MBA IIB

Company
Law [LAW OF AGENCY]
[Type the abstract of the document here. The abstract is typically a short summary of the
Name:
contentsFarhad Jadoon Type the abstract of the document here. The abstract is typically a
of the document.
Enroll # 01-220091-005
short summary of the contents of the document.]
 TABLE OF CONTENTS

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

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 INTRODUTION:

Agency is an area of law dealing with a contractual or quasi-contractual

relationship between at least two parties in which one, the principal,
authorizes the other, the agent, to represent her or his legal interests and to
perform legal acts that bind the principal. The agent has a fiduciary duty
with and is under a legal duty to act in the best interests of the principal. An
agency can be expressly created for various purposes by contract or
appointment, but it can also be implied from the conduct of the parties.
Both an "power of attorney” and an "lawyer at law" are agents. In the
former the agent is given a "power of attorney" also known as a mandate in
civil law jurisdictions.

AGENT :

1. An Agent is a person who is authorized to act on another person's behalf.

2. The person to whom a power of attorney is given. An agent has authority to

act on behalf of the grantor, as specified by the grantor in a power of
attorney document.

PRINCIPAL :

The person for whom he acts is called his Principal. Because the Agent has
authority given to him by the Principal, he can create a legal relationship between
the Principal and a third party.

Example
A purchasing agent can order goods from a third party on behalf of his principal,
so long as the purchase is made within the scope of the agent's authority. In such
instance, the principal must pay for the goods because he is effectively bound by
the agent in a contract with the third party. The agent, on the other hand, is not a
party to the contract.

CREATION:

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The relationship between an agent and his principal is created by contract. Under
the Agency Contract the agent is given authority to do certain things in his
principal's place. In exchange for the service provided by the agent to act on his
principal's behalf, the principal pays the agent a fee or commission. Agents are not
employees. The distinction between an agent and an employee is the degree of
control and method of remuneration. A principal tells the agent what he wants and
leaves it to the agent how to bring about the result. An employer, on the other
hand, tells the employee what to do and how to do it. Furthermore, the agent is
usually paid by way of a commission that becomes payable only when he brings in
the result. An employee, instead, expects to be remunerated for the number of
hours he works regardless of whether or not the result is accomplished. Real Estate
Agents are a particular kind of agents. A real estate agent acts on behalf of his
principal, almost always the Seller, but can also act on behalf of a Buyer and can,
in fact, act on behalf of both Seller and Buyer at the same time subject to certain
restrictions. 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. With
the Buyer, the name changes to Buyer's Agency Agreement.

AGENT AUTHORITIES:

Based upon the wording of the contractual agreement between the principal and
the agent, the authority to act conferred upon the agent falls into one or more than
one of the following categories. The agent's authority to act can be express,
implied, by ratification, usual, and apparent.

EXPRESS AUTHORITY

Express authority is the authority given by to the agent by the contract. The
contract can be in writing or verbal. 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, pursuant to the Real Estate Services Act . It
must be understood that a listing agreement is not a contract to sell or otherwise
convey an interest in land but, rather, 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.

IMPLIED AUTHORITY

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Even when precise words are used in the express authority, an agent may find
himself in circumstances where the acts he wants to do are not covered by those
words. It is sometimes possible to imply authority from the precise words. More
specifically, 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, a
real estate agent's authority may be only to sell a certain parcel of land or a certain
house for his principal. The agent may wish to show the property to prospective
purchasers during the owner's absence. If the agent had no authority to do so both
he and the prospective purchasers would be trespassers and, therefore, liable to the
owner in damages. Because showing a property is necessary and incidental to
affecting a sale, the agent can imply the authority proximately from his express
authority, provided nothing in the contract states otherwise.

