Managing the Actions of Your Agent & the Legal Implications

For many investment opportunities, as individuals, we select a third party to represent us and manage the paperwork or documentation required to complete the investment transaction. Whether it is the purchase of a home, filing income taxes, purchasing advertising, or even managing an insurance claim with an attorney, if you use a third party, you are still responsible for your own actions.

Commonly referred to as brokers, vendors, officers, or legal representatives, a third party who supports you through a legal or investment process is legally known as the "agent" and you, as the person form whom the benefit is being provided, are commonly referred to as the "principal". With an agent, you are offered expertise when managing investments or legal transactions. Because the general population is not familiar with the risks and legalities of many investment and legal processes, it is almost necessary to use an agent to complete a particular transaction provided that agent has the knowledge to give the proper advice and guidance.

In most circumstances, when you work with an agent, you are giving the agent the authority to bind you to a contract and, essentially, provide you with the benefits as well as the risks associated with the contract. In some unfortunate cases, the same agent may expose you to acts that may be considered intentionally harmful; also known as intentional tort. When your agent acts in such a way that places you at risk, you are said to be "vicariously liable" for those acts even if you are not directly involved in the process. By simply giving authority to your agent representative, you are transferring your responsibility, but not transferring your risk or liability in any manner.

If you are considering the purchase of an investment property, you are engaging in legal transactions, or if you are involved in any type of third party vendor situation, it is important to verify the reputation of the individual or entity who will be acting as your agent. In many licensed agent professionals, the state boards of licensing can provide information on the length of time the person has been licensed and if there are any grievances filed.

In addition to verifying credentials, it is also important to remain actively involved in the actions of your agent. Simply handing the responsibility over to the agent may result in the agent engaging in some activities that are not deemed in your best interest. The key to your optimal outcome, therefore, lies in the regular communication and maintenance of the relationship, while staying keenly aware of the activities that are associated with your relationship.

Principal-to-agent relationships are important to the legal and investments strategies we engage in every day. If you are considering the hiring of an attorney, insurance agent, third party vendor, investment company or simply looking to use a broker for some type of service, it is important to be very familiar with the agent you will be using and understand that you still hold vicarious liability for an intentional acts of harm, or intentional torts, that may arise.