Business Law Course Agency Principal and Agent Relationship - Term Paper Example

?Business Law Agency Principal and Agent Relationship INTRODUCTION In context of the modern day scenario, where people are becoming quite busyin their personal life and gets little time for other vital activities,, taking assistance from others have become quite common. It is in this context that the aspect of agency relationship comes into existence. An agency relationship is a legal relationship between two parties, which comprise of an agent and a principal, both of them entering into a mutual contract where the former agrees to act on behalf of the later in return of financial benefits and in the presence of certain terms and conditions. However, creating a relationship between two parties involve certain crucial points, which are significant to be considered when creating an agency. These points principally includes mentioning the authorities of the parties involved, duties of the both the parties and liability of the parties involved among others in the contract. In similar regard, it would be worth mentioning that an agency relationship between two parties (the principal and the agent) must be beneficial for both; that is the principal will enjoy the privilege of getting his/her work done by others, while the agent will receive a considerable amount for the same (Floyd & Allen 212-250). THESIS STATEMENT In this paper, emphasis will be laid upon investigating and postulating the provisions in respect to agency creation and the subsequent relation built there upon between an agent and the principal. The significance of having an agency relationship will also be depicted up to an extent in this paper. From a primary point of view, there are several components identifiable as involved with the creation as well as the legal execution of an agency relationship. Stating precisely, the paper will work upon the aim to evaluate and discuss about the various aspects associated with agency relationship, right from its creation to the termination of such relationship. CREATION OF AGENCIES Agency is commonly regarded as an association created amid an agent and a principal, wherein the latter presents his or her rights to the agent to act on behalf of the principal in the best interest for the monetary compensation promised by the principal. In such relationship a legal contract plays a vital role to ensure legal and ethical conducts of both the parties involved. The rights as well as responsibilities of both the parties are therefore, postulated to be based in accordance to the terms and conditions mentioned in the contract. In regard to creating an agency, the free consent of the both the parties involved, i.e. principal and agent, is of prime significance and a necessary issue. The principal, in this context, must have the desire that the agent will act on his behalf with a particular transaction or negotiation. Similarly, an agent will also have the right to choose his desire or confirm his free consent to perform on behalf of the principal. The intentions and expectations of both the parties is also required to be mentioned in the contract to avoid any sort of miscommunications or frauds of any kind in the course of their relationship. Correspondingly, the contract law will be applicable in this regard. In case, if one party intends to exercise control over the activities of the other, no relationship will exist between the two. An agency can only arise by the will of both the parties. There are two kinds of agencies, which comprise of actual and apparent agencies [Carr v. Hunt, 651 S.W.2d 875] (US Legal, “Creation of Agency”). AUTHORITY It has been noted from the above discussion that the relationship between an agent and a principal, primarily forms an agency, where the former acts on behalf of the later. Both of them enter in a contract, which further ensures certain authoritative responsibilities and rights for both of them. The authority in an agency is divided into several types based on their characterizations. Primarily, the authority of an agent is his/her power to act on behalf of the principal. It has been noted that this authority of an agent is the most vital facet of an agency. Furthermore, in similar regard, the authority of an agency can be divided into two forms, which comprise of actual authority and apparent authority (Schneeman 11-15). Actual Authority: As per actual authority, the principal deliberately confers certain powers to the agents, which might be necessary or routine. Precisely, it can be stated that the authority, in this case, is permitted by a principal to an agent with the expectation that he/she will utilize the same in the best interest of the principal. Actual authority is further divided into certain other sections, which is discussed below (Schneeman 11-15). Express Authority It is the sort of authority that is expressly granted by a principal to an agent in the form of writing or verbally. A written express authority will include a power of attorney in prime. Additionally if a principal instructs the agent to purchase something, it will be regarded as verbal express authority [Ireland v Livingstone [1872] LR 5 HL 395] (Nyambane, “The Law of Agency in a Nutshell”). Implied Authority It is a kind of actual authority that is provided absolutely by the principal to the agent. It is the situation when the agent develops inferences from the behavior and the conduct of the principal that he/she wants the agent to act on their behalf [Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549] (Aberystwyth University, “Corporate Contracting”). Apparent Authority: The second form of authority in an agency is the apparent authority, which is formed with regard to perform a particular act. It is created by the actions of the principal, which might be through written or through verbal communication. Additionally, it has been noted that apparent authority is actually created for the third party who believes from the conduct of the principal that he/she would want the agent to act on their behalf. It would be vital to mention that the apparent authority of an agent is to be determined by the conduct or the consent of the principal and not the agent himself/herself [Rama Corporation Ltd v Proved Tin and General Investments Ltd [1952] 2 QB 147] (Law Teacher, “Commercial law”). RELATIONSHIP Relationship between an agent and a principal is