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An Agent is a Person Who is Authorized to Act on Another Person

An Agent is a Person Who is Authorized to Act on Another Person

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02/11/2011

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MBA IIB

Company Law
Name: Farhad Jadoon Enroll # 01-220091-005

[LAW OF AGENCY]
[Type the abstract of the document here. The abstract is typically a short summary of the contents of the document. Type the abstract of the document here. The abstract is typically a short summary of the contents of the document.]

....... Error! Bookmark not defined....................................................................................................................................... Error! Bookmark not defined......................................................................................................... 5 Liabilities:........................................................... 3 PRINCIPAL:..................... Error! Bookmark not defined............................................................................................................................................................................................................................................................................................................................................ 3 CREATION:................................................................................................................... Error! Bookmark not defined....................................................................... 6 Liability of agent to principal....... INTRODUTION: 2 ........................................................................................................................ 6 Liability of agent to third party ...................... [edit]Termination ................................................... 2 AGENT . Error! Bookmark not defined.................................. Error! Bookmark not defined.............................. 5 Usual Authority ...............................................................................................................................................................................................................................................................................................................................TABLE OF CONTENTS INTRODUTION: .......................................................................................................................................................................................................... 6 Duties: ................................................................................................................................................................................................................................................................................................................ [edit]Duties ............................... [edit]Liability of principal to agent........................................................................................................ 4 Express Authority ............................................................................................................................................................................................................................................................................................................................................................................................................. 4 Authority by Ratification........................................................... [edit]Liability of agent to principal...................................... 6 Liability of principal to agent............... 5 Apparent Authority............ Error! Bookmark not defined.................................................................................................................................................................... Error! Bookmark not defined.... 4 Implied Authority ................................................................................................................................................................................................ 9 AGENCY AND ETHICS .......................... 9 Conclusion ............................................................................................... 7 AGENCY VERSUS CONTRACT ..................................................... 11 The concepts............................ [edit]Authority ............................................................................. 6 Termination: .................................................................................................................................................................. Error! Bookmark not defined............................................................................................................................ [edit]Brief statement of legal principles .................................................................................................................................... [edit]Agency relationships ................................................................................................ 3 AGENT AUTHORITIES: .............................................................................................................................. [edit]Liability of agent to third party .....................

Because the Agent has authority given to him by the Principal. In such instance. the principal. the principal pays the agent a fee or commission. An Agent is a person who is authorized to act on another person's behalf. Under the Agency Contract the agent is given authority to do certain things in his principal's place.Agency is an area of law dealing with a contractual or quasi-contractual relationship between at least two parties in which one. An agency can be expressly created for various purposes by contract or appointment. so long as the purchase is made within the scope of the agent's authority. he can create a legal relationship between the Principal and a third party. The agent. CREATION: The relationship between an agent and his principal is created by contract. on the other hand. authorizes the other. In the former the agent is given a "power of attorney" also known as a mandate in civil law jurisdictions. but it can also be implied from the conduct of the parties. Example A purchasing agent can order goods from a third party on behalf of his principal. the principal must pay for the goods because he is effectively bound by the agent in a contract with the third party. PRINCIPAL : The person for whom he acts is called his Principal. AGENT : 1. the agent. 2. The agent has a fiduciary duty with and is under a legal duty to act in the best interests of the principal. In exchange for the service provided by the agent to act on his principal's behalf. is not a party to the contract. Agents are not 3 . to represent her or his legal interests and to perform legal acts that bind the principal. An agent has authority to act on behalf of the grantor. Both an "power of attorney´ and an "lawyer at law" are agents. The person to whom a power of attorney is given. as specified by the grantor in a power of attorney document.

