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Business → Agency → Creation and obligation of agency
Overview — Creation and obligations of the agency
Roger Wade, Director, WadeLegal
Currently updated by the LexisNexis Team
An agency may come into existence through the more common way of an agreement between the parties, however, it can also arise in other ways including by:
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express or implied agreement of the parties if the elements of a contract at law are established, for example, offer, acceptance and consideration, or alternatively there is sufficient evidence to show that the actions and conduct of the parties impliedly established an agency agreement;
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operation of law, for example, because of circumstances of necessity the agent has been conferred authority, beyond that given by any contract between the parties, to do an act in relation to the principal’s property. Statute can also create an agency, for example, every partner in a partnership is an agent of the firm; or
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ratification where the principal adopts the acts of its agent and becomes bound by the contract with the third party.
Methods of appointment
What follows the appointment of the agent is the creation of three legal relationships:
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between the principal and the agent;
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between the agent and third parties; and
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between the principal and third parties.
See Methods of appointment.
The agent’s and principal’s duties
The law recognises various rights and duties on the agent and on the principal. These duties arise from the agency agreement, common law and equity.
The agent’s duties
Examples of the types of duties imposed on an agent include:
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the duty to exercise due care, skill and diligence;
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the duty to act in the principal’s interests; and
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the duty to keep their property separate from that of the principal.
The standard of care expected of an agent will vary depending on whether the agent is being paid for their services or providing them for free. A paid agent will usually be expected to exercise a higher standard of care than that expected of an agent that provides their services gratuitously.
In addition to the agent’s duties at law or by virtue of the contract of agency, an agent also has fiduciary duties given that they are placed in a position of trust and confidence. Should an agent benefit from their position to the disadvantage of the principal, the principal can seek equitable relief.
See The agent’s duties.
The principal’s duties
A principal’s main duties to its agent are:
Unless it is agreed that the agent will not be paid for their services, the principal is obliged to compensate the agent with a fee for services and reimburse the agent for expenses incurred while performing the agent’s duties.
See The principal’s duties.
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