Principals and Agents

Jun 07

The law surrounding relationships in business has its heart in Principals and Agents. There are various ways that these relationships are formed. The most common are

  • Employer, employee
  • Independent contractor

The most common formation involves Express Agency. That means that both parties agree on the terms of the principal agent particulars. This may include exclusive agency, where the relationship is limited to the original parties for the purposes set forth in the contract.

There are other types of agency, including implied agency, agency by ratification and power of attorney. While the implied and ratification formation mechanisms are less specific in terms and timing, power of attorney is a deliberate transfer of (often specific) rights to legally act on behalf of the principal.

Agents duties include to perform as agreed, notify the principal of relevant information related to that performance and account for expenses and other pertinent information related to his activities.

Principal’s duties

It is expected that the principal, as well as the agent, has specific duties and responsibilities after the formation of an agency relationship. These include duties to reimburse, indemnify and cooperate. The professor shrugged a bit on this topic explaining that in her professional course as a practicing lawyer the overwhelming majority of agency related cases had to do with the agent, not the principal.


There are many circumstances that can bring about the termination of a principal-agent relationship. These may include

  • Act of the parties
  • Unusual change in circumstances
  • Impossibility of performance
  • Operation of law

There are also times when wrongful termination occurs. In these cases, the agency relationship is terminated, but remedies may be available in court, such as damages to cover benefits that were anticipated under the principal-agent relationship as specified in a contract.

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