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l How to explain thenature of an agencyrelationshipl How to distinguishbetween a servantand an independentcontractorl How to explain thenature of contractliabilityl How to explain thelegal doctrine ofrespondeat superior inrelation to tort liabilityIdentifying the nature ofan agency relationshipwill help you know yourrights and duties in sucha situation. Understandingthe doctrine ofrespondeat superior willhelp you protect yourselfagainst tort liability in avariety of situations.l agencyl agentl principall masterl servantl independentcontractorl respondeat superiorAgencyRelationshipsAgency and Similar RelationshipsNone of us have the ability, education, training, experience, andbackground to do everything that must be done in our personal and professionallives. We frequently need to accomplish things that requireexpertise beyond our own abilities. An agency relationship lets us actthrough other people to accomplish tasks that might be difficult orimpossible to do on our own. The law governs these relationships.The term agency describes a relationship in which one person, calledan agent , represents another person, called a principal , in some sortof business transaction with a third party (see Figure 18.1). An agentcan negotiate business deals, enter into contracts, and perform a varietyof other business tasks for the principal, who is normally legally boundby those agreements.The terms agent and principal, however, are used freely in the businessworld to describe different types of relationships, and not all of therelationships described using these terms are true agency relationships.However, the name given to a relationship has little legal effect. Theessence or true nature of the relationship is what matters to a court.Principal-Agent RelationshipThe principal-agent relationship is a true agency relationship. Theparty who needs a representative is the principal, or the client; the partywho becomes that representative is the agent. The relationship isFigure 18.1PrincipalPerson for whomthe agent actsPrincipal-Agent RelationshipAgentPerson who acts forprincipal in businesstransactions withthird partiesPRINCIPAL-AGENT RELATIONSHIPAgents have the right to make independent decisionsjust as if they were making transactions on their ownbehalf. Are agents employees?Third PartyPerson the agentdeals with onbehalf ofthe principal392 Unit 4: Being an Agent and Getting a Job