Understanding an Agent
An agent is an individual or organization that acts on behalf of another party and possesses the authority to enter into contracts on behalf of that party.
By fulfilling its obligations to the principal, the agent can create legal obligations for the principal.
Without the legal framework allowing agents to represent organizations, how we conduct business would be significantly different.
When employees represent a corporation to negotiate or close deals, they act as agents of the company since corporations, as legal entities, cannot represent themselves.
There are three critical elements in the agent-principal relationship:
- Whether written, verbal, or implicit, an agreement exists between the principal and the agent, acknowledging their agency relationship.
- The agent possesses the authority to make decisions that affect the principal’s legal position, such as signing contracts that confer rights and duties upon the principal.
- The principal exercises some control over the agent’s conduct to ensure they act in the principal’s best interests and with integrity.
Types of Agents
Agents can be classified into four types based on their level of authority:
- General Agent: A general agent, such as a company manager, is hired to handle various commercial or employment-related transactions. They can bind the principal by performing actions within the ordinary course of the business or employment. Third parties associated with the company may reasonably assume that such an agent has the authority to carry out typical managerial tasks.
- Special Agent: A particular agent is authorized to perform a specific action or represent the principal in a particular transaction, such as an agent hired to sell computers. Once the specific task is completed, the agent’s authority expires. Third parties should verify the scope of the agent’s authority before entering into a contract because the principal is not obligated to cover losses resulting from actions beyond the agent’s authorized range.
- Universal Agent: A universal agent has the authority to perform any task that the principal can legally do and delegate. They possess extensive authority to conduct various types of business on behalf of their principal.
- Sub-Agent: A sub-agent is a person engaged and acting under the direction of the original agent in a business transaction. Sub-agents are essentially agents of the actual agent. In certain situations, such as fraud, the principal may be liable to a third party for the actions of a sub-agent. However, in most cases, the agent is responsible to the principal for the actions of a sub-agent.