Which relationship is essential for agency law to apply?

In agency law, the foundational element is a mutual agreement between the principal and the agent, where both parties understand and accept the terms of representation. This relationship typically arises when one party (the principal) grants another party (the agent) the authority to act on their behalf. The key aspect is that there is mutual consent, meaning both parties have agreed to the arrangement, which can be articulated either verbally or in writing.

The requirement for both parties to agree ensures that the agent has the legal authority to represent the principal in transactions or matters, thereby creating responsibilities for both parties. This consent may manifest in different forms, but it is essential that both the principal and agent are aligned in their understanding of the scope and terms of the agency relationship for agency law to be applicable. This understanding leads to established obligations, liabilities, and rights that define the dynamics of the principal-agent relationship, ensuring that the agent's actions can bind the principal legally when operating within the agreed-upon parameters.