Final answer:
An agency relationship is established when a principal appoints an agent to act on their behalf with a third party. Examples include a homeowner hiring a real estate agent to sell a house and an actor employing a talent agent to negotiate contracts.
Step-by-step explanation:
The agency relationship is a three-way relationship involving the principal, the agent, and the third party. To establish an agency relationship, the principal appoints an agent to act on their behalf with a third party. Essentially, the principal delegates decision-making authority to the agent, providing them with the capability to influence the principal's legal relations with third parties.
One example of creating an agency relationship is when a homeowner appoints a real estate agent to sell their house. The homeowner (principal) gives the real estate agent (agent) the authority to list the home and negotiate with potential buyers (third parties). Another example is when an actor employs a talent agent. In this scenario, the actor (principal) authorizes the agent to represent them and negotiate contracts with movie studios or theaters (third parties).
In both cases, the agency relationship is typically formalized through a contract, called an agency agreement, which details the agent's powers and the duties of both the principal and the agent.