THE CONCEPT OF AGENCY RELATIONSHIP: DUTY OF THE AGENT
Things you need to know about agency
CHAMAN LAW FIRM
11/21/2021 4 min read
THE CONCEPT OF AGENCY RELATIONSHIP: DUTY OF THE AGENT
Where an individual is injured by a delivery truck, under agency law, can the injured person hold the truck driver's employer liable for injuries, even though the employer was not directly responsible?
The definition of agency law deals with agent-principal relationships; that is a relationship where one party has the legal authority to act in place of another. Agreements that result in the formation of agency-type relationships can be implied or express, and both the principal and the agent can be an entity (such as partnership or corporation) or individual.
Agency refers to an agreement, explicitly stated or implied by which one party, called the principal, entrusts the management of a business to another party, called the agent, to carry out transactions on his account or in his name, and the agent agrees to carry out the business and render an account of his proceedings.
This means that the principal is responsible for all actions taken by the agent, thus an individual is injured by a delivery truck, under agency law, the injured person can hold the truck driver's employer liable for injuries, even though the employer was not directly responsible. This is because the driver and employer are in a principal-agent relationship where the driver, who in this case is the agent, has the legal authority to act on the employer's (i.e. the principal's) behalf.
Agency relationships are created by the mutual consent of both the principal and the agent. Although principal-agent relationships can be created via a contract, the contract is unnecessary if it is sufficiently clear that both parties want to act as agent and principal. Their intent can either be implied by conduct or expressed by words.
Agency relationships also come up in personal injury cases when the victim or plaintiff sues both the defendant and his/her employer under the respondent superior's rule, which state that the employer and the defendant who works for the employer are both responsible when negligence on the part of the employee causes injury to a third party.
The duties of the agent to the principal cannot be overemphasized. The agent ought to act in the best interests of the principal. When an agent is appointed to facilitate or negotiate a transaction on behalf of the principal, the agent owes a duty to the principal to act in the principal's best interests within the authority of the agent.
In practice, the duty to act in the best interests of the principal requires the agent to use his due diligence and skill to negotiate terms of a transaction on behalf of his principal with a third party to the greatest advantage of his principal in the circumstances.
It is also the duty of the agent to ensure that there is no conflict of interest. An agent who has accepted an appointment to act for a principal
(A) Should not thereafter accept appointment to act for another principal
(B) If the interests of principal B conflict with the interests of principal A.
However, if the agent fully discloses to each principal the agent's interests under the two appointments and the fact that he acts for both principals at the same time and obtains the consent of each principal to the dual agency, he may still act for the two principals. Accordingly, an estate agent who acts for both the vendor and purchaser in a sale and purchase property transaction must disclose the fact to both the vendor and the purchaser and obtain their consent for so acting.
It is also the duty of the agent to not receive secret profit. Common law requires that an agent should not make any profit or acquire any benefit in the course and in the matter of his agency without the knowledge and consent of his principal. Such profit, generally known as secret profit, is not restricted to money but may include anything of value, for example, an interest-free loan, a club membership, etc. An agent who has made secret profit is liable to account to the principal for such profit in addition to any other remedies available to the principal for the agent's breach of duty.
Owing to the fiduciary relationship between a principal and his agent, the agent shall not disclose any information concerning the principal or any confidential information entrusted to him by the principal to any third party in the absence of the principal's consent.
Even after the agency relationship has ceased, the agent's duty to account to the principal may continue. Hence, the agent is obliged to return to his principal all documents and property originally given to the agent by the principal and documents prepared by the agent on the instruction and at the expense of the principal.
The general rule is that an agent may not delegate his authority or duty in whole or in part except with the authority and consent of the principal. Where an agent is not authorised to delegate, the act of a "sub-agent" appointed by the agent will not be binding on the principal. The agent who so delegates his authority is also in breach of the duty not to delegate and is liable to compensate for any loss which the principal may suffer in consequence of the agent's failure to exercise his authority in person.
Generally, agents are under a duty to obey the lawful and reasonable instructions of the principal. Where the principal's instructions are clear, the agent does not normally have any discretion and must follow those instructions, unless an agent is a professional and the principal relies on the agent to exercise his professional skill and discretion in accomplishing the tasks he has been appointed to accomplish.
However, if the principal's instructions are ambiguous or if the agent is not certain as to their meanings, the agent should clarify such instructions with the principal before acting.