Agency refers to a type of relationship involving two parties: an agent and a principal. The principal can be an individual person or a company. In an agency relationship, the agent is granted the authority, to act on behalf of the principal. This includes the ability of the agent to create binding contractual relationships between the principal and third parties.
So, for instance, if you proceed to sell goods through an agent, you (the principal) are liable under these contracts entered into by your agent on your behalf and you can be sued on such contracts.
When an agent creates contractual relationships between their principal and a third party, the agent is not a party to the contract. Thereby, they are not liable to the third party to perform any obligations stated therein. An agent may be liable to perform obligations under a contract, in some cases, if they act outside of the scope of their authority.
What duties does an agent owe to a principal?
In an agency relationship, an agent owes many duties to their principal:
1) Duty to act in the best interests of the principal
In essence, this is a duty imposed on the agent such that when the agent is acting on behalf of the principal, the agent must act in the principal’s best interests.
In a commercial context, this would mean that if an agent is negotiating an agreement for his/her principal, the agent must use their skill and knowledge to obtain the most favourable terms for the principal.
2) Duty to avoid conflicts of interest
In practical terms, this means, an agent should not act for another principal if the interests of that other principal conflict or may conflict with the former principal. This is unless the agent makes a disclosure of the conflict of interest to both principals and obtains both of their consent.
3) Duty not to make any secret profits
The agent should not make a profit or obtain any benefit in the course of acting as an agent, without obtaining the consent of his/her principal.
4) Duty of confidentiality
The agent should not disclose any information regarding the principal to any third party.
5) Duty to use care and skill
The agent must show care and skill when performing their duties pursuant to an agency relationship.
6) Duty to account
The agent will serve as a trustee for any property received from a principal.
7) Duty not to delegate
This duty mandates that an agent does not delegate the authority vested in them by a principal to another person.
8) Duty of obedience
The agent is under a duty to obey the reasonable and lawful directions and instructions of their principal.
What rights does an agent have against a principal?
In an agency relationship, an agent has many rights against their principal. Some of the key rights include:
1) Right of remuneration
Generally, only if an agency contract specifies that an agent is entitled to remuneration will such remuneration be payable.
In a commercial context, if an agent has provided services which have been accepted by a principal, normally, a term is implied into the contract between the parties entitling the agent to reasonable remuneration.
2) Right to reimbursement and indemnity
An agent normally has a right to be indemnified for all losses incidental to the performance by the agent of his/her duties owed to the principal.
An agent is also normally entitled to be reimbursed for any and all expenses incurred incidental to the performance of his/her duties owed to the principal.
