Legal Definitions - agency

Agency is a fundamental legal concept describing a relationship where one person, known as the agent, is authorized to act on behalf of another person, called the principal. This relationship is built on trust and typically involves the agent having the power to create legal obligations for the principal through their actions or agreements.

When an agent acts within their granted authority, their actions legally bind the principal. This means the principal is responsible for the agent's commitments, contracts, and sometimes even their mistakes. The authority an agent possesses can come in several forms:

• Actual Authority: This is the power the principal genuinely gives to the agent.
  • Express Authority: This occurs when the principal clearly and directly tells the agent what they are allowed to do. It's explicit and often in writing.
  • Implied Authority: This is authority that isn't explicitly stated but is reasonably necessary for the agent to carry out their express duties, or it's customary for someone in that role, or the principal's conduct indicates the agent should have it.
• Apparent Authority: This arises when a third party reasonably believes the agent has authority to act on the principal's behalf, even if the principal never actually granted that power. This belief must stem from something the principal did or allowed, which created the impression of authority in the eyes of the third party. The principal's actions, not the agent's, are key here.

Furthermore, principals can be held responsible for certain wrongful acts (known as torts) committed by their agents, especially if those acts occur while the agent is performing their job duties. This is called vicarious liability. A distinction is often made between a minor deviation from duties (a "detour," for which the principal is usually liable) and a significant, unauthorized departure (a "frolic," for which the principal is usually not liable).

Here are some examples to illustrate the concept of agency:

• Example 1: The Restaurant Manager

  A restaurant owner (the principal) hires a manager (the agent) to oversee daily operations. The owner gives the manager a written job description stating they can order supplies, hire and fire waitstaff, and handle customer complaints (express authority). The manager also has implied authority to negotiate prices with food suppliers within a reasonable range, even if not explicitly stated, because it's a necessary part of ordering supplies. If the manager, wearing a company uniform and badge, signs a contract with a new linen service, a reasonable third party (the linen company) would believe the manager has the authority to do so, creating apparent authority, even if the owner had privately told the manager not to sign any new contracts without their direct approval. The restaurant owner would likely be bound by that contract.

• Example 2: The Delivery Driver and Vicarious Liability

  A furniture store (the principal) employs a delivery driver (the agent) to transport furniture to customers. The driver is given a route and a company truck. While on a delivery route, the driver decides to quickly stop at a gas station for a snack, which is slightly off their direct path but still within the general area of their deliveries. If, while pulling out of the gas station, the driver accidentally scratches another car, the furniture store would likely be held liable for the damages. This minor deviation for a personal need during work hours is considered a "detour," and the principal is still responsible under vicarious liability. However, if the driver decided to take the company truck on a 200-mile detour to visit a distant relative for the entire weekend and caused an accident there, this would be considered a "frolic," and the furniture store would likely *not* be held liable, as the driver was acting entirely outside the scope of their employment.

• Example 3: The Financial Advisor

  A retired individual (the principal) hires a financial advisor (the agent) to manage their investment portfolio. They sign an agreement explicitly granting the advisor permission to buy and sell stocks, bonds, and mutual funds on their behalf (express authority). The advisor also has implied authority to open brokerage accounts in the client's name or transfer funds between approved accounts as needed to execute investment strategies. If the advisor, acting within this authority, makes investment decisions that result in losses, the client is generally bound by those decisions. The advisor also has a fiduciary duty, meaning they must act solely in the client's best financial interest, not their own.