often considered as one of the dominant components in an agency. A relationship in an agency can be formed for any legal or general purpose. An agency relationship created for illegal purpose will therefore be considered as unenforceable. In general, agency relation can be derived from four aspects, as have been discussed hereunder. Agency by Agreement: It has been understood that most of the relationship between an agent and a principal is based on a particular agreement. The agreement might be implied or expressed, where the principal will agree on the fact that an agent will act on behalf of himself or herself. Illustratively, assuming that as implied contract comprise of an agency agreement between Mr. A and Mr. B, where Mr. B is an agent who is appointed by Mr. A (the principal) to sale his house. In this case, example of an express contract relation will include Mr. A confirming his agreement to the contract or agency relationship with Mr. B through an oral or written express to act for him as an agent (Miller and Jent 500-550). Agency by Ratification: An agency relationship can also be developed through ratification. It has been noted that there are situations where an individual who might not be an agent to another individual (principal) but still act on behalf of him/her, may be considered in the form of making contracts. However, further if this contract gets the approval of the principal, an agency relationship is created through ratification (Miller and Jentz 500-550). Agency by Estoppel: When a principal introduces his/her agent to a third party, he/she will be dealing with the agent with the free consent of the principal. However, owing to this regard, in the later stages, the principal will not be able to deny his/her relationship with the agent. The third party also needs to be convinced from the previous meetings with the principal that there is an agency relationship (Miller and Jentz 500-550). Agency by Operation of Law: An agency relationship can also be formed in the absence of any agreement by the operations of law. It has been observed that this sort of agency relationship are usually formed in emergency, when a person (i.e. an agent) acts on behalf of another person (i.e. principal), being adequately aware of the loss that the person would incur if he/she fails to act on their behalf (Miller and Jentz 500-550). LIABILITY OF PRINCIPAL FOR AGENTS ACTS Since, an agent acts on behalf of the principal in his/her presence or absence, the principal is deemed as liable for the acts of the agent in relationship. Furthermore, the principal will be liable or accountable for any of the contract that is signed by the agent with the third party on his/her behalf. In addition to that the principal will also be liable for any of the torts or criminal offences created by the agents. This will be discussed in detail hereunder. Principal’s Liability under Contract: As mentioned above, the principal will be liable for any of the contracts signed by the agent on his/her behalf. Since, the agent has been provided to do so by the principal himself/herself, the contract signed by him/her cannot be considered wrong. Hence, the principal will be accountable to comply with every contract signed by the agent on his/her behalf (Schneeman 5-50). Principal’s Liability for Torts of the Agent: During a relationship between an agent and a principal, there are several acts that an agent commits, which further makes the principal liable for the consequences of the same. There are several circumstances that can arise in this regard, as discussed below. Respondeat Superior As happens in cases involving ‘respondeat superior’, an employer has the control over the conduct of the employee owing to the employment contract. This means that all the conduct of the employee is controlled by the employer. Hence, the employer will be liable for any of the negative conducts of the employee. In similar regard, the conduct of an agent will by default make the principal liable for the consequences owing to the initial contract signed between them (Schneeman 5-50). Acts Intended by Principal There are certain acts of the agents that are directly instructed by the principal. Hence, the principal would be directly liable for the consequences from such conducts. Since it is the duty of the agent to act in accordance to the order of the principal, he/she will not be answerable for results of any of their acts (Schneeman 5-50). Negligence by the principal It has been learnt that the principal will also be accountable for the acts of the agents if he/she is negligent towards managing the activity of the agent, providing proper instructions to the agents and selecting deficient agents initially among others (Schneeman 5-50). Hence, it is deemed to be the duty of the principal to be careful regarding the above mentioned aspects as negligence of these aspects will ultimately lead to various negative aspects and as a consequence, make the principal legally liable. DUTIES OF AN AGENT Duties of an agent vary in accordance to the nature of the principal. In general, the basic duties of an agent include ‘to act in the best interest of the principal’, ‘no conflict of the interest’, ‘no secret profit’, ‘duty of confidentiality’ and ‘duty to use care and skill’ among others, which have been discussed, in detail hereunder. To act in the best interests of the principal: It has been noted that when an agent is appointed to act on behalf of the principal and therefore, to be involved in a particular transaction, he/she will have the responsibility or the duty to act in the best interest of the person for whom they are appointed. In this regard, the agent will need to implement all his skills and knowledge in negotiating the transaction and ensuring maximum benefits for the principal (Miller and Jentz 500-550). No conflict of interest: It is significant to mention, who have been appointed by a particular principal, will afterwards not be able act for another principal for a particular transaction. This is owing to the aim of mitigating the most possible chances of conflict of interest that may arise in such cases. However, in exceptional cases, agents acting for two principals will not be able to exchange the interests of both the principals (Miller and Jentz 500-550). No secret profit: According to common law, an agent will not have the liability to enjoy any extra income or profit in