Types of Agency Agreements

Agency relationships are often spelled out in contract.
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Agency laws have developed throughout the years within various, broader legal concepts. Principal-agent relationships are prevalent in employment law, business law and tort law. A "principal" is someone who maintains the control over the relationship. Principals can come in the form of employers, real estate buyers or any other party intending to control the situation. An "agent" is the party working under the principal, often performing work and entering into contracts on behalf of the principal. The agent must adhere to the principal's guidelines and may not negotiate outside the scope of the agency agreement.

Actual Agency

An actual agency agreement is one that is entered into by both the principal and the agent. It generally takes the form of a written contract between the two parties detailing their agency relationship. The principal will outline expectations of the agent and any limitations on the agency privileges.

From there, the agent is free to negotiate and enter into contractual relationships with third parties that bind the principal, even if the principal isn't present for any discussions. If a breach of contract arises, the third party can sue the principal under the contract terms.

Apparent Agency

An apparent agency agreement is one in which the pact between the principal and the agent is implied under the law. Sometimes, a principal will "hold out" an agent as someone who possesses the authority to bind the principal under contracts entered into by the agent.

There will be no written agreement between the two parties, but circumstances would lead any reasonable third party to believe the agent was in a position to negotiate and contract for the principal. If the court finds this belief reasonable, it will likely hold the principal liable under a theory of implied agency, even though no written and signed agency agreement exists.


Respondeat superior is a Latin term meaning "let the master answer." This is a legal concept in which employers can be held liable for the activities of their employees under a theory of agency. Three general questions must be answered in the affirmative for an employer to be held liable to the injured third party for the acts of the agent.

First, was the employee's activity within the scope of the employee's employment? Secondly, was the activity within the employee's job responsibilities? Last, was the agent acting with an intent to benefit the principal? If the answer is "yes" to these inquiries, the principal will likely be held liable to the injured third party for the agent's negligent acts.

Real Estate

In real estate transactions, the buyer is the principal and the real estate broker acts as an agent on the buyer's behalf. The broker may enter into negotiations and come to agreements binding the buyer, assuming the buyer has given the broker such authority. Offers to buy or sell are usually relayed to the buyer within a reasonable time, but the broker may be free to enter into binding contracts on the buyer's behalf even without consent.

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