Agency is a key concept in legal and business interactions that shapes how decisions are made. Grasping the basics of agency is essential for anyone involved in transactions, as it leads to better understanding and more informed choices. In this post, we will explore the definition, methods of creation, types of agents, rights and duties of agents, and details about the obligations between principals and third parties, the scope of an agent's authority, and the ways to terminate agency relationships.

Definition & Creation of Agency

Agency describes a legal relationship where one party, the agent, has the authority to act for another, the principal. The actions taken by the agent can create legal obligations for the principal, provided they are within the agent’s authority.

Creating an agency relationship can happen in several ways:

1. By Agreement: The most common method involves a mutual written or oral agreement outlining the agent's duties and scope of authority. For example, a real estate agent typically enters into a contract with a homeowner that specifies the terms of their working relationship.

   
   

2. By Ratification: A principal can approve actions taken by an agent that were unauthorized. For instance, if an agent buys equipment for the business without prior consent but the principal later approves the purchase, the agent's action is ratified.

   
   

3. By Estoppel: If a principal's behavior leads a third party to believe that an agent has authority, the principal may be bound by the agent’s actions. For example, if a principal allows an agent to represent them at trade shows, they may be liable for the agent's sales even if the agent lacks formal authority.