A. Agency rules establish and govern THREE relationships:

1. Principal <--------------------> Agent
2. Principal <--------------------> Third Party
3. Agent <-----------------------> Third Party

B. In each relationship, one party may be liable to the other based upon:

1. Contract Law
2. Tort Law
3. Equity Principles (usually "estoppel")

C. The relationships and liabilities are both independent and related:

1. The liability of one party to another is based only on the legal principles applicable to that relationship and the particular facts of the case.

2. A party's liability in one relationship is a factor in determining that party's rights and obligations in other relationships (e.g. an agent's liability to a third party [relationship 3 above] for breach of contract may give her a cause of action against the principal [relationship 2 above]).

3. A breach by one party in one relationship may cause a different party to be liable in a different relationship (e.g. an agent's breach of the agent–third party relationship may cause the principal to be liable to the third party).

D. A person may be treated as an agent for one relationship but not for others:

1. "Actual authority" relates to the Principal – Agent relationship.
2. "Apparent authority" relates to the Principal – Third Party relationship.