Liability within Agency Operations

The parties in an agency relationship are the principal and the agent. Agency law focuses on these two parties plus any third parties that deal directly with the agent on behalf of the principal. Liability, which is responsibility for a wrongdoing or act, can come from actions taken in an agency relationship. The principal has the authority and the right to control an agent as they complete the assigned tasks and may grant authority to the agent to conduct business on their behalf, usually with the understanding the principal will compensate the agent accordingly. Typically, agents deal with third parties and enter into other agreements and contracts with those third parties as representatives of the principal. The agent is the person who is acting on behalf of the principal. The agent is subject to the control of the principal in all decisions within the agency relationship. Vicarious liability holds the controlling party, or in the agency relationship, the principal, responsible for the harms committed by another (the agent). Vicarious liability holds the controlling party, or in the agency relationship, the principal, responsible for the harms committed by another (the agent). A tort is a violation of rights of an individual or business that has been wronged intentionally or by negligence. Common torts include defamation, nuisance, conversion, and negligence. An individual is always responsible for their torts, even if they are acting as an agent. Thus, a tort committed by an agent may result in liability by the agent and the principal.
Contracts are mutual agreements entered into with specific terms for compliance, as well as benefits to both parties that are an essential part of the contract, called consideration. A contract consists of an offer, an acceptance, and some form of consideration.

Respondeat superior is a legal term that states the principal may be responsible to third parties for the actions, specifically the torts, of the agent if the torts were committed at the direction of and for the benefit of the principal. This term means that the principal is responsible for the tortious—in other words, harmful—acts of an agent, as long as the agent was acting within the scope of the agency agreement. The scope of the agency agreement means that the parties involved are acting within the boundaries of a particular agreement, such as the allowances and limits established within an agency relationship. Respondeat superior is a type of vicarious liability that stems from the master-servant rule, which places liability with the master.

The principal is usually responsible for the contracts the agent enters into with third parties. As long as the agent does so on behalf of the principal and within the limits of the agency, the principal will be held to the terms of the contract.

There are two basic types of authority: actual authority and express authority. A principal grants authority to an agent to conduct business on his or her behalf. Actual authority is specific and expressly conferred authority and power that a principal gives an agent to perform actions on the principal's behalf. A type of actual authority is express authority, which means the principal gave that power verbally or in writing. For example, a professional football player hires a sports agent and gives that agent the express authority to review contracts. Another type of actual authority is implied authority, which is the power of agents to perform acts that are reasonably necessary to accomplish the tasks and directives of the principal but where that authority is unwritten and unspoken. Suppose the sports agent then hires an assistant to handle phone calls and paperwork associated with the contracts. While the player didn't give the agent the express authority for this hire, implied authority would allow this assistance as part of the agency relationship. An agent can also have apparent authority, which means a reasonable third party would believe that the agent had authority to act in a particular way, whether or not the agent had actual authority to so act. In such a case the principal is bound by an agent's actions. Under apparent authority the principal may have a cause of action against the agent for acting outside their authority.