should do so in good faith and thus should adequately rely on the represented authority. To the third parties therefore, the actions by the agents are presumed as the implied authorities of their principles and thus provide the legal provisions for these principals to be held liable for the actions done by their agents (Friedman, 1971, p.76)
The historical background of agency law provides three legal principles/classes that define the status of an agent.
· Universal agents are those that hold a broad category of authority of action on behalf of their principals. They have the legal provisions and mandates of powers of attorney or could have professional relationship such as client and lawyer relationships.
· General agents are those that have a limitation in their authoritative power in conducting various business transactions limited to a given time frame.
· Special agents refers to the agents who have the sublime authority of conducting specific levels of transactions or elsewhere a single set of transaction within a specified time frame.
Since the agent is deemed to act on full behalf of his principal, the authorities that are held by the agent are defined at statutory levels of the manner as prescribed by the principal. Basically, an agent is at large provided with various levels of statutory capacities/authorities by the principal to act in the contractual relationship. The various levels of the authorities provided include, actual authority, implied, virtuous, and ostensible/apparent authority. Implied authority is that which an agent holds by his/her virtue of reasonability of carrying out expressly his/her authority. Therefore, this authority can only be inferred within his position (Gino, 2001, p.101)
Authority held by agent’s position implies the authority in which the agent has an inherent power of deterring business frauds held in his capacity for those persons that deal with the agent. The agent therefore has the power of instructing the prevention of any harm which would have hitherto occurred by the contractual relationships with a third party. For example, there is a binding authority between the different partners into a partnership which could expressly be through joint relationship. Either, the executives in a corporation have the authority of decision-making on behalf of the shareholders through the positions they hold in the corporation.
Ostensible/apparent authority is that which is created through the conduct/words of the principal that leads to creation of the position of third party reasonability that the principal authorized the agent in his actions. This would passively imply that the position of the agent has specified powers of agency which are known to the third party that such were mandated to the specifically appointed agent in a capacity of doing a specified contractual obligation.
Where an impression of authority is created by the principal though in reality no such actual authority was created, the third parties have a legal clause of protection as long as their actions are levied of reasonable functionality. This is the estoppels principle of agency which estoppels such a principal in any denial of authority grant in case of change in positions by third parties as a detriment alternative if they relied on such representations provided in the relationship (Gino, 2001, p. 123)
Actual authority is that which the conduct or words of the principal have a reasonable affirmation of causing the agent in a belief of actual authority of action by him/her. Actual authority may be through express terms that are provided in contractual form or even implied when that which is done or said provided reasonability of power assumption by the agent. When the principal’s authority to the agent is actual, all actions that fall within this authoritative scope is deemed as binding to the principal.
The law of agency provides liabilities to both the agents, principals and the third parties to one another. Presumably, the liability of the agent to the principal is the provision which seek to indemnify the principal over causal losses that he/he may have got from the misconduct and misrepresentation of the agent. The law provides that in cases where the agent acts without the actual authority of his principal and that the principal has no bound because of any affirmative apparent authority of the agent, the agent is then deemed of indemnifying his principal of any loss that could have occurred from the transaction.
To safeguard any possible thrones of liability, the agent is under fiduciary legal duties of professionalism to been loyal to his principal. He should therefore not accept any form of new obligations which are not consistent with what is provided by the principal. Elsewhere, he should abstain from making forms of unjustified and private profits from the relationship (Friedman, 1971, p.145)
Friedman, G (1971) Law of Agency. New York, Butterworth & Company, p. 76, 145
Gino, E (2001) The Law of Agency. New York, Butterworth & Companyp.101, 123
Law of Agency. Retrieved on 21st August from http://topics.law.cornell.edu/wex/agency