A limited agency agreement is an agreement in which one party (the principal) grants another party (the agent) the authority to perform particular legal acts on his behalf — such as signing a contract or making medical decisions. Limited agency agreements must be drafted carefully, so that the agent may not overstep the principal's authority without consequences.
It is possible to draft a general agency agreement, in which the principal grants the agent the power to perform any legal act that the principal is entitled to perform. A limited agency agreement, by contrast, transfers only those legal powers that are specifically authorized by the agreement. A limited agency agreement may be durable (effective until revoked by the principal), temporary (drafted to expire on a particular date or event) or springing (drafted to go into effect on a certain date or in response to particular event).
The legal powers granted to the agent should be carefully worded. If they are drafted too broadly, the agent may be authorized to perform acts the principal never intended. If they are drafted too narrowly, the agent may lack the authority to carry out the principal's purpose. If the principal's purpose is to have the agent sell his car while he is posted overseas, for example, the agent must have the authority to sign the purchase contract and the title transfer application. On the other hand, the authority to "sell my car" might be too broad and ambiguous if the principal owns more than one car.
The way the duration of the agent's authority is expressed depends on the purpose of the agency. If no duration is stated, the laws of most states treat the agent's authority as permanent unless later revoked by the principal in writing. The duration may be defined circumstantially — in the above example, the agent's authority may expire as soon as the car is sold or the principal returns from overseas, whichever occurs first. No matter how the agreement is drafted, the principal may always revoke in writing as long as he is mentally competent and able to communicate.
Under the legal doctrine of apparent authority, an agent whose authority has expired or has been revoked can still bind the principal to a third party, as long as the third reasonably believed the agent's authority was valid. For example, if the agent negotiates the sale of the principal's car and shows the buyer a signed copy of the limited agency agreement, the agent's signature on the purchase contract will bind the principal to the transaction even if the principal had already revoked the agent's authority by the time the contract was signed, as long as the buyer didn't know about the revocation and had no reason to know about it.
- sign agreement image by PaulPaladin from Fotolia.com