Agency Transactions – transactions made by an agent
31 May, 2012
Agency Transactions – transactions made by an agent

Judge  Lasha  Kalandadze  continues answering our questions on the details of Agency Transactions in civil law.

NBR – What do you mean under loyalty, performance, notification and obedience?
L.K. – a) Loyalty – an agent must act only to the benefit of the principal and should not act for personal gain b) Performance – the agent should perform duties with reasonable skill and responsibility c) Notification – an agent must inform the principal of all matters concerning the subject

matter of the agency relationship. For example, a painter hires an agent to sell his paintings. If the agent learns that a buyer will be unable to pay, the agent must inform the principal of this fact; d) Obedience – an agent must act as the principal instructs and  should not act without the principal’s permission. One exception is if a principal asks the agent to violate the law, the agent can refuse without breaching this duty.
NBR – What are the Duties of a Principal to an Agent?
L.K. – A principal has duties towards agent. Failure to perform these duties can result in a breach of contract or tort liability. A principal’s duties include: a) Compensation: since a principal hires an agent, the agent expects payment to be made in a reasonable manner; b) Cooperation: a principal must allow an agent to perform his duties. A principal must cooperate with and assist an agent; c) Safe Working Conditions: a principal must provide an agent with safe working conditions.
NBR – How Is an agency relationship formed?
L.K. – Interesting point! An agency relationship is formed when two parties agree that one will represent the other in certain situations. There are four general ways in which an agency relationship is formed: a) Agency by agreement: this is the most common way. Both sides agree on certain conditions. This agreement can be formed by an express contract or by a simple conversation and handshake; b) Agency by ratification: a party can agree to be an agent through a third party. As long as the principal is then notified and approves the agreement, an agency relationship is formed; c) Agency by estoppels: there are times when your actions represent to a third party that another person is your agent (when in fact the person is not). If the third party reasonably believes this is true, a court will prevent you from denying that the agency exists; d) Agency by operation of law: sometimes courts will step in and deem a person to be an agent even if there was no agency agreement. Courts only do this to prevent a party from suffering injustice.
NBR – Can an Agent Represent a Principal for all business transactions?
L.K. – The principal can control an agent’s conduct for any duties specified in the agreement. Though an agent can represent a principal in anything, many principals limit the scope of an agent’s representation. For example, if you were selling your house, you might hire an agent. The agent only represents you in selling your house.
NBR – How can an agency relationship be terminated?
L.K. – There are many ways to terminate an agency relationship. Once the relationship is terminated, the agent no longer has authority to act for the principal. The principal is required to inform third parties (that dealt with the agent) that the agency relationship has been terminated. Ways to terminate an agency relationship include: a) Lapse of time b) Purpose achieved c) Mutual agreement d) Certain events (An agency relationship will automatically terminate upon the occurrence of certain events. Such events include death, insanity or bankruptcy of either the principal or agent).
NBR – Are there Penalties for wrongful termination of an agency relationship?
L.K. – Laws that govern agency relationships are based on both contract and employment law. If an agency is wrongfully terminated, one party can sue the other for: Breach of contact – many agency relationships are created by a contract. Wrongfully terminating the agency relationship is a breach of the contract; Employment law – an agent is basically an employee of the principal. A wrongfully terminated agent can bring a wrongful termination claim against the principal. Finely, it should be mentioned that an agency relationship is formed between two parties when one party (the agent) agrees to represent the other party (the principal). A principal-agent relationship is fiduciary, meaning it is based on trust. Normally, all employees who deal with third parties are considered agents. As such, an agency relationship is governed by employment law.

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