the name changes to Buyer's Agency Agreement. It must be understood that a listing agreement is not a contract to sell or otherwise convey an interest in land but. and apparent. Furthermore. rather. It is sometimes possible to imply authority from the precise words.employees. IMPLIED AUTHORITY Even when precise words are used in the express authority. A real estate agent acts on behalf of his principal. the agent is usually paid by way of a commission that becomes payable only when he brings in the result. A principal tells the agent what he wants and leaves it to the agent how to bring about the result. but can also act on behalf of a Buyer and can. More specifically. With the Buyer. expects to be remunerated for the number of hours he works regardless of whether or not the result is accomplished. Real estate agents are given usually express authority under a Listing Agreement and here in British Columbia all listing agreements involving land or an interest in land ( such as a lease ) must be in writing in order to be enforceable. an agent may find himself in circumstances where the acts he wants to do are not covered by those words. by ratification. The distinction between an agent and an employee is the degree of control and method of remuneration. an agent would have implied authority to carry out an act if the agent has no choice but to do it in order to fulfill his express authority. For example. implied. in fact. tells the employee what to do and how to do it. Real Estate Agents are a particular kind of agents. An employer. pursuant to the Real Estate Services Act . an agreement by and through which one party ( the Agent ) agrees to market an interest in land and the other party ( the Principal ) agrees to pay a commission on completion. The contract that spells out the terms and conditions of the authority conferred by a Seller to the real estate agent is called the Listing Agreement. the authority to act conferred upon the agent falls into one or more than one of the following categories. AGENT AUTHORITIES: Based upon the wording of the contractual agreement between the principal and the agent. on the other hand. act on behalf of both Seller and Buyer at the same time subject to certain restrictions. a 4 . usual. EXPRESS AUTHORITY Express authority is the authority given by to the agent by the contract. instead. An employee. almost always the Seller. The agent's authority to act can be express. The contract can be in writing or verbal.

The infant agent is. an infant agent (an agent under the age of majority) can negotiate a binding contract between the principal and a third party. it is called apparent authority. If the agent had no authority to do so both he and the prospective purchasers would be trespassers and.real estate agent's authority may be only to sell a certain parcel of land or a certain house for his principal. since the agent does not need to have the capacity to contract out that the principal must have ( refer to my Article entitled 'Fundamentals of Contract Law' for further information ). For example. he can be given authority in the past. any person of sound mind can act as an agent. however. In general. he has ratified the contract. that the principal is bound by the contract just as if the agent had been so authorized in the first place. Because showing a property is necessary and incidental to affecting a sale. The agent may wish to show the property to prospective purchasers during the owner's absence. liable to the owner in damages. furthermore. USUAL AUTHORITY Usual authority arises when an agent is engaged by the principal to act in a particular transaction and such transaction is governed by 'customs of the trade' . If the third party deals with the agent in the bona fide belief that the agent has the authority represented. APPARENT AUTHORITY Under certain circumstances. an agent can bind his principal to a third party even though the agent was not authorized to do so. This is done by ratification. as long as they are lawful and reasonable and the principal has not indicated otherwise. therefore. provided nothing in the contract states otherwise. a 5 . As a result. AUTHORITY BY RATIFICATION Sometimes an authority can be created retroactively. the agent can imply the authority proximately from his express authority. This arises where a principal has acted in such a way that he leads third parties to believe his agent has authority to perform certain acts on his behalf. therefore. where an agent enters into a contract on behalf of his principal but the contract is beyond the agent's express authority. If the principal consents after the fact to be bound by the unauthorized acts of his agent. The end result is. In such case the principal is considered to have consented to the agent acting in accordance with such customs.

(b) A duty to discharge his duties with care and due diligence. the agent is liable to indemnify the principal for any resulting loss or damage. the purported agent is liable to the third party for breach of the implied warranty of authority. however. the principal must indemnify the agent for payments made during the course of the relationship whether the expenditure was expressly authorized or merely necessary in promoting the principal¶s business. LIABILITY OF AGENT TO PRINCIPAL If the agent has acted without actual authority. LIABILITIES: LIABILITY OF AGENT TO THIRD PARTY If the agent has actual or apparent authority. both the agent and the principal are liable. Where the principal is not bound because the agent has no actual or apparent authority.party to the agency contract and could therefore use his own incapacity to contract out to repudiate the agency contract with his own principal. DUTIES: An agent owes the principal a number of duties. These include: (a) A duty to undertake the task or tasks specified by the terms of the agency (that is. LIABILITY OF PRINCIPAL TO AGENT If the agent has acted within the scope of the actual authority given. the agent will not be liable for acts performed within the scope of such authority. the agent must not do things that he has not been authorized by the principal to do). so long as the relationship of the agency and the identity of the principal have been disclosed. and 6 . When the agency is undisclosed or partially disclosed. but the principal is nevertheless bound because the agent had apparent authority.

