Primary tabs

Agency law is the common law doctrine controlling relationships between agents and principals. A principal-agent relationship is created when the agent is given authority to act for the principal. An agreement made by an agent is binding on the principal so long as the agreement was within the authority actually granted to the agent or reasonably perceived by a third party

The two forms of actual authority include:

  • Express authority: An agent has express authority to take any actions requested by the principle as well as authority to take any actions inherently necessary to accomplish those requests. 
  • Implied authority: An agent has implied authority to take any action the principal’s conduct indicates the agent should do. Furthermore, failure by the principal to object to an agent’s prior actions may create implied authority to repeat those actions in the future. An agent does not have implied authority to do anything expressly prohibited by the principal.

In addition to actual authority, a principal may be bound by the actions of an agent if apparent authority existed. 

  • Apparent authority: An agent has apparent authority when, despite no existing authority, a third party reasonably infers that someone is authorized to act on the principal’s behalf due to the conduct of the principal. Unlike actual authority, a principal can be bound by an agent’s act made with apparent authority even if they explicitly stated that the agent could not do that act. Furthermore, a person possessing a widely recognized title like Hiring Director has apparent authority to accomplish anything a reasonable person would believe that title entails. An agent acting with apparent authority is known as an ostensible agent.

Additionally, principals can be held liable for the torts of their agents under the doctrine of vicarious liability. A principal is always liable for torts committed while the agent completes their official responsibilities. 

  • For torts occurring outside of official duties, the liability of the principal depends on whether the agent’s tort occurred during a frolic or a detour. A principal is liable for the detours of their agent but not for the frolics. The primary considerations many courts use to determine if an act was a frolic or a detour are how much control over the agent’s actions the principal was exerting and who economically benefits from the agent’s actions. 

[Last updated in June of 2022 by the Wex Definitions Team]