How can a principal limit an agent's authority?

A principal can effectively limit an agent's authority by imposing specific limitations through instructions or the agency agreement. This approach is a foundational concept in agency law, as it allows the principal to delineate the scope of the agent's powers and specify what actions the agent is authorized to take on their behalf. These limitations can include restrictions on types of transactions, the amounts that can be spent, or particular tasks that the agent can undertake.

By setting clear and explicit limitations in the agency agreement or providing direct instructions, the principal maintains control over the agency relationship and ensures that the agent acts within the granted authority. This is crucial for protecting the principal's interests and preventing unauthorized actions that could lead to liability or negative consequences.

For example, if a principal grants an agent the authority to negotiate contracts but explicitly states that the agent cannot enter into agreements exceeding a certain dollar amount, the agent is bound by these limitations. If the agent exceeds this authority, the principal may not be held responsible for the unauthorized actions.

This method of limiting authority contrasts sharply with the other options, which do not correctly reflect how authority can be appropriately managed within an agency relationship. Terminating an agent's contract, while it can redefine the relationship, does not allow for targeted limitations before termination. Allow