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Understand Agency and Contractual Relationships

Understand Agency and Contractual Relationships

Agency refers to a type of relationship under law in
which one party, the agent, is a representative of another party, the
principal,
and
is
allowed to perform some kind of transaction or make some
kind of contract with a third party. The agent is authorized by the principal
to perform actions in the principal’s name. For the most part, unless there are
exceptional circumstances involved, when an agent acts in a given way or
performs a certain function, the principal will be held accountable and liable
for the agent’s action. For example, if an agent were to withdraw some amount
of money from a banking institution on behalf of the principal, then that
principal would be held accountable for the withdrawal of the agent.

The exact contract giving an agent power to act on behalf
of the principal will determine exactly how much power that agent has at any
given time, and in turn, will determine where the liability of a given
transaction may fall. Keeping the banking example, if the agent were to obtain
a loan from a banking institution on the behalf of the principal, then
depending on the authority of the agent, the agent himself might be held
accountable to the banking institution.

The three types of agent are universal agents, general
agents, and special agents. A universal agent would be able to act in almost
any fashion on behalf of his or her principal. They may be slightly restricted,
but in general, their actions will hold the principal, and not themselves,
liable. Thus, if the universal agent were to perform some banking on the behalf
of the principal, it would likely of necessity have to be accepted.

The next type of agent is a general agent. This type of
agent would hold a significantly more restricted amount of authority in terms
of the principal than the universal agent. The general agent is authorized with
the ability to make decisions and take actions on behalf of the principal
likely in certain areas or domains, but not in all.
The general agent might have been authorized for all dealings with a
specific banking institution, and thus
, would have no
liability for any actions he took with that banking institution on behalf of
his or her client.

The third type of agent is a special agent, who is not
authorized to exert even as much power as the general agent. The special agent
is authorized only to use his power for one purpose, as designated in the
initial formation of agent-principal contract. His actions regarding the
banking institution, if outside of his specific duties as a special agent,
would hold him liable, if not to external users, then to the principal, who could
seek to obtain damages from the agent.

The relationship between agent and principal is often
best codified in a contract so as to avoid any problems in which, for instance,
the agent opens an account in the principal’s name at a banking institution
, purportedly under the principal’s orders. Many discrepancies involving agency and
contractual obligations involve a misunderstanding, as the agent sets up the
new banking account for his or her principal only find out that the principal
did not intend for the agent to do so. In such a case, the only real way to
determine who is in the right and who is in the wrong would be to examine
exactly how much authority the agent had at the time of his acting.

So long as the agent was acting within the authority granted to him by the
principal and was not acting against his principal’s best interests, then the
principal will be held liable to the agent’s actions. This would also include
an instance in which, for instance, the agent withdrew money from his or her
own banking account in order to make a payment on behalf of the principal. In
such a case, the principal would actually be held liable to the agent and would
have to repay the agent for legitimately acting on the principal’s behalf.

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