Business and Corporate Law

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It is a common principle of contract law that only the parties to the agreement get privileges and liabilities.

 An apparent exclusion to this general regulation is represented by the law of agency. Therefore, an agent who is a representative reaches an agreement with the third parties on behalf of another individual named the principal. The latter obtains liabilities and rights under such an agreement. The legal bond created between the agent and the principal is commonly referred to as agency. Thus, the law of agency defines the relationships that exist between the agent, the principal and the third party as well as the rights and obligations of the parties towards each other. However, the law of agency appears to differ from the contract law and we will determine it in this essay on presentation.

The Law of Agency

The law of agency implies that the agent is allowed to perform on behalf of the principal and to establish a legal relationship with the third party. An agent here is defined as the individual used by the principal in transactions who acts for account of the principal with the third persons (Mann and Roberts 366). Regarding the law, the agent is expected to arbitrate in the name of the principal or invite the third party into a contractual association. It is essential to note that the law of agency regulates and manages the relationship between the parties who are simply agents, the third parties, and principals. In civil law cases, 'agency' is employed to outline the circumstances where one individual, namely the principal, sanctions the second individual, the agent, to deal with the third person on behalf of the principal. Agency similarly deals with personal injury litigations, usually when an injured applicant sues both the respondent and the defendant’s employer under the law of respondent superior. The law affirms that both the respondent who is working for his employer and the employer are held accountable when the defendant employee’s negligence results in injury. With the law of agency, the court acknowledges three different kinds of agency relationships, namely the universal, general and special agency. Nonetheless, a principal may terminate the agency relationship at any particular time for almost any reason.

Rights and Obligations of Agent and Principal to Each Other

Duties of an Agent to his Principal

An agent has various duties towards his principal. The former must adhere to the instructions of the latter (Mann and Roberts 371). As such, the agent ought to abide by the agreement that he/she has undertaken. However, the agent has the right not to follow illegal instructions. The agent similarly has the duty to exercise reasonable care, diligence, and skill. As a rule, the standard of care that the agent needs to maintain for his/her principal is the one, which is required for an individual dealing with such work. Therefore, the agent will not be blamed for negligence even if his/her attempts were unsuccessful as long as he/she conformed to normal care having regard to the nature of the transaction and performed sensibly as it would be demanded from an agent employed in such an endeavor.

Another obligation of the agent is that he/she needs to act in person and not delegate any tasks. It is usually the principal's expectation in the process of selecting an employee that the agent will take the initiative personally rather than through other individuals. The agent owes the duty to work in the principal's interest. It has been recognized that the association between the agent and the principal is a confidential one; hence, the agent has to make all decisions for the convenience, accomplishment and benefits of the principal. Here it is required that the agent should avoid having his/her interests conflicting with the principal's ones, and if a challenge arises regarding proper conduct, the agent is supposed to relinquish his/her roles and leave the agency (Mann and Roberts 371). Besides, this obligation has been jealously guarded and upheld by the courts; moreover, it advanced the perception that the principal's interests should always prevail over the agent's ones.

The agent also has to reveal anything he/she learns or knows which might affect the judgment and interest of the principal. It is expected from the agent to act honestly and to avoid anything improper since the principle has placed confidence and trust in him/her. Any financial advantage obtained by the agent in delegation of the assigned roles is regarded to as secret profit. The confidential duty imposed on the agent requires that he/she should not make money covertly in devolving his/her responsibilities.

It is similarly the obligation of the agent not to disclose private information. Usually, acting in the principal's interests translates to the agent being under the duty of secrecy. The agent is prohibited to disclose any data concerning the principal's affairs and business. In addition, the principal needs to ensure that the agent does not utilize the information for his/her own benefits. The latter also has the duty to maintain accounts. It is required from the agent to administer appropriate accounts in relation to his/her work. As such, the agent should not misuse his/her funds with those of the principal, and in case of misconduct, the law will presume that the whole amount belongs to the principal.

Duties of the Principal towards the Agent

There exist three primary duties owed to an agent by his/her principal, and the former might in turn use the privileges against the principal. The obligations comprise the entitlement to remuneration, indemnity, and exercising a lien. The agent has the right to compensation, which depends on the contract appointing the agent (Mann and Roberts 373). Nonetheless, it is appropriate for the agent to keep records regarding the remuneration amount before acknowledging the agency. With respect to the indemnity right, the agents might incur particular loses or make payments on behalf of the principal when undertaking their duties. As such, the agent is entitled to indemnification against the liabilities (Mann and Roberts 373). Finally, the agent might exercise a lien over the principal's goods in his/her possession until the amount owed to the agent is paid.

Relationship of the Agent and the Principal to the Third Parties

The relationship of the agent and the principal with the third parties develops within the framework of legal liabilities. One instance of such relationships is the case with disclosed principal where the recognized contract is the agreement between the third party and the principal. Therefore, there is no agent's responsibility to the third party individuals. When the principal is unidentified, the agent conducts dealings on behalf of the principal, and as such the latter may be held accountable for any breach of the agreement by the third party. Regarding undisclosed principal, the correlation is merely between the agent and the third party with the principal connected through representation of the agent.

Differences between Rules of General Contract Law and Rules of the Law of Agency

The general contract law possesses quite a number of contrasting features in comparison with the law of agency. Firstly, the law of agency includes the principal, the third party and the agent and who are usually not legally bound by law. On the other hand, in the contract law, it is required that the parties should be legally bound. Another major difference is that according to the law of agency, the third party does not necessarily participate in the agreement since it tends to be reached between the agent and the principal while in contract law, the rules stipulate that all the interested parties must be present to conclude the contract.


In conclusion, the law of agency permits an agent to act on behalf of the principal in order to create legal association with the third party. In this law of agency, both the agent and the principal have various obligations and rights. The duties of the agent to the principal entail following the principal's instructions, exercising logical diligence, care and skills, performing independently, not delegating one’s responsibilities and taking measures for the sake of principal's welfare among others. Similarly, the principal is liable for remunerating and indemnifying the agent as well as allowing him/her to exercise a lien. The relationship between the agent, the principal, and the third party is based on the nature of the principal since the latter may be disclosed, undisclosed, and unidentified. The differences between the rules of common contract law and the law of agency are concerned with legal obligations of the parties regarding the processes.