BREACH OF AGENCY AGREEMENT
Agency agreement is the creation of a contract entered into by a mutual consent between a principal and an agent.
A principal is a person that grants authority to an agent to act on behalf of the principal. Therefore, the law governs and regulates the legal relationship in which an agent dealing with a third party for principal.
The Agent and the Principal owe certain duties towards each other. The extent of these parties duty is usually determined by the terms of the agreement between the parties. It is also extent of the authority and obligation conferred on the agent by the principal.
An agent’s primary duties are:
- To act on behalf of and be subject to the control of the principal;
- Follow the scope of authority or power delegated by the principal;
- Discharge his/her duties with appropriate care and diligence; and
- Avoid conflict between his/her personal interests
An agent cannot acquire any material he benefit from a third party in connection with transactions as an agent. He must act with the care, competence, and diligence normally exercised by agents in similar circumstances.
He must take action within the scope of his actual authority and comply with lawful instructions received from the principal. An agent must act reasonably and refrain from secret profit or conduct that is likely to damage the principal’s enterprise
An agent is liable to a principal when he acts without actual authority. He would be liable to indemnify a principal for loss or damage resulting from his act.
A principal on the other hand owes certain contractual duties to his/her agent.
A principal must compensate the agent as agreed. He must indemnify and protect the agent against claims, liabilities, and expenses incurred in discharging the principal’s duties. A principal owes his agent a duty to act in good faith and fair dealing.
However, a principal can be relieved of contractual obligations by an agent’s prior breach of contract.
An agent can be relieved from his duty by the principal through termination. This is usually when the agent is in breach of their agency agreement
If the agent fails to perform any of the duties instructed by the principal and the principal suffers damages. The principal may be able to win a case against the agent for breach of duty.
In addition, anyone the agent injures while dealing on the principal’s behalf may choose to sue the principal for damages.
Some courts will hold the principal liable even if there was no express contractual agency relationship. As long as the injured person believed that the agent was acting on behalf of the principal when the injury occurred.
It is advantageous for principals to specify in the Agency agreement.
For example, that a breach such as acting outside the scope of the agents instruction, is in breach. Also, failure to meet minimum sales targets, acquiring secret profit, by an agent, is in breach which justifies immediate termination.
