Reliance by agent: Overview, definition, and example
What is reliance by agent?
Reliance by agent refers to the trust or confidence an agent places in the instructions, information, or actions of the principal in carrying out their duties under an agency agreement. In other words, when an agent is acting on behalf of the principal, they rely on the directions or information provided by the principal to make decisions or take actions that fulfill the principal's interests. The agent's reliance is usually based on the understanding that the principal’s instructions are truthful, accurate, and within the scope of their authority.
Reliance by an agent is crucial because it ensures that the agent can carry out their role effectively, without second-guessing or having to verify everything independently. However, agents also need to be aware of their fiduciary duties, including the duty to act in good faith and with due diligence, especially if they have reason to question the principal's directions.
Why is reliance by agent important?
Reliance by the agent is important because it enables the agent to carry out their duties efficiently and in accordance with the principal's intentions. Without relying on the principal’s directions, the agent would face unnecessary challenges in performing their role. This reliance builds trust between the agent and principal and helps ensure that business decisions or actions are aligned with the principal’s best interests.
For businesses, clear reliance provisions in agency agreements ensure that agents can act confidently within their scope of authority, minimizing delays and misunderstandings. For agents, relying on the principal's instructions gives them the guidance needed to fulfill their responsibilities without exposing themselves to undue risks.
Understanding reliance by agent through an example
Imagine a real estate agent who is tasked with selling a property. The agent relies on the property owner’s instructions regarding the price, sale conditions, and any required disclosures about the property. If the owner provides false information, the agent's reliance on that information could expose the agent to liability. However, as long as the agent follows the instructions in good faith and with reasonable care, their reliance on the principal’s directions is considered justified.
In another example, a corporate attorney acts as an agent for a company in negotiating a contract. The attorney relies on the company’s management team to provide accurate financial data and the company’s goals before finalizing the contract terms. If the management provides inaccurate or incomplete information, the attorney’s reliance could result in a flawed contract, but as long as the attorney acts within the scope of their authority and with reasonable diligence, their reliance on the company’s directions remains a key part of their role.
An example of a reliance by agent clause
Here’s how a reliance by agent clause might appear in an agency agreement:
“The Agent shall act in reliance on the instructions, representations, and information provided by the Principal in carrying out its duties under this Agreement. The Agent shall not be liable for actions taken in good faith reliance on such instructions or information, unless the Agent knew or reasonably should have known that such reliance was unwarranted.”
Conclusion
Reliance by an agent is a fundamental aspect of the principal-agent relationship, enabling agents to perform their duties efficiently and in line with the principal’s objectives. By allowing agents to rely on the principal’s instructions, businesses and individuals can foster smoother, more effective operations while maintaining trust in the agent’s actions. At the same time, agents must ensure they are acting with due diligence and awareness of any risks associated with the information or instructions provided. Clear reliance clauses help establish this dynamic and reduce the potential for legal disputes.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.