An agent must not accept any new obligations that are inconsistent with the duties owed to the principal. 1872. principal cannot revoke an agency coupled with interest to the prejudice of such interest. Such Agency is coupled with interest. the agent cannot engage in conduct where stands to gain a benefit for himself to the detriment of the principal). 1872) 7 .(c) A duty to avoid conflict of interest between the interests of the principal and his own (that is. nor is the agency terminated by death or insanity. with poor to recoup himself from the sale proceeds. If the trust between the agent and principal has broken down.. or a reasonable fee established after the fact. TERMINATION: An agent's authority can be terminated at any time. or otherwise unduly enrich himself from the agency. In return. the advances made by him to the principal against the security of the goods.g. An agent must not usurp an opportunity from the principal by taking it for himself or passing it on to a third party. An agent also must not engage in self-dealing. As per Section 201 to 210 The Indian Contract Act. An agent can represent the interests of more than one principal. conflicting or potentially conflicting. the principal cannot revoke the agent¶s authority till the goods are actually sold. an agency may come to an end in a variety of ways: (i) By the principal revoking the agency ± However. (iii) By the business of agency being completed. only after full disclosure and consent of the principal. the principal must make a full disclosure of all information relevant to the transactions that the agent is authorized to negotiate and pay the agent either a prearranged commission. where the goods are consigned by an upcountry constituent to a commission agent for sale. (Illustrations to section 201) (ii) By the agent renouncing the business of agency. (iv) By the principal being adjudicated insolvent (Section 201 of The Indian Contract Act. in such a case. it is not reasonable to allow the principal to remain at risk in any transactions that the agent might conclude during a period of notice. e. An agency is coupled with interest when the agent himself has an interest in the subject-matter of the agency.

vest the partnership with a separate legal personality. it must give express notice of the limitation to the world. for example. Further. Hence. This form of agency is inherent in the status of a partner and does not arise out of a contract of agency with a principal. Notice in this connection that want of skill continuous disobedience of lawful orders. Others treat the partnership as a business entity and. The termination does not take effect as regards the agent. reasonable notice has to be given by one party to the other. will have to be paid (Section 206). the knowledge of the partner acting will be imputed to the other partners or the firm if a separate personality. in English law. he is liable to compensate the agent for the loss caused to him thereby. The other partners or the firm are the principal and third parties are entitled to assume that the principal has been informed of all 8 . the partner will have apparent authority unless the Third Party knows that the authority has been compromised. Further.The principal also cannot revoke the agent¶s authority after it has been partly exercised. However. there would be little substantive difference if English law was amended (see Law Commission Report 283 [1]): partners will bind the partnership rather than their fellow partners individually. and rude or insulting behavior has been held to be sufficient cause for dismissal of an agent. if the agency is for a fixed period. it operates as a termination of subagent also. a partner is the agent of the other partners whereas. otherwise. like a corporation. As per section 207. Some states opt for the partnership as no more than an aggregate of the natural persons who have joined the firm. In the English Partnership Act 1890 provides that a partner who acts within the scope of his actual authority (express or implied) will bind the partnership when he does anything in the ordinary course of carrying on partnership business. the revocation or renunciation of an agency may be made expressly or impliedly by conduct. damage resulting from want of such notice. till it becomes known to him and as regards third party. Hence. Even if that implied authority has been revoked or limited. (Section 210 [4] This has become a more difficult area as states are not consistent on the nature of a partnership. so as to bind the principal (Section 204). The same rules apply where the agent. the principal cannot terminate the agency before the time expired. if the partnership wishes to limit any partner's authority. For these purposes. in Scots law where there is a separate personality. before such authority has been so exercised (Sec 203). till the termination is known to them (Section 208). except for sufficient cause. When an agent¶s authority is terminated. a partner is the agent of the partnership. If he does. renounces an agency for a fixed period. as per section 205. though he can always do so.

