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What is the Law of Agency?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 19 November 2016
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The law of agency is a body of law surrounding situations where people receive authorization to act as agents representing principals such as other individuals or companies. Agents can make decisions, enter legal relationships, and perform other activities on behalf of their principals, and third parties rely on agents to conduct business. The law of agency creates specific legal limits and liabilities to these relationships to make sure people do not overstep the boundaries.

There are several different types of agents, each with different scopes of authority. People with universal authority have the broadest scope and the ability to make any and all decisions on behalf of principals. Positions with this amount of power are unusual. Many people prefer to use general agents, people with more limited scope but the ability to make some independent decisions. For specific circumstances, a special agent may be the best choice. Special agents can make decisions in particular situations or in regards to specific deals.

Under the law of agency, people acting as agents must act responsibly and represent the best interests of their principals. They cannot make decisions outside their scope of authority and need to be able to justify any decisions they make, such as legal contracts with third parties. They have ethical and fiduciary responsibilities they must comply with in order to retain power. Agents must also maintain logs of expenses they incur on behalf of the principal.

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Third parties do not have an obligation under the law of agency to investigate third parties claiming to act as agents, but they do have to exercise caution in their dealings to avoid legal tangles. If someone acts as an unauthorized agent, that person will be liable for any damages, and they can take time to sort out in court. These can include damages to third parties, as well as principals. Legal penalties for unauthorized representation of individuals or companies vary, depending on the nature of the offense and the type of damages the parties involved experience.

The law of agency is an important part of business and contract law. People like authors rely on agents to represent them fairly and accurately in business transactions, as do businesses of a variety of sizes. The rules in various nations are quite diverse, making it important for people to understand them before creating legal relationships with agents. For people seeking overseas representation, it can be helpful to talk with a primary domestic agent to get recommendations and advice on who to use overseas, as agents with international experience usually have resources to draw upon.

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