The Doctrine of Liability in Agency Relationships

Business relationships are constructed under the premises of agency relationships, such as corporations and partnerships. An agency relationship illustrates a person of high authority (principal) who delegates their responsibilities to another (agent). Such accountabilities include the company’s financial aspects. It is important to note that in such relationships, the agent acts as though they were the principal, while the principal can be held responsible for the negative consequences resulting from the agent’s actions. The goal of this paper is to provide a basic idea and understanding of the doctrine of liability in the various agency relationships, including exceptions to such rules and regulations. Furthermore, this essay will cover several facets and scenarios of principal and agent relationships including situations concerning corporate fraud and the use of the general power of attorney. While agency relationships can be constructed in personal and business matters, this essay will discuss the doctrine of the liability in agency relationships from a business perspective. Furthermore, this paper will deliberate situations where agents and principals are held liable for negative actions.

The idea supporting the theory of agency relationships lies mainly on the principal. In most situations, the principal is usually depicted as the owner of a company. Examples of agents include managers or a managing company that is hired to make decisions on behalf of the owner. Generally, the principal is held liable for any damages performed by the agent. Since the principal empowers the agent to implement and exercise certain obligations, it is the principal’s responsibility to respond to the agent’s negative consequences. Exceptions to this rule are applicable when the agent commits a crime. like corporate espionage, or entertains the idea of committing one. Particularly, should the agent falsely attest to represent a specific principal, then the agent is susceptible and held liable to claim or fraud (Bevans, 2007, pp. 34-35) Furthermore, agents can be held liable for stating false information even though they believed such information to be factual; however, the agent did not have any reasonable premises for such belief (Bevans, 2007, p. 36). This type of scenario is commonly seen with agents and investors. In such circumstances, the legal elements of fraud are analyzed.

Although the agency relationships cover numerous types of agents, the general, universal, and special agents are the three most common types. The general agents’ spectrum of responsibilities consists of several actions including a specific series of transactions approved by the principal (Bevans, 2007, p. 36). In contrast, universal agents have a higher level of freedom of managing any transaction on behalf of the principal (Bevans, 2007, p. 36). While the general agent has certain limitations on the series of transactions they can manage, universal agents have the general power of attorney (Bevans, 2007, p. 36). Specifically, universal agents can act on behalf of the principal in matters about private affairs, financial, and business matters (Bevans, 2007, p. 36). An example of a universal agent is a chief level executive. Contrary to general and universal agents, special agents have the most basic authority. With the responsibility of performing only one specific transaction, special agents are restricted from negotiating or involving themselves in transactions that differ from that which is specifically assigned to them. A supervisor is an example of a special agent, who would be responsible for the specific authority assigned.

The agent’s authority is classified under the categories of actual, expressed, apparent, and implied. Expressed authority includes statements and agreements made between the principal and agent, while certain agency relationships are conducive for extensive information and specificities and others require limited expressed authority (Bevans, 2007, p. 28). When expressed authority is not clearly stated, the implied authority is utilized to resolve certain situations. When the agent’s actions do not coincide with the expressed authority, the general views of common sense define the implied authority the agent must execute their actions (Bevans, 2007, p. 29). Should the actions of the agent not been stated or expressed in the principal-agent agreement, it is assumed that the agent would have said powers per the responsibility granted. A vast contrast exists between apparent authority with that of expressed and implied. Often, the principal does not provide a specifically-written agreement that could not be followed or utilized under the implied authority; hence, apparent authority. In such scenarios, the principal’s behavior and freedom granted to specific individuals appear as though such individual is empowered to act on the principal’s behalf (Bevans, 2007, p. 29). Although the individual has no such authority, the principal is held liable for the negative consequences resulting from this person’s actions. To prevent situations of implied authority, it is best to strive for the agent form of expressed authority, which includes statements and agreements the principal and agent can access to resolve any disagreements or misunderstandings. 

The objective of this essay was to provide an understanding of the doctrine of liability in principal and agent relationships. Laws regulating the liability of the principal and the agent have been included, such as situations where the agent is involved with crime or criminal intent. Agency relationships are usually formed in a business structure involving owners, managers, and employees. Examples included in this paper were related to a business setting, where the principal is the person of high authority, such as the owner, and the agent is the person delegated to act in representation of the owner, such as a chief executive officer. Although agency relationships involve several types of agents, this paper discussed the general, universal, and special agents including the meaning of actual, expressed, apparent, and implied agent authority. 

Reference

Bevans, N. R. (2007). Principals and agents. In Business organizations and Corporate Law (pp. 28-29, 34-36). Clifton Park, NY: Thompson Delmar Learning.