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MFM-I GROUP NO.11 2

AGENCY LAW

Agency is an area ofcommercial law dealing with a contractual orquasi-contractual tripartite set of relationships when anAgent is authorized to acton behalf of another (called the Principal) to create a legal relationshipwith a Third Party.

The agent is, thus, required to negotiate on behalf of the principal or bring

him and third parties into contractual relationship. This branch of lawseparates and regulates the relationships between:

Agents and the Third Parties

Principals and the Third Parties

Agents and Principals;
http://en.wikipedia.org/wiki/Commercial_lawhttp://en.wikipedia.org/wiki/Contracthttp://en.wikipedia.org/wiki/Quasi-contracthttp://en.wikipedia.org/wiki/Quasi-contracthttp://en.wikipedia.org/wiki/Agent_%28law%29http://en.wikipedia.org/wiki/Principal_%28law%29http://en.wikipedia.org/wiki/Principal_%28law%29http://en.wikipedia.org/wiki/Agent_%28law%29http://en.wikipedia.org/wiki/Quasi-contracthttp://en.wikipedia.org/wiki/Quasi-contracthttp://en.wikipedia.org/wiki/Quasi-contracthttp://en.wikipedia.org/wiki/Contracthttp://en.wikipedia.org/wiki/Commercial_law

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MFM-I GROUP NO.11 3

CONCEPT

The reciprocal rights and liabilities of Principal and Agentreflect commercial needs and legal realities. In anybusiness of size, it is not possible for one person totravel everywhere to negotiate all the transactionsnecessary to maintain or grow the business. Theseproblems are increased if the business is a corporation,because it is then a fictitious legal person and, as such, itcan only act through human agents. Hence, independentpeople are contracted by businesses to buy and sellgoods and services on behalf of those businesses.
http://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Corporation

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MFM-I GROUP NO.11 4

CONCEPT

If the issue is considered from the view of innocent Third Parties, they areapproached by a person who is clearly identified as acting for another.

They deal with that person in good faith, relying on the representation of

authority. Indeed, in a busy commercial world, it would not be cost-

effective to check that everyone who is represented as having the

authority to act for another actually has that authority. Deals are done at

face value in the majority of routine situations. If it should later appear that

the alleged agent was acting without the consent of the Principal, the

Agent will usually be held liable. Any other decision would be unduly

disruptive to the usual flow of trade. This commercial necessity has led to

the creation of a body of law that applies in any situation, commercial or

otherwise, where one person is seen to be acting for another.
http://en.wikipedia.org/wiki/Good_faithhttp://en.wikipedia.org/wiki/Good_faith

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MFM-I GROUP NO.11 5

Brief statement of legal principles

Universal agents-: hold broad authority to act onbehalf of the Principal, e.g. they may hold a power ofattorney (also known as a mandate in civil law

jurisdictions) or have a professional relationship, say,as lawyerand client.

General agents:- hold a more limited authority toconduct a series of transactions over a continuousperiod of time; and

Special agents :-are authorized to conduct either only

a single transaction or a specified series oftransactions over a limited period of time.
http://en.wikipedia.org/wiki/Power_of_attorneyhttp://en.wikipedia.org/wiki/Power_of_attorneyhttp://en.wikipedia.org/wiki/Mandatehttp://en.wikipedia.org/wiki/Civil_law_%28legal_system%29http://en.wikipedia.org/wiki/Jurisdictionhttp://en.wikipedia.org/wiki/Lawyerhttp://en.wikipedia.org/wiki/Lawyerhttp://en.wikipedia.org/wiki/Jurisdictionhttp://en.wikipedia.org/wiki/Civil_law_%28legal_system%29http://en.wikipedia.org/wiki/Mandatehttp://en.wikipedia.org/wiki/Power_of_attorneyhttp://en.wikipedia.org/wiki/Power_of_attorney

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MFM-I GROUP NO.11 6

Authority

The Principal must give, or be deemed to give, the Agent authority to

act.

Actual authority : This arises where the Principal's words or conduct

reasonably cause the Agent to believe that he or she has been

authorized to act. This may be express in the form of a contract or

implied because what is said or done make it reasonably necessary for

the person to assume the powers of an Agent.

Apparent orostensible authority : If the Principal's words or conduct

would lead a reasonable person in the Third Partys position to believe

that the Agent was authorized to act, say by appointing the Agent to a

position which carries with it agency-like powers, those who know of

the appointment are entitled to assume that there is apparent authority

to do the things ordinarily entrusted to one occupying such a position.

