Agency Agreement

What is an Agency Agreement?

An agency agreement is a contract between two parties: an agent and a principal. Under this contract, the agent is authorized to perform tasks or make decisions on behalf of the principal. This type of agreement is crucial in various business settings, as it defines the scope, rights, and obligations of both parties.

Types of Agency Agreements

Banking Agency Agreement: This type revolves around banking operations allowing a customer to bank cheques at a branch without holding an account there. This service entails a specific charge.
General Agency Agreement: It refers to any formal arrangement whereby an agent is empowered to act for or represent a principal in agreed-upon dealings or transactions.

Examples

Real Estate Agent Agreement: A homeowner (principal) might sign an agreement with a real estate agent (agent) to sell their house. The agent will handle advertising, negotiations, and paperwork on behalf of the homeowner.
Banking Services: A customer might enter into an agency agreement with a bank to deposit their cheques even though they do not maintain an account with the bank. The bank charges a fee for this service.

Frequently Asked Questions (FAQs)

What is the difference between an agent and a principal?

Agent: The person or entity authorized to act on behalf of another.
Principal: The person or entity who appoints the agent to act on their behalf.

What are the common elements of an agency agreement?

Identification of parties: Names and details of both agent and principal.
Scope of authority: Tasks and decisions the agent is authorized to execute.
Compensation: Payment terms if the agent is to be compensated.
Duration of the agreement: Timeframe in which the agreement is valid.
Termination clauses: Conditions under which the agreement can be terminated.

Are agency agreements legally binding?

Yes, agency agreements are contractual and legally binding if they fulfill the necessary elements: offer, acceptance, intention to create legal relations, and consideration.

Can an agency agreement be verbal?

While agency agreements can technically be verbal, it is advisable to have a written document to avoid misunderstandings and ensure enforceability.

What happens if an agent exceeds their authority?

If an agent acts beyond their designated authority, the principal may not be bound by such actions unless they ratify them. The agent may also be liable for losses incurred due to unauthorized actions.

Agency Relationship: A relationship where one party (agent) is authorized to act on behalf of another (principal).
Principal: The party who grants authority to an agent to act on their behalf.
Agent: The party who undertakes tasks on behalf of the principal.
Power of Attorney: A legal document giving a person the authority to act for another person in legal or financial matters.
Fiduciary Duty: The legal obligation of one party to act in the best interest of another.

Online References

Suggested Books for Further Studies

“Agency Law in Commercial Practice” by Geoff Moore.
“Principles of Agency Law” by Christopher Enright.
“Understanding Agency Law” by Gregory Koster.

Accounting Basics: “Agency Agreement” Fundamentals Quiz

### Which of the following best describes an agency agreement? - [ ] A contract solely for employment purposes. - [x] A contract granting an agent authority to act on behalf of a principal. - [ ] A loan agreement between two parties. - [ ] A real estate contract for purchasing property. > **Explanation:** An agency agreement is a contract by which a principal grants authority to an agent to perform tasks or make decisions on their behalf. ### Who of the following can be a principal in an agency agreement? - [x] An individual or a company - [ ] Only an individual - [ ] Only a company - [ ] Only a government entity > **Explanation:** Both individuals and companies can act as the principal in an agency agreement. ### What is included in a typical agency agreement? - [ ] Daily schedules of employees - [ ] A financial grant - [x] Scope of agent’s authority - [ ] A deed of trust > **Explanation:** A typical agency agreement includes the scope of the agent’s authority, defining what tasks and decisions the agent can perform on behalf of the principal. ### How can an agency agreement be terminated? - [ ] Through a minor dispute - [x] According to the termination clause in the contract - [ ] It cannot be terminated once signed - [ ] Only by mutual physical presence > **Explanation:** An agency agreement can be terminated according to the termination clause specified in the contract. ### What happens if an agent oversteps their authority? - [ ] They automatically gain additional authority - [x] They may be liable for losses to the principal - [ ] They receive bonus compensation - [ ] Nothing happens > **Explanation:** If an agent oversteps their authority without ratification by the principal, they may be liable for any losses incurred. ### Can an agency agreement be verbal? - [x] Yes, but it is advisable to have it in writing - [ ] No, it must always be in writing - [ ] Only for real estate transactions - [ ] Only between companies > **Explanation:** While agency agreements can be verbal, having them in writing is advisable to avoid misunderstandings and ensure enforceability. ### What term describes the legal obligation of an agent to act in the best interests of the principal? - [ ] Breach of contract - [x] Fiduciary duty - [ ] Power of attorney - [ ] Conditional acceptance > **Explanation:** Fiduciary duty is the legal obligation of an agent to act in the best interests of the principal. ### Who bears the ultimate responsibility for the agent’s authorized actions? - [ ] The agent alone - [ ] A neutral third party - [x] The principal - [ ] The regulatory authority > **Explanation:** The principal bears the ultimate responsibility for the agent’s actions, provided they are within the scope of the agreed-upon authority. ### In what situation must a principal ratify an agent’s actions? - [ ] Always, regardless of the action - [x] When an agent acts outside of their authority - [ ] When an agent performs regular activities - [ ] Never > **Explanation:** A principal must ratify an agent's actions if the agent acts outside of their granted authority. ### What should an agent prioritize when representing a principal? - [x] The best interest of the principal - [ ] Their personal benefits - [ ] The interests of a third party - [ ] Market trends > **Explanation:** An agent should prioritize the best interest of the principal while performing their duties.

Thank you for exploring the essentials of an agency agreement and testing your knowledge with our sample quiz. Continue to enhance your financial acumen!