Chapter Two: Agency

Agency
Principal

Agent

Third Party

Relationships between: Agents and Principals. Agents and the Third Parties Principals and the Third Parties
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Agency

Agency Commercial Law contractual or quasi-contractual tripartite set of relationships A principal explicitly or implicitly, authorises the agent to work under his control and on his behalf. Agent acts on behalf of Principal to create a legal relationship a Third Party. negotiate contractual relationship.

The Concept:

Rights + liabilities of a Principal + an Agent reflect commercial needs & legal realities. In any business: one person to maintain a growing business. A corporation is a fictitious legal person Hence, independent people are contracted by businesses to act on behalf of them. Principals are liable under the contracts made by the Agent So long as the Agent followed the instructions Result the same deal as if the Principal had done it directly.

Innocent Third Parties approached by an ostensible agent. Third party deals in good faith relying on the representation of authority. In commercial world it is not cost-effective to check that everyone has the authority to act for another actually has that authority. If it appears later that the alleged agent was acting without the consent of the Principal the Agent will usually be held liable.

This commercial necessity has led the creation of a body of law (Agency)

Principal

Principal is a person, fictitious or otherwise, who authorises an agent to act to create one or more legal relationships with a third party. Merchants professionals trade profit. A wholesale merchants between producer and retail merchants. A retail merchant or retailor A merchant classified in pre-modern societies. High (achieving titles like merchant prince) Low, such as in Chinese culture, profiting from "mere" trade
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In the US, "merchant" is defined as any person while engaged in a business or profession or a seller who deals regularly in the type of goods sold. A merchant account is a special account to allow a business to accept credit cards + other forms of payment cards.

Businessperson businessman or businesswoman generic term for someone who is employed at, usually, a profitoriented enterprise, or involved in the manegement of a company.

Agent

Agent is a person who is authorised to act on behalf of the principal to create a legal relationship with a third party. Classes of Agents: Universal agent holds broad authority e.g. power of attorney (is a legal document whereby a person gives another the power to take decisions with regard to their financial affairs and/or their health and personal welfare) or professional relationship as lawyer with client General agent holds limited authority conduct a series of transactions over a continuous period of time Special agent is authorised to conduct either a single transaction or a specified series of transactions over a limited period of time.
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The Authority of the Agent

The Principal's words or conduct reasonably cause the Agent to believe that he is authorised to act. Expressed in a contract Implied by words or acts reasonable for the person to assume the power of an agent.

First: Actual Authority:

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If it is clear the Principal gave actual authority all agent's actions will bind the Principal. If the Agent acts fraudulently for his own benefit will bind the Principal unless the third party was aware. If there is no contract but the Principal's words or conduct reasonably led the third party to believe that the Agent was authorised to act then the Principal will be bound. (take care of the customer) If what the Agent proposes to do is reasonably necessary to accomplish an actually authorised transaction, then the Principal will be bound.

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Second: Apparent or Ostensible Authority

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If the Principal's words or conduct leads a reasonable person in the Third Partys position to believe that the Agent was authorised to act Appointing the Agent to a position which carries with it agencylike powers Those who know of the appointment entitled to assume apparent authority of occupying such a position. If a Principal creates the impression that an Agent is authorised but there is no actual authority, (complement of the agent for his previous deals) Third parties are protected so long as they have acted reasonably "Agency by Estoppel" the Principal cannot deny the grant of authority if third parties have changed their positions in reliance on the representations made.

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Agency by Estoppel

Legally binding agency relationship that may arise where, in fact, no formal agency agreement is in effect. A principal may give an appearance of agency relationship. In such cases, the existence of an agency may be presumed, and the principal may be bound by the acts of the agent performed on the principal's behalf.

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Third: Authority by Virtue of a Position Held

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The purpose is to deter fraud and other harms to individuals dealing with agents Partners have apparent authority to bind the other partners in the firm Joint and several liabilities Corporations executives and senior employees with decision-making authority by virtue of their declared position have apparent authority to bind the corporation. (even if there is no authority) The Principal may implicitly or explicitly ratify a transaction and accept liability e.g. the principal failure to notify third parties of the Agent's lack of authority is an implied ratification to those transactions +++ an implied grant of authority for future transactions of a 13 similar nature.