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When to use an Agency Agreement

When is it appropriate to use an Agency Agreement?

An Agency Agreement is suitable for use in situations where one person (the principal) appoints another (the agent) to act on his or her behalf in relation to certain matters. 

This may be, for example, to promote and sell products manufactured by the principal, and enter into contracts for the sale of the goods at certain agreed prices and terms. 

It is common for agents to be granted power to enter into contracts on behalf of the principal.  These contracts have the effect of binding the principal, so that it is not the agent who is liable on the contract (except in certain instances), but the principal.  The principal is in effect the contracting party who is able to sue and be sued on the contract.

The agent’s power to act on the principal’s behalf is not unlimited, however.  An agent must act strictly within the specified scope of the powers granted to him or her under the terms of the Agency Agreement.

Can an agent be personally liable?

In certain circumstances, yes. 

An agent will be personally liable where he or she has acted without the authority of the principal.  This will be the case even where the agent honestly believed that he or she did have authority, as well as where there is a clear intention to deceive. 

Due to the difficulty in ascertaining the terms of a verbal agreement and the specific powers that are being conferred (either explicitly or implicitly). It is advised that anyone who is intending to enter into such an arrangement, clearly outline the scope of the authority being conferred in writing

This provides a strong foundation for all subsequent dealings, allowing both parties to act confidently within specified, clear boundaries.  This limits any misunderstandings between the principal and the agent and also clarifies the scope of the agent’s authority should a dispute arise about it in the future.

Agency Agreement

Distribution Agreement

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