Principal - Agency Relationship. Things To Know

• Published date: 29 June 2021
• Subject Matter: Corporate/Commercial Law, Contracts and Commercial Law
• Law Firm: ChimwaMurombe Legal Practice
• Author: ChimwaMurombe Legal Practice

An agency relationship is a contractual agreement that confers a wide range of rights, duties and liabilities towards the principal. The above performances are between the principal and the agent in the course of trade with a third party. The following discussion explores the risks and benefits that face principals where they contemplate to enter into agreements of agency.

Parties

The term principal refers to a proprietor who appoints another person with instructions to act as their representative in transacting with third parties. An agent is a person hired by the principal to conduct business with third parties on their behalf. The agent must therefore act within the scope of the agreement so as to be indemnified from any liability.

Creation of agency

An agency relationship can be created by either actual authority (express, implied) or apparent authority. Actual authority is normally given by a verbal instruction or in writing. Apparent authority on the other hand refers to authority conferred on an agent by force of law to protect innocent third parties who rely on the impression created by the principal that appropriate authority has been conferred on an agent. Such authority may be created through the principal's silence when a person holds themselves out to third parties as being the principal's agent. It is also known as ostensible authority.

Benefits for the Principal

Firstly, the fact that a principal can have their business interests advanced by their agent in a totally different location is very beneficial in today's global economy. It can be cost effective when one is engaged in transnational dealings or for those in dynamic business sectors. Moreover, agency can be utilized by the principal when enlisting the services of persons with a better acumen within a particular sphere, for example a real estate agent, or where the principal needs more specialized services as those of a legal practitioner or a stock broker.

The primary benefit accruing to the principal from an agency agreement is the agent's duty to perform services per the principal's instruction. This means that the agent must undertake his contractual obligations as prescribed by the principal in dealing with a third party. Such duties incumbent on the agent is akin to those of company directors, such as the duty of care and the duty of loyalty. The courts have decided in many cases that where an agent fails to execute their duties in the manner prescribed by the principal, they can...