AUTHORITY BY RATIFICATION

Sometimes an authority can be created retroactively. For example, where an agent

enters into a contract on behalf of his principal but the contract is beyond the
agent's express authority, he can be given authority in the past. This is done by
ratification. If the principal consents after the fact to be bound by the unauthorized
acts of his agent, he has ratified the contract. The end result is, therefore, that the
principal is bound by the contract just as if the agent had been so authorized in the
first place.

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' . In
such case the principal is considered to have consented to the agent acting in
accordance with such customs, as long as they are lawful and reasonable and the
principal has not indicated otherwise.

APPARENT AUTHORITY

Under certain circumstances, furthermore, an agent can bind his principal to a third
party even though the agent was not authorized to do so. 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. If the third party deals with the
agent in the bona fide belief that the agent has the authority represented, it is called
apparent authority.

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In general, any person of sound mind can act as an agent, 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 ). As a
result, an infant agent (an agent under the age of majority) can negotiate a binding
contract between the principal and a third party. The infant agent is, however, a
party to the agency contract and could therefore use his own incapacity to contract
out to repudiate the agency contract with his own principal.

LIABILITIES:

LIABILITY OF AGENT TO THIRD PARTY

If the agent has actual or apparent authority, the agent will not be liable for acts
performed within the scope of such authority, so long as the relationship of the
agency and the identity of the principal have been disclosed. When the agency is
undisclosed or partially disclosed, however, both the agent and the principal are
liable. Where the principal is not bound because the agent has no actual or apparent
authority, the purported agent is liable to the third party for breach of the implied
warranty of authority.

LIABILITY OF AGENT TO PRINCIPAL

If the agent has acted without actual authority, but the principal is nevertheless
bound because the agent had apparent authority, the agent is liable to indemnify
the principal for any resulting loss or damage.

LIABILITY OF PRINCIPAL TO AGENT

If the agent has acted within the scope of the actual authority given, 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.

DUTIES:

An agent owes the principal a number of duties. These include:

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(a) A duty to undertake the task or tasks specified by the terms of the agency (that
is, the agent must not do things that he has not been authorized by the principal to
do);

(b) A duty to discharge his duties with care and due diligence; and

(c) A duty to avoid conflict of interest between the interests of the principal and his
own (that is, the agent cannot engage in conduct where stands to gain a benefit for
himself to the detriment of the principal).

An agent must not accept any new obligations that are inconsistent with the duties
owed to the principal. An agent can represent the interests of more than one
principal, conflicting or potentially conflicting, only after full disclosure and
consent of the principal.

An agent also must not engage in self-dealing, or otherwise unduly enrich himself
from the agency. An agent must not usurp an opportunity from the principal by
taking it for himself or passing it on to a third party.

In return, 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, or a reasonable fee established after the fact.

TERMINATION:

An agent's authority can be terminated at any time. If the trust between the agent
and principal has broken down, 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.

As per Section 201 to 210 The Indian Contract Act, 1872, an agency may come to
an end in a variety of ways:

(i) By the principal revoking the agency – However, principal cannot revoke an
agency coupled with interest to the prejudice of such interest. Such Agency is
coupled with interest. An agency is coupled with interest when the agent himself
has an interest in the subject-matter of the agency, e.g., where the goods are
consigned by an upcountry constituent to a commission agent for sale, with poor to
recoup himself from the sale proceeds, the advances made by him to the principal
against the security of the goods; in such a case, the principal cannot revoke the
agent’s authority till the goods are actually sold, nor is the agency terminated by

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death or insanity. (Illustrations to section 201) (ii) By the agent renouncing the
business of agency; (iii) By the business of agency being completed; (iv) By the
principal being adjudicated insolvent (Section 201 of The Indian Contract Act.
1872)

The principal also cannot revoke the agent’s authority after it has been partly
exercised, so as to bind the principal (Section 204), though he can always do so,
before such authority has been so exercised (Sec 203).

