Application of Principal Agent Relationship

Question: Discuss about the Application of Principal Agent Relationship. Answer: Introduction An agency is a type of a relationship that exists between two individuals. That is the agent and the principal. The primary purpose of the agent is to create contracts with a third party on behalf of the principal (Adamson, Morrison, 2016). In any case, a third party could be an employee or just an independent contractor. For example, in a supermarket, the cashier executes transactions on behalf of the supermarket. Actually, the customer doesnt enter into the contact with the cashier, but the contract is the between the customer and the supermarket. This study examines two different cases. In the first place, the study would look at a case where a de facto relationship is presumed to create an agency. The second one is an analysis of a case where an employee drags the employer to a case through apparent authority. This issue takes us to the root of the agency by presumption. Stone in (Stone, 2005) explained this agency as the agency that arises wherever a man and a woman are living together in a household. In (Campbell Dennis, 2009, p 56) the study found that two parties can create an agency by presumption or cohabitation. This type is agency exists through presumption that if a man and a woman are living in a de facto relationship, the woman is presumed to be an agent and can pledge the mans credit for necessaries. The same case would work for Rodney and Penelope. Rodney would be presumed to have the authority from Penelopes in acquiring the house necessaries so that both of them can keep up with their social status. Notably, necessaries are things like food, medical attention, and clothing. All things considered, these are mainly things that help in keeping their familys social status standing (Miss Gray Ltd .v Earl Cathcart, 1922). Another point to note is that the presumption of the agency only exists in the cases of cohabitation but not in marriage. After all, there is also a chance for invalidating this agency. For example, the husband can refute the authority if he expressly Had forbidden the wife from pledging credit. Had warned the supplier from supplying the goods to the wife. If wife already had sufficient supply of the goods earlier The wife had be provided with enough allowance to purchase such goods When the order was in excess even though it was necessary. However, if the husband had been paying for the bills to one supplier, the presumed agency of the wife will withstand and the only chance to escape liability is expressly warning the supplier. So to avoid paying for this $2500 microwave, Penelope should have warned the supermarket. So he doesnt have a choice rather than just pay. Adams Suing MODO after Dismissing the Lease A contract formed by an agent with a third party is as binding as when made with the principal under the doctrine of apparent authority (Carper, McKinsey, West, 2007). The same case applies to MODO sending Tim to search for an office but instead he exceed to acquiring a lease agreement. The main issue here is that Tim represented MODO to Adam, he made Adam believe that he has been sent to represent him in all the matters including entering into a contract. Apparent authority can be actual, expressed or implied, Plus, it could also happen by estoppel. Concerning this case, this study will lean towards apparent authority, the authority that Tim had and misused to an extent of drawing MODO to the case. Markedly, if it happens that the third party will rely on that representation; its no doubt that the principal will then be bound by any of the actions of the agent. So, MODO would be bound by the lease agreement, and this is because Tim made Adam believe that the Tim was there on behalf of Modo. In (Doncaster Metropolitan Borough Council v Racing UK Ltd, 2005), the court ruled that Mr Sanderson had apparent authority to bind the council the the contract. The case applies to MODO, Tim had apparent authority to bind MONDO to the agreement. For the sake of efficiency in transaction, there would be a demand to overlook the limits to express or implied authority. In other words, the law of agency should not be limited to only cases where the principal and agent relationship exist formally on the basis of either explicit or implied instructions. This one is the exact need to have apparent authority to substantially decrease the costs that would arise if inquiries have to be made to the principal every time a transaction is needed that where its terms are not included with the actual authority (Jones, Sufrin, 2016). However, the understanding of apparent authority has been battling with the misconduct of the agents. There are instances where an agent through apparent authority has committed fraud or mistakes drawing the principal into the suit. Nevertheless, the courts have always reasoned to prevent the misconduct of the agent from enrichment and fraud as in In (Skandinaviska Enskilda v. Asia Pacific Breweries, 2011). In this case, the Court quashed the reasoning that the defendants finance director had apparent authority to undertake the money that the plaintiff had given him. Role Of Apparent Authority To Establishing The Scope Of The Agents Power To Bind The Principal With Third Parties The agents action can totally bind the principal to a third party even though the apparent authority is not bona fide express or implied (Baze, 2015). The main reason is that the law of agency functions in the scope where trust in transactional activities is paramount. In the modern business world, the primary purpose of agency relationships is creating an efficient way through which a corporation can function and enter into business contracts. As a result, the law of agency has evolved to create the concept of apparent authority. This doctrine enables an agent who seems to have authority the capabilities of binding the principal, and in particular where the third party enters into a contract with the agent believing that the principal conferred such authority to the agency. This reasoning was held in (Ermoian v. Desert Hospital, 2007) where the court held that In the medical context, vicarious liability has been extended to a hospital entity under a theory of ostensible agency for t he acts of nonemployee physicians who perform services on hospital premises For instance, a case can happen where agent wont be authorized to sell an item on behalf of the principal. However, prior to the principals withdrawing the authority to sell, he had been allowing his agents to act for him by selling, including selling to the third party. Also, the third party has the knowledge that the principal had been allowing the agents to sell in the past. This past conduct deprives the third party a chance to an assumption that the agent doesn't have the authority to sell. In such a situation, a proper conclusion is that there is no actual authority for the agents to sell, but there may be authority due to the previous conduct of the principal in allowing them to sell. Apparent authority can arise in the cases where an agency relationship expired, but the third party doesn't have such knowledge. It can also arise after the termination or limitation of actual authority, yet the principal didn't communicate effectively (Kleinberger, 2008). Still, an apparent authority may occur even where there has been an established agency relationship forged between the agent and principal. In law, ostensible authority originates from estoppel (Ghaly, Wilken, 2012), but there are still substantial differences to distinguish the two. The concept of apparent authority allegedly comes into force to protect third parties. A valued explanation of this point is derived from (Bevans, 2007, p. 29) where the study stated that when a principal creates an impression that someone is empowered to act on his or her behalf, when, in reality, that person has no such authorization, the courts will intervene and supply the missing elements of the agency relationship. Courts have created the doctrine of apparent authority in order to prevent principals from escaping the obligations that they have created. Under this theory, a principal will be bound by the authority that he or she apparently transferred to the agent, even if this transfer was never actually completed. In the establishment of estoppels that would aid in apparent authority, the law would require the following reasons. The first one is a representation from the principal by words or conduct that the agent has authority. This fact was applied in (Rama Corp Ltd v. Proved tin General Inv. Ltd, 1952). In this case, the court laid out all the fundamentals that lead to the apparent authority using the concept of estoppels. By and large, the court provided that three features for the apparent authority to exist. In (Baskind, 2015), the law require the principal to make the representation either by word or conduct contemplated to be acted upon, proof of reliance, and change of the legal position of the third party. The second one is that the principal must make the representation to the third party. Thirdly, the third party must prove that it relied on the misrepresentation hence it entered into the contract. After establishing the three conditions, it would be no doubt that the principal w ill be estopped from disputing the agency. Ultimately, its vital to note that the appearance of authority must have arisen from the principal's previous conducts. That is to say; no agent can create a representation without the principal's previous conduct and expect to bind the principal to the dealing as held in (Sigma Cable (Pte) Ltd v NEI Parsons Ltd, 1992) Concussion The purpose of this paper was to simplify the main principles of apparent authority. The goal was to outline of the creation and aspect of the said authority to bring out a better understanding. Therefore, there is always a need for agents to act with diligence and credibility to maintain their good relationship with the principal. Also, it can help in preventing the burden of cases when the third party sues the principal. 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