Law-The Agency Concept

Essay by tonisky April 2006

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The agency concept is where one person (the principal/employer) appoints another (the agent/employee) to act in his/her place when dealing with third parties. In companies, employees would be considered agents. Agents are appointed to perform all duties the principal would do or specific duties. A principal-agent relationship may be created by a contract or by appearance that this relationship exists. If a person acts as an agent for someone and that other person approves the act, the principal-agent relationship is considered true. In some cases, it may be necessary to appoint an agent to someone if an emergency arises.

By law, an agent must follow instructions given by the principal and act in the best interest of the principal. An agent is expected to perform the skills that he or she claims to possess. In addition, there should be up-to-date records of all business transactions available and the principal should be made aware of such transactions.

Lastly, the agent is responsible for communicating information back to the principal. What the agent knows, the principal knows.

The principal also has specific obligations to the agent and must cooperate with the agent. If the contract between the two parties state there will be monetary compensation, the principal is responsible for paying the agent. In addition, the principal must reimburse the agent for expenses or personal losses he/she may incur relating to the principal's business. A principal, in most cases, is considered the employer of the agent. Like any employer, he/she must provide the employee with safe and adequate working conditions.

If an agent commits a wrongful act that causes injury to another while carrying out the principal's business, the principal could be liable. This theory is known as vicarious liability. However, if the agent commits an intentional tort on a third...