Agency is a _________________ between a principal and an agent whereby the principal, expressly or implicitly, authorizes the agent to work on his or her behalf and with the power to bind the principal.

The correct answer is the concept of a contract relationship, which is fundamental in establishing agency. In an agency relationship, a principal grants authority to an agent to act on their behalf, which can be either explicit (clearly defined terms) or implicit (understood through actions or context). This relationship is bound by contractual obligations, whether through a formal written agreement or an implied agreement based on the actions and interactions of the parties involved.

The agency relationship involves a legal framework where both parties have defined rights and responsibilities. The principal delegates certain powers to the agent, who then can negotiate, enter contracts, and engage in transactions that legally bind the principal. This contractual nature underscores the mutual agreement regarding the agent's authority to act, ensuring that the principal is accountable for the actions taken by the agent while performing their duties.

Understanding this aspect of agency as a contract relationship is crucial, as it sets the foundation for the legal rights, duties, and potential liabilities that arise from the actions of the agent when they operate within the scope of their authority.