The Agency Relationship

One of the most important relationships in commercial reality is that of the agent. Often employed in purchasing internationally, or indeed in negotiating the conclusion of a contract, the agent is seen in law as an extension of the principal for whom he acts, with the uncharacteristic authority to make decisions and enter contracts on behalf of another. However, what is the extent of the agent’s authority? How far can he really go in acting for his client before he ends up creating problems? Furthermore, what happens when the agent goes beyond his allotted authority to make unauthorised decisions on behalf of his agent? In this article we will look at some of the founding principles of the agency relationship, its importance, and some of the key considerations for modern debate.

Agency can normally arises in a number of situations, although these can broadly be categorised as follows. An agency relationship can be created by express notification, that is by way of a contract outlining his authority. It can be created impliedly, that is by implication of law or by permitting someone to act as agent on your behalf, and it can also be created by ratification, an unusual and counter-logical provision that allows principals to ‘ratify’ the unauthorised actions of an agent at a later date. This means in effect the agent can bind a third party with retrospective effect, as the ratification gives the agents authority force from when the contract was entered into. Of course, this means the third party could sustain loss, although this can be countered by allowing an action against the agent, or indeed the principal for the time delay and any damage sustained in material terms.

The agency relationship is particularly peculiar in that it boycotts one of the most fundamental principles of contract: that an agreement should be made between two parties. Effectively, it is used where the agent has the ability and skill to negotiate contracts more effectively than the agent for which he acts, or indeed in commercial situations where the principal has delegated negotiation to a specific party. Additionally, it is not unknown for partners of a partnership and directors of a company to be considered agents, although this is applied in limited jurisdictions. On the whole, it mainly concerns actings in commercial situations for the purposes of exploiting a particular individual’s skill in negotiation. For this reason it is an instance of delectus personae, i.e. the agent is personally desired to fulfil his role, rather than delegate.

One of the most important issues of the agency agreement is the way in which an agent can negotiate beyond his authority. Where he does so, the agent will in the interim bind himself personally to the contract in most jurisdictions, therefore it is imperative that agents have experience and knowledge of the law in this area to avoid falling foul of this provision. Generally, the agent’s liability ceases on ratification, although this is not an absolute rule, and this has come in for a great deal of criticism in recent times. The ability to ratify, as discussed above, is one of the most common areas for agency reform discussed, alongside the need for uniformity and harmonisation on an international scale. The fact that international agents can often be subject to governance from conflicting law sets is unfortunate, and efforts are being made to improve the situation and thus aid international trade relations. It is hoped that within the next decade a draft code of international agency law will be drafted, afforded rights and libelling responsibilities at a basic ‘grass-roots’ level of uniform application. This would certainly resolve the primary problem with international agency, and would have an untold effect on international trade and exchange. And with steps towards further integration already underway, particularly in Europe, the dream of a unified practice for agents is thankfully not too distant.

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