True or False: Payment of compensation does not create an agency.

True or False: Payment of compensation does not create an agency.

• A. True
• B. False
• C. Sometimes
• D. Not enough information

Answer: (A)

Agency is formed when the principal agrees to let the agent represent them and the agent agrees to act on the principal’s behalf. This happens through explicit contracts or through conduct that shows consent and control. Paying compensation, such as a commission, is a result of that relationship, not the cause. In other words, you could hire someone to do a service and pay them, but that payment alone doesn’t create the legal agency—the agreement or conduct indicating representation does. So the statement is true.

Agency is formed when the principal agrees to let the agent represent them and the agent agrees to act on the principal’s behalf. This happens through explicit contracts or through conduct that shows consent and control. Paying compensation, such as a commission, is a result of that relationship, not the cause. In other words, you could hire someone to do a service and pay them, but that payment alone doesn’t create the legal agency—the agreement or conduct indicating representation does. So the statement is true.