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Legality of Law of Agency in the US

Published on : 30 Jan 2024

Law of Agency in the US

The law of agency in the United States plays a pivotal role in structuring and regulating relationships between individuals and entities, particularly in the realms of business, finance, and real estate. This area of law, which centers on interactions between agents and principals, is crucial for understanding how one party can act through another and the implications thereof. This article delves into the intricacies of the law of agency in the U.S., exploring its core principles, various types of agency relationships, and the duties and liabilities of the involved parties, along with its relevance in different legal contexts.

At its core, agency law in the United States concerns the relationship between two parties: the principal and the agent. This relationship is defined by the authorization given to an agent to act on behalf of the principal. Such a relationship is based on mutual consent, where the principal allows the agent to act on their behalf and the agent agrees to this authority. The actions taken by the agent within their given authority are legally binding on the principal.

Creation of Agency Relationships

Agency relationships can be established in various ways. An express agency is formed through a clear oral or written agreement between the principal and the agent. Implied agency, on the other hand, is inferred from the behavior and circumstances of the parties involved. Agency by estoppel arises when a principal's actions lead a third party to reasonably believe that an agency relationship exists. Lastly, agency by ratification occurs when a principal approves or affirms an action previously undertaken by an agent without authorization.

Types of Agency

There are different forms of agency relationships, each with its unique characteristics and implications. In a general agency, the agent has broad authority to act on behalf of the principal across a range of matters. A special agency limits the agent’s authority to specific activities or transactions. Universal agency grants the agent extensive powers to act on behalf of the principal in virtually all matters.

The duties of agents include the duty of loyalty, where agents must act in the best interest of their principals and avoid conflicts of interest. They also have a duty of care, requiring them to perform their responsibilities with a reasonable level of skill and caution. Additionally, agents are obliged to keep their principals informed about relevant information concerning the agency. On the other hand, principals have certain duties as well, such as the duty to compensate their agents for their services, to reimburse them for expenses incurred in the course of their agency, and to indemnify them against losses suffered while acting within the scope of their agency.

The issue of liability in agency relationships is complex. Agents can be held personally liable if they act beyond their authority, engage in wrongful acts while representing the principal, or enter into contracts in their own name instead of as an agent. Principals, however, may be liable for contracts entered into by their agents within the scope of their authority and for torts committed by their agents while acting within the realm of their employment, as per the principle of respondeat superior.

Agency relationships can terminate in various ways. They may end by mutual agreement, lapse of time, or upon the achievement of the agency’s purpose. Additionally, either party may choose to end the relationship through revocation or renunciation. The death or incapacity of either the principal or agent also results in the termination of the agency.

Agency in Specific Contexts

In business and commercial transactions, agency law is vital for understanding the relationships between corporations and their officers, employees, and agents. In real estate, it governs the relationship between real estate agents and their clients, crucial for issues like contractual obligations and fiduciary duties. In the finance and banking sector, agency relationships between fiduciaries and clients, such as investment advisors, highlight the importance of the law of agency in understanding the legal implications of financial transactions and advice.


The law of agency in the United States is a broad and essential aspect of legal relationships, influencing how individuals and entities interact and operate. It defines the legal framework within which agents and principals operate, outlines their duties and liabilities, and is integral to understanding and navigating legal relationships in various sectors. As such, a thorough understanding of agency law is indispensable for legal practitioners, business professionals, and anyone engaged in activities where acting through others is a necessity.