Figures: tax year 2026
Agency is a fiduciary relationship in which one person undertakes to act for another under that person's right of control.
To identify whether an agency relationship exists, the analysis examines the parties' outward communications and conduct concerning the particular assignment. The principal is the person represented, while the agent is the intermediary who accepts the assignment.
Four elements organize the inquiry:
- Principal's manifestation: The principal communicates that the actor should represent the principal, through words or conduct attributable to the principal.
- Agent's assent: The actor accepts the assignment expressly or begins performing in circumstances showing acceptance of the requested role.
- On the principal's behalf: The undertaking concerns the principal's affairs; an incidental benefit to another person does not alone establish representation.
- Right of control: The principal retains a right to direct the undertaking, including relevant objectives, limits, or further instructions during performance.
Control does not require constant supervision or instructions governing every physical movement. A representative can exercise substantial discretion while remaining subject to the principal's directions about the assignment.
Common mistakes
- Interest treated as appointment. A desired purchase does not supply the missing request that another person undertake representation.
- Agency mistaken for unlimited authority. An accepted quotation assignment does not overcome an express restriction against signing purchases.
- Titles treated as conclusive. A principal-issued title supports only a reasonable transaction-specific inference, especially when warning facts exist.
Bottom line
- Agency requires the principal's manifestation, the agent's assent, action on the principal's behalf, and the principal's right of control.
- Agency generally requires neither consideration nor a universal written agreement, while capacity and applicable writing requirements receive separate tests.
- Actual express and implied authority depend on the principal's manifestations to the agent and remain bounded by known restrictions.
- Apparent authority requires reasonable third-party belief traceable to the principal; estoppel separately requires responsible conduct and detrimental reliance.
Exam shortcut
Start with the requested conclusion: whether agency exists, whether a transaction binds the principal, or whether authority has ended. Mark who spoke, who received the message, and when. Then connect each communication to assent, actual authority, apparent authority, or termination notice. For a private limit, test the agent's permission first and the counterparty's knowledge second. Keep the two conclusions separate.
The full lesson (about 5,199 words, 35 min read) adds 8 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- II.A1
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