Creating and Terminating an Agency Relationship

In this post, I discuss the agency relationship. I particularly discuss how both to create and terminate such relationships.

Photo by pallspera.com is licensed under CC 2.0.

Agency is a legal concept whereby one person—the principal—provides authority to another person—the agent—to act on his behalf.

Creating an Agency Relationship

There are no formal requirements to create an agency relationship. Such a relationship can be created verbally, by practice, or even by simple inference. Creating them is therefore generally quite simple and easy to do—and in fact, can be done unintentionally if the principal’s behavior would lead a third party to reasonably conclude that such a relationship exists (see apparent authority).

Equal Dignities Rule

An exception to the general rule that a writing is not required to create an agency relationship is known as the Equal Dignities Rule. This rules states that if the Statute of Frauds requires a contract to be in writing, then the authority to allow an agent to enter into that contract on the principal’s behalf must also be in writing.

Terminating an Agency Relationship

Terminating an agency is generally simple, though not often as simple as creating one in the first place.

Where the agency came into existence by virtue of the expressed or implied authority provided by the principal (see actual authority), the agency terminates upon the occurrence of any of the following:

1. The agent’s death, or in the case of an artificial entity, the cessation of its existence.
2. Notice to the agent or to applicable third parties that the principal has died or ceased to exist.
3. Notice to the agent or to applicable third parties that the principal has lost legal capacity to have an agent.
4. An agreement between the agent and the principal to terminate the agency.
5. A manifestation of revocation of the agency relationship by the principal to the agent.
6. A manifestation of renunciation of the agency relationship by the agent.

Where apparent authority gives rise to an agency relationship, as discussed above, such a relationship ends when it is no longer reasonable for a third party to believe that the agent has the authority to act on the principal’s behalf.

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See Also:

Agency Relationships

Agent Liability to a Third Party