any situation, without the approval of the principal. Any profit earned by agents without the knowledge of the agents will be considered as breach of duty and will be deemed eligible for legal prosecutions (Miller and Jentz 500-550). Duty of confidentiality: Owing to the trust relationship developed between an agent and a principal, it deemed to be the duty of the agent to maintain confidentiality. Therefore, he/she should not disclose any information about the principal to any of the third parties, without the permission of the agent. This confidential information principally includes contact details of the principal, issue faced by the principal and any other crucial information, which may hinder the actual motive of the principal, either directly or indirectly (Miller and Jentz 500-550). Duty to Use Care and Skill: Again to the common law, an agent will have the duty to act with all his/her care and skills in regard to accomplishing the duties assigned to him/her. The agents, who are observed to fail in performing with due consideration to these factors, will be considered negligent and will be deemed liable for legal prosecutions. It would be worth mentioning, the only work of an agent is to use his/her skills and intelligence to carry out a particular work. Failure to this will mean that they are not acting in the best interest of the principal (Miller and Jentz 500-550). COMPENSATION OF AGENTS It has been noted that the principal is benefited from the services of an agent in agency relationship. In similar regard, the compensation received by an agent from such relationship is also quite considerable. It is among the duty of the principal to fairly compensate for services he/she provides to the principal in course of their relationship. It has been observed that in such relationship, the compensation of the agents is not stated anywhere but it is to be paid in accordance to the market price of agents for that particular time. Furthermore, the compensation of the agents is also deemed to be dependent on the efficiency of work they have done for the principal. It has been noted in various cases that a certain percentage of the profit, ensured by the agent for the principal, are given to the agents in addition to the usual compensation. According to common law, a principal must appreciative towards the performance of the agents, providing them with fair compensation. However, an agent involved in any breach of contract or duty will not be liable to receive any compensation from the principal. The principal will also be liable to pay the agent for any of the expenditure that he/she has incurred with regard to the work of the principal. In addition to that, any losses that is being occurred by the agent while acting on behalf of the principal, will held the later as liable to compensate the agent for the loss. Hence, all these aspects ultimately depicts compensation factor associated with such relationship (Santa Monica Collage, “The Agency Relationship”). TERMINATION OF RELATIONSHIP The relationship between an agent and a principal can end or be termination in various ways. It has been observed that the parties involved in agency relationship are involved into a contract, which exists for a particular tenure of time. The end of the contract period will ultimately terminate the agency relationship between the parties involved. Furthermore, it has also been learnt that some of the contracts, in agency are also based on particular transactions, the end of which will be accompanied by the termination of the agency relationship. In addition to that, there are several other ways through which an agency relationship can be terminated. It has often been noted that the parties involved in the agency relationship, if mutually agree to end the agency relationship owing to their personal or thought differences then the relationship gets terminated (Floyd & Allen 212-250). Moreover, sometimes it happens that one of the parties involved in the agency is involve in breach of contract or duty, which further causes severe losses to the other party. In such scenario, the other party will have legal right to end the termination of agency. Additionally, in some of the cases, one of the parties involved lose its contractual ability, owing to their death or mental illness, can also result in the termination of the contract as well as the agency relationship simultaneously. Furthermore, it has also been noted in some cases that the property or the asset for the sale of which, the contract was framed or agency relationship was initiated, was destroyed in any incident. In such scenario too, the agency relation will get automatically terminated (Floyd & Allen 212-250). CONCLUSION From the overall analysis of the paper, it can be summarized that agency relationship has become quite an important aspect owing to the benefits it provides to both the parties and also because of the fact that it is entirely practiced with the compliance of law. Furthermore, it has been observed from the discussion of the paper that creation of such relationship involves the free will of the both the parties, with forming a contract, where all the terms and conditions are mentioned precisely. In addition to that all the duties and liabilities of the parties involved in such relationship were also depicted in certain sections of the paper revealing that there are various provisions which must be complied lawfully as per the relevant common or contractual law to accomplish the desired objects of the agent and the principal without hazards. Hence, it can be concluded that the concept of agency relationship is significant in accordance to various aspects associated with it. Works Cited “The Agency Relationship”. Chapter. Santa Monica Collage, n.d. Web. 13 Aug 2013 “Commercial law”. Home. Law Teacher, 2012. Web. 13 Aug 2013 “Corporate Contracting”. Home. Aberystwyth University, 2013. Web. 13 Aug 2013. “Creation of Agency”. Home. US Legal, 2013. Web. 13 Aug 2013. Floyd, Charles. F and Marcus T. Allen. Real Estate Principals. Chicago: Dearborn Real Estate, 2002. Print. Miller, Roger LeRoy and Gaylord A. Jentz. Business Law Today: The Essentials. US: Cengage Learning, 2007. Print. Ondigi O' Nyambane. “The Law of Agency in a Nutshell”. Academia (n.d.): 1-11. Print. Schneeman, Angela. The Law of Corporations and Other Business Organizations, 6th ed. US: Cengage Learning, 2012. Print. Read More