An agency agreement is a legal relationship that allows one person to make decisions on behalf the other person. Agency agreements are helpful to allow one person to get more done by delegating authority and responsibility to an agent.

Generally

An agency agreement exists when one person, called the principal, authorizes another person, called the agent, to make decisions that legally bind the principal. For example, the agent can enter into contracts, terminate contracts, negotiate business deals, or represent personal interests for the principal.

Function

The primary function of an agency agreement is to allow the principal to take advantage of the agent's time, expertise or resources. An agency agreement essentially allows a principal to be in two places at one time.

Types

Agency agreements can be general or limited. A limited agent is authorized to make only certain types of decisions on behalf of the principal. A general agent, on the other hand, has authority to make any decision for the principal.

Common Examples

One of the most commonly used types of agency agreement is the authorization of a real estate agent to market and sell the principal's home. Other common examples include attorneys, employees, and business partners.

Warning

Agency agreements can be very helpful, but they are also potentially dangerous. Principals are typically held liable for whatever damage an agent causes. So, for example, if you authorize an agent to drive your vehicle and the agent negligently crashes into another driver, you as the principal can be liable to the injured person.

Source:

Nolo's Encyclopedia of Everyday Law; Shae Irving, J.D.; 2008