Certified Professional Contract Manager (CPCM) 2025 – 400 Free Practice Questions to Pass the Exam

The term that directly relates to the relationship between a principal and an agent is "agency relationship." This concept defines the legal and fiduciary connection where one party, the agent, is authorized to act on behalf of another party, the principal, in dealing with third parties. The agency relationship establishes responsibilities and expectations that govern this interaction, ensuring that the agent serves the principal's interests while adhering to the terms of their agreement.

In contrast, a contractual obligation refers to the duties and responsibilities that arise from a contract but does not specifically address the dynamic between a principal and an agent. A partnership agreement pertains to the relationship between two or more individuals who agree to collaborate in a business endeavor, which differs fundamentally from the agency relationship dynamic. An independent contractor is someone who performs work for another entity but is not an employee and does not have the same obligations or authority associated with an agency relationship. Therefore, the correct term most accurately capturing the essence of the principal-agent dynamic is the agency relationship.