Risks of an Agency Agreement - Free Essay

Published: 2022-12-15
Risks of an Agency Agreement - Free Essay
Type of paper:  Critical thinking
Categories:  Contract Risk management Business communication Conflict management
Pages: 3
Wordcount: 793 words
7 min read

What are some risks and liabilities that GC could face that would be associated with the agency contract between GC and George Tacy?

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An agency contract is a broad term used in business and adequately defined as the legal document binding two different partners, the principal, and the agent. An agent refers to an individual who is authorized to undertake tasks on behalf of another person namely the principal. The principal is responsible for hiring the agent and by assigning the agency agreement he or she is establishing a legal association with the agent. More often than not, agency contracts are vital for any business, and the business owners should ensure they profoundly comprehend what it entails as they play a prominent role whenever a person wants to hire a third-party to conduct business on their behalf (Business and the Legal Environment, 2012). However, the agency relationship can be created in two substantial ways either by agreement or by law operation.

One significant benefit associated with the agency contract is that it enormously assists the principal to save sufficient time and conduct the business more efficiently since most of the agents available for hire are often professionals with specialized skills required to run a business successfully. Nonetheless, in spite of all the necessities and convenience that comes along with the agency contracts, they are also associated with some drawbacks or certain risks. For instance, in the case of GC's plan to hire George as a recruitment agent, their agency contract could be faced with many threats that are mainly linked to the liabilities and contract duties of the principal. GC can be held accountable or liable in case of any misconduct by George in the line of his duty as his agent. This contributes to a significant risk where GC, the principal in the legal relationship can face the law or be technically considered to have committed a crime that was typically conducted by George while representing him since the agent at the time of misconduct was essentially acting as GC. As such, liability can be said one of the most significant potential risks given that the GC will give George the authority to work on his behalf, thus subjecting himself to consequences of the illegal or unethical actions performed. Concerning the general contract duties of the principal, GC also risks of being held liable in an incident where he fails to inform the agent of the dangers associated with the assigned tasks if the agent is injured while performing the job. Ideally, GC will have authorized George's activities as a hiring manager and thus holds ultimate responsibility. One of the effective ways to avoid some of these potential risks associated with the agreement contract is by ensuring that the agreement is in writing with clearly written terms and conditions restricting the principal's liability where an agent performs an illegal activity.

What are the possible consequences of each those risks and liabilities?

By authorizing the agent to act on behalf, the principal exposes him or herself into a considerable number of consequences. One significant effect involves facing the full wrath of the law in a situation where the court intervenes in solving the impacts that result from the illegal activities of an agent (Business and the Legal Environment, 2012). For instance, if by any chance, George was reported of taking bribes from the people seeking employment from GC's investment, the government may decide to take legal actions against GC primarily because the contracts hold him accountable for any misconduct of George as his recruitment agent. GC is also likely to suffer financial losses in the process of finding a practical solution to some of the risks associated with his legal relationship with George. For instance, a client can demand compensation from GC for misconduct performed towards him/her by George. Also, and in most cases principal many render certain amounts to the agents for example in case of injuries while on duty. The risk of liability, which is substantially associated with the principal's obligation to give specific amounts of money due to agents may also significantly result in financial losses. The obligation depends on several factors such as business customs, the independence of the agent and criteria of compensation (Business and the Legal Environment, 2012). Overall, the agent is also valuable just as the principal and thus under no circumstances that one should work for a person who discredits him.


Business and the Legal Environment (2012). Chapter 12: Liability of Principal and Agent; Termination of Agency Executive MBA Edition (v.1.0) Retrieved from https://saylordotorg.github.io/text_law-for-entrepreneurs/s24-liability-of-principal-and-age.html

Business and the Legal Environment (2012). Chapter 20: Relationships between Principal and Agent. Executive MBA Edition (v.1.0) Retrieved from https://saylordotorg.github.io/text_law-for-entrepreneurs/s23-relationships-between-principa.html

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