If a Principal creates the impression that an Agent is authorized but

there is no actual authority, Third Parties are protected so long as they

have acted reasonably.
http://en.wikipedia.org/wiki/Contracthttp://en.wikipedia.org/wiki/Ostensible_authorityhttp://en.wikipedia.org/wiki/Ostensible_authorityhttp://en.wikipedia.org/wiki/Ostensible_authorityhttp://en.wikipedia.org/wiki/Contract

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MFM-I GROUP NO.11 7

Authority

Authority by virtue of a position held:To deter fraudand other harms that may befall individuals dealingwith agents, there is a concept of Inherent Agencypower, which is power derived solely by virtue of theagency relation.

For example, partners have apparent authority tobind the other partners in the firm, their liability being

joint and several (see below), and in a corporation,all executives and senior employees with decision-

making authority by virtue of their declared positionhave apparent authority to bind the corporation.
http://en.wikipedia.org/wiki/Partnershiphttp://en.wikipedia.org/wiki/Joint_and_several_liabilityhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Joint_and_several_liabilityhttp://en.wikipedia.org/wiki/Partnership

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MFM-I GROUP NO.11 8

LIABILITIES

Liability of agent to third party - If the Agent has actual orapparent authority, the Agent will not have liability on anytransactions agreed within the scope of that authority so long asthe Principal was disclosed.

Liability of agent to principal - If the Agent has acted withoutactual authority, but the Principal is nevertheless bound

because the Agent had apparent authority, the Agent is liable toindemnify the Principal for any resulting loss or damage.

Liability of principal to agent - If the Agent has acted withinthe scope of the actual authority given, the Principal mustindemnify the Agent for payments made during the course ofthe relationship whether the expenditure was expressly

authorized or merely necessary in promoting the Principalsbusiness

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MFM-I GROUP NO.11 9

Duties

fiduciary duty

Not to accept any new obligations that are inconsistentwith the duties owed to the Principal.

Not to make a private profit or unjustly enrich himself

from the agency relationship.

In return, the Principal must make a full disclosure of allinformation relevant to the transactions that the Agent isauthorized to negotiate and pay the Agent either a

prearranged commission, or a reasonable feeestablished after the fact.
http://en.wikipedia.org/wiki/Fiduciary_dutyhttp://en.wikipedia.org/wiki/Commission_%28remuneration%29http://en.wikipedia.org/wiki/Commission_%28remuneration%29http://en.wikipedia.org/wiki/Fiduciary_duty

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MFM-I GROUP NO.11 10

TERMINATION

An Agent's authority can be terminated atany time. If the trust between the Agent and

Principal has broken down, it is not

reasonable to allow the Principal to remainat risk in any transactions that the Agent

might conclude during a period of notice.

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TERMINATION WAYS

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

(i) By the principal revoking the agency

(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)

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Agency and partnership

A partner is the agent of the other partners whereas, in Scots

law where there is a separate personality, a partner is theagent 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.
http://en.wikipedia.org/wiki/Scots_lawhttp://en.wikipedia.org/wiki/Scots_lawhttp://en.wikipedia.org/wiki/Scots_lawhttp://en.wikipedia.org/wiki/Scots_law

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Agency relationships

Agency relationships are common in many professional areasEmployment procurement

Real estate transactions : In real estate brokerage, the buyers

or sellers are the Principals themselves and the broker or

his/her salesperson who represents each Principal is his/her

Agent.

financial advice : Insurance agency, Stock brokerage,

Accountancy

Promotion (business management) : such as for publishing,music, movies, theatre, show business and sports.
http://en.wikipedia.org/wiki/Professionhttp://en.wikipedia.org/wiki/Employmenthttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Financial_advisorhttp://en.wikipedia.org/wiki/PRhttp://en.wikipedia.org/wiki/Business_managementhttp://en.wikipedia.org/wiki/Business_managementhttp://en.wikipedia.org/wiki/PRhttp://en.wikipedia.org/wiki/Financial_advisorhttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Employmenthttp://en.wikipedia.org/wiki/Profession

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References

Restatement of Agency (Second) 1. Agency; Principal; Agent. "(1)Agency

is the fiduciary relation which results from the manifestation of consent byone person to another that the other shall act on his behalf and subject to his

control, and consent by the other so to act. (2)The one for whom action is to

be taken is the principal. (3)The one who is to act is the agent."

Restatement of Agency (Second) 27: "Except for the execution of

instruments under seal or for the conduct of transactions required by statuteto be authorized in a particular way, apparent authority to do an act is

created as to a third person by written or spoken words or any other conduct

of the principal which, reasonably interpreted, causes the third person to

believe that the principal consents to have the act done on his behalf by the

person purporting to act for him."

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References

Restatement of Agency (Second) 8A. Inherent Agency Power. "Inherentagency power is a term used in the restatement of this subject to indicate

the power of an agent which is derived not from authority, apparent

authority or estoppel, but solely from the agency relation and exists for the

protection of persons harmed by or dealing with a servant or other agent."

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