A Power of Attorney is the most common form of agency that people know where an individual designates another to act on his behalf in the event of absence or disability. It allows the principal to be in another place while the agent attends to his affairs, and it affords the agent an opportunity to be of service to him.
Black’s law dictionary defines agency as “A relation, created either by express or implied contract or by law, whereby one party (called the principal or constituent) delegates the transaction of some lawful business or the authority to do certain acts for him or in relation to his rights or property, with more or less discretionary power, to another person (called the agent, attorney, proxy, or delegate) who undertakes to manage the affair and render him an account thereof.
Thus, the elements of a contract of agency are: (1) Consent of the principal and the agent. A person who has the juridical capacity to act can give consent; (2) Object - the services to be undertaken by the agent may cover all acts pertaining to a business of the principal (general agency) or one or more specific transactions (special agency). The extent of the agent’s authority to act, whether it be a general or a special agency, depends on how the agency is couched; (c) Cause which may be onerous or gratuitous but presumed for compensation. The agent may not be deprived of his right to compensation by an unjustified revocation of the agency.
Agency is a common law principle which was later on incorporated into statutory law. It is based on the Latin maxim 'Qui facit per alium, facit per se', which means 'he who acts through another is deemed in law to do it himself'. Convenience and necessity are the primary reasons for entering into agency agreements.
There are different kinds of agency. Agency is actual if the principal outlines his expectations of the agent and any limitations on the agency privileges, and a Power of Attorney would fall under this category. Once designated and his powers laid out by the principal, the agent is free to negotiate and enter into contractual relationships with third parties that will bind the principal. Although he is not present during the negotiations, the third party can sue the principal if the contract is breached.
An apparent agency agreement is one in which the contract between the principal and the agent is implied by operation of law. This happens whenever a principal "holds out" an agent as someone who possesses the authority to bind him under contracts entered into by the latter notwithstanding the absence a written agreement between the parties. The rationale for this is that by holding out a person as one’s agent and giving the impression that authority is properly bestowed upon him, it only but logical that any third person would reasonably believe that the agent is indeed truly authorized to act for the principal; consequently, the principal is liable for the actions of his agent.
There is also an implied agency between an employer and an employee; thus, making the former liable for the actions of the latter. This principle is founded in the Latin Maxim “respondeat superior” which means "let the master answer." An implied agency is created if (1) the employee's activity is within the scope of his employment; (2) the activity is part of the employee's job responsibilities; and (3) the agent-employee acts with an intent to benefit the principal.
In the 1999 case of Castillo v. Case Farms of Ohio (96 F Supp. 2d 578) the Senior District Judge of Ohio ruled that:
1) A principle may be liable for the acts of a purported agent based on an actual agency relationship created by the principal’s express or implied delegation of authority to the agent.
2) A principle is liable only if those actions are taken in the scope of the agent’s employment. Express actual authority exists “where the principal has made it clear to the agent that he wants the act under scrutiny to be done.”
3) Giving an agent express authority to undertake a certain act also includes the implied authority to do all things proper, usual, and necessary to exercise that express authority.
Another common type of agency is in real estate transactions where the buyer is the principal and the real estate broker acts as an agent on the buyer's behalf if the latter authorizes the former to act on his behalf. The broker is usually free to enter into contracts on the buyer's behalf, thereby binding him even without his prior consent on account of the agency agreement between them.
Potential liability is a given in an agency arrangement, and a principal exposes himself to that risk when he enters into an agency agreement. Although it is not a liability he can ordinarily avoid, a principal who is held liable for the actions of the agent may go after the latter for restitution of what he lost or for damages caused. This is the reason why most agency arrangements require that the agent be insured or post a bond to cover losses and liability.
Being clear about relationships you establish with other people and drawing the line on delegated powers helps avoid surprises in the future. For his own protection, it is only prudent that a principal enter into a written agreement with an agent that he trusts. Trust is definitely more important than having a written agreement especially in cases where an agency relationship is created by operation of law. Trust is priceless and should not be taken for granted on account of convenience and necessity.
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