Further, as per section 205, if the agency is for a fixed period, the principal cannot
terminate the agency before the time expired, except for sufficient cause. If he
does, he is liable to compensate the agent for the loss caused to him thereby. The
same rules apply where the agent, renounces an agency for a fixed period. Notice
in this connection that want of skill continuous disobedience of lawful orders, and
rude or insulting behavior has been held to be sufficient cause for dismissal of an
agent. Further, reasonable notice has to be given by one party to the other;
otherwise, damage resulting from want of such notice, will have to be paid
(Section 206). As per section 207, the revocation or renunciation of an agency may
be made expressly or impliedly by conduct. The termination does not take effect as
regards the agent, till it becomes known to him and as regards third party, till the
termination is known to them (Section 208).

When an agent’s authority is terminated, it operates as a termination of subagent

also. (Section 210 [4]

This has become a more difficult area as states are not consistent on the nature of a
partnership. Some states opt for the partnership as no more than an aggregate of the
natural persons who have joined the firm. Others treat the partnership as a business
entity and, like a corporation, vest the partnership with a separate legal personality.
Hence, for example, in English law, a partner is the agent of the other partners
whereas, in Scots law where there is a separate personality, a partner is the agent of
the partnership. 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. 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. Even if that implied authority
has been revoked or limited, the partner will have apparent authority unless the
Third Party knows that the authority has been compromised. Hence, if the
partnership wishes to limit any partner's authority, it must give express notice of
the limitation to the world. However, there would be little substantive difference if

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English law was amended (see Law Commission Report 283 [1]): partners will
bind the partnership rather than their fellow partners individually. For these
purposes, the knowledge of the partner acting will be imputed to the other partners
or the firm if a separate personality. The other partners or the firm are the principal
and third parties are entitled to assume that the principal has been informed of all
relevant information. This causes problems when one partner acts fraudulently or
negligently and causes loss to clients of the firm. In most states, a distinction is
drawn between knowledge of the firm's general business activities and the
confidential affairs as they affect one client. Thus, there is no imputation if the
partner is acting against the interests of the firm as a fraud. There is more likely to
be liability in tort if the partnership benefited by receiving fee income for the work
negligently performed, even if only as an aspect of the standard provisions of
vicarious liability. Whether the injured party wishes to sue the partnership or the
individual partners is usually a matter for the Plaintiff since, in most jurisdictions,
their liability is joint and several.

AGENCY VERSUS CONTRACT

Although the notions of agency and contract are closely intertwined, some
academics bristle at the suggestion they are essentially the same. Specifically, they
point out a number of unique features of agency versus contractual relationships.
There are two major sets of differences. First, agents are usually retained not for
any particular or discrete set of tasks, but for a broad range of activities, which may
change over time, that are consistent with basic objectives and interests set forth by
the principals. In this instance principals must be concerned to some degree about
agents' personal attitudes, dispositions, and other characteristics that are usually not
a concern in contractual agreements. Principals hire out broad objectives to be
fulfilled instead of specific tasks. Second, in an agency relationship there is
typically much less independence between agent and principal than between
contracting parties. Typically this also means that the principal-agent relationship
is more hierarchical and power-driven than a contractual relationship, and included
in this power is greater latitude for principals to reward, punish, and control agents.
A conventional view holds that agency is a special application of contract theory.
However, some argue that the reverse is true: a contract is a formalized, structured,
and limited version of agency, but agency itself is not based on contract.

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

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shareholders, they may, according to some views, have fallen short on their ethical
responsibilities.

In a larger sense, some see the traditional agency model as a simplistic, even
deceptive, justification for traditional economic power relationships, specifically
that large wealth holders can extract concessions from weaker economic beings.
Certain scholars have argued that from a broader social perspective, there are many
kinds of principal-agent relations, and included among these is the fact that
shareholders may be seen as agents to managers, employees, and the broader
society.

CONCLUSION

This document does not begin to explore the vast complexities of the law as it
varies throughout various jurisdictions; this document will hopefully assist
members in establishing a basic framework for understanding these types of issues.

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