Self-Governance Lesson: 1
Creation of Agency Lesson 1
CREATION OF AN AGENCY
The Nature of Agency: When one party, known as a principal, appoints another party, known as an agent, to enter into contracts with third parties in the name of the principal, a contract of agency is formed. By this definition at least three parties are involved in every contract which an agent negotiates, the principal, the agent, and the third party the agent for the principal is contracting with. This feature of agency distinguishes it from all other types of employment relationships. The principal, the agent, or the third party may be a person, a partnership, or a corporation.
Importance of Agency: Because of the magnitude and the complexity of our modern industry, many of the important details pertaining to business transactions must be delegated by the owners of businesses to agents for performance. The relation creating this delegation of powers is governed by the general principles of law pertaining to contracts.
The underlying principles of partnerships and joint- stock companies are dependent upon an application of the law of agency; and the business of a corporation can be carried on only through the medium of agents. Much of the business of banks, manufacturing enterprises, and similar businesses is carried out by agents.
Even in the performance of ordinary routine matters by individuals, agents are necessary in order to bring one person into a business contractual relationship with other persons. Thus, a farmer who sends an employee to town to have a piece of machinery repaired gives the latter the authority to enter into a contract that binds the farmer to the agreement. This case is an application of the maxim that "whatever a person does through another, he does himself."
What Powers May Be Delegated to an Agent? Generally speaking, all those things that one has the right to do personally he may do through an agent. There are, however, certain acts which permit that are of such a personal nature that the courts will not permit them to be delegated to others. The law insists that if these acts are performed at all, they must be performed by the one who, because of the personal nature of such acts, should do them.