An agency agreement creates a relationship between a principal and agent where the agent is authorized to act on behalf of the principal. The agreement outlines the scope of authority and duties of both parties. The principal may hold the agent liable for damages resulting from breach of authorized scope. No compensation is required for a valid contract to form. The agent has an implied duty of loyalty and care. The principal may be entitled to compensation for damages resulting from the agent’s unauthorized actions. The principal may bring a secret profits action to recoup profits made by the agent through unauthorized sales.
An agency agreement is an agreement that creates a relationship between two parties, called the principal and the agent, whereby the agent is authorized to act on behalf of the principal. The agreement only requires the consent of both the principal and the agent to the terms of the contract and confers certain rights and duties on both parties. Typically, an agency agreement contains specific guidelines governing where the agent can act on behalf of the principal. If the agent acts outside this authorized scope, the principal may hold the agent liable for any damages suffered resulting from the breach.
Unlike most contracts, an agency contract does not require a benefit conferred on each party for a valid contract to form. The only requirement is that the principal and the agent agree to the terms under which the agent is authorized to act on behalf of the principal and no compensation is required. The agent has an implied duty of loyalty and a duty of care, which require that it always act in the best interests of the principal.
An agency agreement will usually outline the scope of authority the agent has to act on behalf of the principal. Any duties specifically listed within the agreement are said to give “express authority” to the agent to perform the duty. Other actions necessary for the agent to perform her duties under the agency agreement are brought within the scope of the agreement through implied authority.
In the event that the agent violates his authority, the principal will still be liable for the action taken on his behalf by the agent, but will be entitled, under the agency agreement, to compensation for damages from the agent. For example, an agent may be sent to an art auction by the buyer and authorized to pay up to a certain amount for a particular painting. In the event that the agent bids more than the authorized amount and wins the auction, the principal will still be responsible for the purchase. However, he or she can file an action to recover the amount spent beyond the amount authorized by the agent.
A special type of violation occurs when the agent uses his authority color below the principal to reap personal gain. For example, an agent may be employed by a principal to sell machine parts. If the agent uses his leads that he has acquired in the performance of his duties under the agency agreement to sell a product that is not affiliated with the principal for which the principal receives no benefit, the principal may be entitled upon return. He or she would bring what is called a secret profits action and would be able to recoup any profits made by the agent through his or her unauthorized sales.
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