in an agency relationship there is typically much less independence between agent and principal than between contracting parties. concerning both agents and principals. AGENCY AND ETHICS Since agency relationships are usually more complex and ambiguous (in terms of what specifically the agent is required to do for the principal) than contractual relationships. However. this entails a further assumption that 9 . if taken literally. structured.. that are consistent with basic objectives and interests set forth by the principals.relevant information. There is more likely to be liability in tort if the partnership benefited by receiving fee income for the work negligently performed. This causes problems when one partner acts fraudulently or negligently and causes loss to clients of the firm. and limited version of agency. agents are usually retained not for any particular or discrete set of tasks. but agency itself is not based on contract. Ethicists point out that the classical version of agency theory assumes that agents (i. they point out a number of unique features of agency versus contractual relationships. some argue that the reverse is true: a contract is a formalized. punish. some academics bristle at the suggestion they are essentially the same. Thus. There are two major sets of differences. Specifically. AGENCY VERSUS CONTRACT Although the notions of agency and contract are closely intertwined. Principals hire out broad objectives to be fulfilled instead of specific tasks. but for a broad range of activities. Typically this also means that the principal-agent relationship is more hierarchical and power-driven than a contractual relationship. First. their liability is joint and several. a distinction is drawn between knowledge of the firm's general business activities and the confidential affairs as they affect one client. which may change over time. A conventional view holds that agency is a special application of contract theory. and other characteristics that are usually not a concern in contractual agreements. In most states. in most jurisdictions. and included in this power is greater latitude for principals to reward. agency carries with it special ethical issues and problems. However. and control agents. even if only as an aspect of the standard provisions of vicarious liability. dispositions. Whether the injured party wishes to sue the partnership or the individual partners is usually a matter for the Plaintiff since. managers) should always act in principals' (owners') interests. there is no imputation if the partner is acting against the interests of the firm as a fraud. In this instance principals must be concerned to some degree about agents' personal attitudes.e. Second.

if not in whole. In the example above. Conventional wisdom holds that investors are rewarded when companies thin their employment rosters because operating costs are lowered. the reports highlight whether investors seem pleased or displeased with an announcement of a mass layoff. principals have to their agents. they may. A familiar real-life example is large corporations' layoff dilemma. and whether the benefits shareholders receive are commensurate with the harm inflicted on the laid-off employees. and the often-stated assumption is that corporate management has undertaken the layoffs in part.. If managers act in self-interest²a rather negative assumption²and it fails to serve the best interests of the shareholders. namely the employees. have fallen short on their ethical responsibilities. agents are seen as having ethical duties to the principals. This ethical problem is only complicated by the reality that. among other obligations). some would argue that not only is it unethical to harm employees to obtain improvements (often marginal) in shareowners' wealth. Clearly. in theory leading to greater profits. Meanwhile. Along the same lines. The emphasis lies almost exclusively on what agents should or must do for the principals. moral or otherwise. on a vague assumption that principals will compensate agents adequately²even more than adequately²for their services. in turn. others have noted that traditional agency theory makes little mention of what obligations. consistent with the conventional formulation of the theory. these stances do not conform to any practicable model of business ethics. but also that the shareholders have moral obligations directly to the employees as an extension of the ethical employer/employee relationship (i.either (a) the principals' interests are always morally acceptable ones or (b) managers should act unethically in order to fulfill their "contract" in the agency relationship. relying. In such cases. principals are often institutions rather than individuals. Some ethics scholars argue that principals have obligations as well. to please shareholders and enhance their wealth. as noted above. This expectation is often made explicit in news reporting surrounding a downsizing episode. In this instance it is obvious that shareholders' interests are advanced to the detriment of at least one other constituency. observers question whether it is ethical to serve the principals' interests when those actions harm a large number of people. not to harm them arbitrarily. 10 .e. according to some views.

11 . employees. some see the traditional agency model as a simplistic. this document will hopefully assist members in establishing a basic framework for understanding these types of issues. CONCLUSION This document does not begin to explore the vast complexities of the law as it varies throughout various jurisdictions. and the broader society. justification for traditional economic power relationships. even deceptive. and included among these is the fact that shareholders may be seen as agents to managers. there are many kinds of principal-agent relations.In a larger sense. Certain scholars have argued that from a broader social perspective. specifically that large wealth holders can extract concessions from weaker economic beings.

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