7 Types of Agency in Law (With a Comprehensive Explanation of Each)

Ever wondered how someone else can legally act on your behalf? That’s where agency law comes in. It’s all about giving someone (the agent) the power to represent you (the principal) in various matters—whether it’s business deals or personal matters. Did you know there are 7 different types of agency relationships? Each one comes with its own set of rules and responsibilities.

Curious about how these work in real-life situations, and which type might apply to you? Let’s break it down in simple terms and see how agency law impacts everyday decisions.

Understanding the Principal in an Agency Relationship

The principal is the party for whom the agent acts. The principal authorizes the agent, either expressly or impliedly, to carry out tasks on their behalf. Any act performed by the agent, as long as it falls within the scope of their authority, legally binds the principal. Therefore, the principal remains liable for those actions unless they are expressly prohibited.

There are two types of principals: disclosed and undisclosed.

1. Disclosed Principal

When the principal is disclosed, it means that the agent or the principal has informed the third party that an agent is acting on behalf of a principal. The identity of the principal doesn’t need to be known by the third party; what matters is that the third party is aware that an agent is acting on behalf of someone else.

A disclosed principal can ratify a contract entered into by the agent without prior authorization. In such situations, the principal can also be sued if there’s a breach of contract, making it easier to determine who is legally responsible.

2. Undisclosed Principal

In contrast, an undisclosed principal is not revealed to the third party. The third party is unaware that the agent is acting on someone else’s behalf. Even though the agent appears to be acting on their own, the undisclosed principal may still be held liable for the agent’s actions.

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Who is an Agent?

An agent is a person appointed by the principal to perform tasks or represent them in dealings with third parties. Agents can vary depending on the extent of authority given to them. Typically, agents are paid for their services through commissions, and they can be categorized as either a special, universal, or general agent.

Types of Agents

1. Special Agent: This agent has limited authority and is appointed for a specific purpose or transaction.

2. General Agent: A general agent has broader authority and can act on behalf of the principal in a variety of matters related to a particular business or role.

3. Universal Agent: A universal agent has the most extensive authority and can act on behalf of the principal in all matters that are legally permissible.

The type of agent in each case depends on the agreement between the principal and the agent. Understanding the specific category helps to define the agent’s role, obligations, and scope of authority.

The Role of a Third Party

A third party is the individual or entity with whom the agent interacts on behalf of the principal. In some cases, the third party may not even be aware that the agent is acting for a principal, such as when dealing with an undisclosed principal. Regardless, the third party’s legal rights and obligations are shaped by the agency relationship.

How Agency Relationships are Created

There are several ways an agency relationship can be formed. Below are the most common methods:

1. Agency by Agreement

An agency can be established through an explicit or implied agreement between the principal and the agent. This agreement doesn’t need to follow a specific format and can be oral or written. However, if a contract involves a deed (such as a lease longer than three years), it must be written as per statutory provisions.

2. Agency by Ratification

If an agent acts without the authority of the principal, the principal can later ratify the action. When the principal ratifies the action, it’s as if the agent had the authority from the start. However, the principal must ratify the entire action within a reasonable time, and they must have full knowledge of the agent’s acts.

3. Agency by Estoppel

Agency by estoppel occurs when a third party reasonably believes that someone is acting as an agent due to the principal’s conduct or representation. If the principal does not inform the third party otherwise, they will be bound by the agent’s actions. For agency by estoppel to be valid:

• The principal must have made a representation to the third party.
• The third party must have acted based on that representation.
• The principal must not have informed the third party of the agent’s termination or limitation of authority.

4. Agency by Operation of Law

Agency can also be created by operation of law. This happens under two circumstances: agency by necessity and agency by cohabitation.

1. Agency by Necessity: This arises when an emergency situation requires the agent to act without prior approval from the principal. The agent’s actions are justified if it’s in the best interest of the principal and contact with the principal was impossible.

2. Agency by Cohabitation: This type of agency is based on the presumption of marriage, where a woman is presumed to be the agent of her husband in certain transactions, unless otherwise stated.

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Types of Agency

There are several specific types of agents in business and legal transactions:

1. Del Credere Agent: This agent guarantees the principal that a third party will fulfill their financial obligations. If the third party defaults, the del credere agent is responsible for the loss.

2. Partners: In a partnership, each partner is an agent of the others.

3. Auctioneer: An auctioneer is hired to sell goods in an auction and must follow specific legal requirements, such as not selling below a reserved price.

4. Banker: A banker acts as an agent for customers in certain situations, like managing deposits or executing payment instructions.

5. Broker: A broker negotiates contracts between two parties without necessarily having possession of the goods in question.

6. Estate Agent: An estate agent buys and sells properties on behalf of clients.

7. Mercantile Agent: This agent sells goods for a principal in the ordinary course of business.

Wrapping Up 

Agency is a fundamental concept in law that enables individuals and businesses to carry out activities through agents. Whether created by agreement, estoppel, ratification, or operation of law, agency relationships form the basis for many legal and business transactions. Understanding the different types of agents and how they operate is crucial for principals, agents, and third parties alike.

Frequently Asked Questions

What is the origin of the word agency?  

The word “agency” originates from the Latin word “agere,” which means “to do or to manage.”

What is the most common type of agency? 

Agency by agreement, also known as express agency, is the most common type.

Can an agent appoint another agent?

Yes, an agent can appoint another agent, provided the principal has not expressly forbidden it.

What are the three forms of agency?  

The three forms of agency are collective, individual, and proxy agency.