Law of agency (proxy)
The Law of Agency, also referred to as proxy law, establishes a legal framework for a relationship between two parties: the principal and the agent. This law allows agents to act on behalf of principals, enabling them to form contracts and engage in legal dealings with third parties. Within this relationship, there are two active contracts: one between the principal and the agent, and another between the principal and the third party. Agents are expected to act in the best interests of their principals, maintaining transparency and confidentiality, while principals must honor the contracts made by their agents. Agency relationships can be established through formal contracts, implied agreements, or even by necessity when a principal cannot act on their own behalf due to incapacitation.
In particular, the concept of estoppel protects third parties by holding principals accountable for agreements made by individuals acting as agents, even if those individuals lack formal authority. The termination of these relationships can occur through mutual consent or expiration of the contract's terms. Agency law is applicable across various fields such as business, finance, and healthcare, highlighting its significance in facilitating transactions and decision-making in diverse contexts.
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Law of agency (proxy)
The law of agency, also known as proxy law, creates a legal relationship between the two parties of principal and agent. The purpose of agency law is to permit agents to act on behalf of their principals in forming contracts or making other legal dealings with third parties. Agency relationships, therefore, involve two contracts that are concurrently active, one between the principal and agent and another between the principal and a third party.
Because the relationship between agents and principals is legally binding, principals must adhere to the terms of any contracts created by their agents with third parties. However, agents are still restricted by the terms of the contracts they formed with their principals. Should agents overstep these restrictions in their negotiations with third parties in ways that cause financial losses to principals, the principals can sue their agents for breaches of contract terms and receive compensation. Ideally, however, agents are expected always to act with their principals' best interests in mind.
Background
Principals and agents can create relationships in a variety of ways. The code that governs the creation of almost all principal-agent relationships is that both parties must be aware of what they are doing. People cannot become agents unknowingly.
Principal-agent relationships are most commonly formed by a contract drawn up between a principal and an agent. Contracts are the legal means through which principals authorize agents to act on their behalf.
Principals can also create relationships with agents by implied appointment. This method does not involve formal written contracts. Instead, the parameters of the relationship depend entirely on the reasonable assumptions of the two parties that the principal has authorized an agent to create contracts with third parties. In these cases, agents assume their principals have given them this authority, even though the actual terms of this relationship were never formally stated.
However, the principal's and agent's assumptions are not simply baseless. Each party acts according to the relationship they have together, whereby the person assumed to be the agent already performs the duties of an agent as assigned by a principal. An example is a man who routinely tasks another with purchasing goods in his name. The man pays for his own goods, but the second individual manages the actual purchasing. This is an implied relationship between a principal and an agent since neither person has explicitly accepted these roles from the other.
Principals and agents may also form relationships by the legal doctrine of estoppel. In certain legal systems, this concept protects third parties by holding principals to the terms of agreements made with these parties by people acting as agents. These "agents" may not be legitimate agents and may not legally represent the principals, but if the third parties believe they did at the time they agreed to a contract, the principal must honor the terms of the contract. In this way, the principal is said to have been stopped from nullifying a contract by denying that the "agent" involved ever held the real power of an agent.
In certain situations, principal-agent relationships may be formed by necessity, whereby a principal is in some way incapacitated, and an agent must assume authority to act on the principal's behalf. The creation of a principal-agent relationship, in this case, is usually considered necessary to prevent damages or loss of property belonging to the principal, who cannot act on their own behalf. Individuals may become agents by necessity only if the principals cannot possibly direct others to manage their affairs. The agents must act in good faith, a legal doctrine mandating that they oversee the principal's business fairly and honestly.
Overview
Once principals and agents create legal relationships by any of these means (excepting agency by necessity), each party has legal obligations to the other. Principals owe their agents agreed-upon commissions or other payments for their work. Principals are also generally required to reimburse their agents for miscellaneous expenses the agents may incur in the performance of their services to the principals.
Agents have a number of responsibilities to their principals. Chiefly, agents are to follow the principal's instructions for making contracts, finding jobs (as in the case of talent agents), and executing other duties as detailed in the principal-agent contract. Agents are to act in good faith in their dealings with principals and third parties. Agents should support their principals' best interests and inform the principals of the decisions they make. Agents are also expected to use their discretion in keeping their principal's personal information private.
Principals or agents can terminate the contracts that exist between them in several ways. Principals can revoke the powers they gave to their agents, and agents can renounce their commitments to working on behalf of the principals. Principals and agents should provide notice of their intent to terminate an agreement a reasonable amount of time before actually doing so, as this will give the other party time to find a replacement. Principal-agent agreements can also expire if a contract's terms are active for only a set amount of time.
In certain legal jurisdictions, one party to a contract may sue another in cases of term breaches that cause damages to a party. Civil wrongs that cause damages or other losses to a person are called torts. Principals may bring tort cases against agents who violate their contract's terms. Principals who win these cases are usually awarded compensation for their losses.
Principal and agent relationships always exist for the execution of legal transactions. These relationships can be formed in a variety of fields, including business, finance, entertainment, and sports. For instance, in business, a shareholder in a company may be unable to attend a meeting and may elect a proxy to serve in their place. These proxies are agents for the principal, the shareholder. The proxies have the power to vote on company decisions in the shareholder's absence.
In finance, the people who purchase shares of a market index are principals. The fund manager is the agent who oversees the investors' money and seeks to grow the fund, so all principals who have invested can receive returns. People can also become agents for principals in the healthcare field. This applies in cases when principals cannot care for themselves and employ agents to make healthcare decisions for them.
Bibliography
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