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In Commercial Law, a Principal is a person, fictitious or otherwise, who authorises an Agent to act to create one or more legal relationships with a Third Party. This branch of law is called Agency and relies on the common law proposition, qui facit per alium, facit per se: this is Latin for he or she who acts through another, acts personally and it is a parallel concept to vicarious liability and strict liability in which one person is held liable in Criminal Law or Tort for the acts or omissions of another. Commercial law or business law is the body of law which governs business and commerce and is often considered to be a branch of civil law and deals both with issues of private law and public law. ...
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. ...
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 sometimes bind the principal. ...
This article concerns the common-law legal system, as contrasted with the civil law legal system; for other meanings of the term, within the field of law, see common law (disambiguation). ...
Latin is an ancient Indo-European language originally spoken in the region around Rome called Latium. ...
Vicarious liability is a form of strict, secondary liability that arises under the common law doctrine of agency – respondeat superior – the responsibility of the superior for the acts of their subordinate and can be distinguished from contributory liability, another form of secondary liability, which is rooted in the tort theory...
Strict liability is a legal doctrine in tort law that makes a person responsible for the damages caused by their actions regardless of culpability (fault) or mens rea. ...
Criminal law (also known as penal law) is the body of common law that punishes criminals for committing offences against the state. ...
This article or section is missing references or citation of sources. ...
Concepts
In a busy commercial world, the smooth flow of trade depends on the use of agents. This may be because in business entities such as: The term business entity refers generally to any organization engaged in business activities, regardless of legal structure. ...
- sole traders, their ability to conduct business will always be limited unless other people are used to work on their behalf;
- a partnership, the natural persons who are involved cannot be present to conduct business in multiple locations simultaneously, so they must rely on others to make agreements or deliver services on their behalf; or
- a corporation is only a legal entity or fictitious legal person and so can only act through the agency of human beings to get anything done.
In the majority of cases, it is impossible for agents to seek specific authority for every deal or detail within a deal. Agents must, of necessity, be allowed some degree of discretion in the conduct of routine transactions. But, for the purposes of ascribing legal responsibility to the Principal, when the Agent acts with actual or apparent authority, all the Agent's knowledge will be imputed to the Principal. If Principals were allowed to hide behind their agents' own ignorance, mistakes or failures to communicate, a Principal could, by using an Agent, achieve a better result than if he or she had acted personally. For example, if the particular deal turned out well, the Principal could adopt the transaction. But, if it turned out badly, the Principal could desavow it. Indeed, were it not for imputation, there would be a perverse incentive to conduct business through Agents rather than personally. Consequently, the Principal cannot exploit ignorance to his or her own advantage by instructing the Agent to withhold key information or by appointing an Agent known to be secretive. A Sole proprietorship is a business which legally has no separate existence from its owner. ...
In the common law, a partnership is a type of business entity in which partners share with each other the profits or losses of the business undertaking in which they have all invested. ...
In jurisprudence, a natural person is a human being perceptible through the senses and subject to physical laws, as opposed to an artificial person, i. ...
A corporation is a legal person which, while being composed of natural persons, exists completely separately from them. ...
A legal entity is a legal construct through which the law allows a group of natural persons to act as if it were an individual for certain purposes. ...
The principle of imputation reflects the general public policy underpinning the operation of the law which is that ignorantia juris non excusat, the Latin for ignorance of the law is no excuse. ...
This rule in favour of imputation relates to the duties an Agent owes a Principal, in particular the Agent's duty to communicate material facts to the Principal. Since the purpose of the law is to offer protection to Third Parties who have acted in good faith, it is reasonable to allow them to believe that, in most cases, the Agents have fulfilled this duty. After all, the Principal selects the Agents and has the power to control their actions both through express instructions and incentives intended to influence their behaviour which will include laying down routines for how Agents should handle information, and the extent to which Agents will be rewarded for transmitting information of commercial value. The result is a form of strict liability in which the legal consequences of an Agent's acts or omissions are attributed to a Principal even when the Principal was without fault in appointing or supervising the Agent. Borrowing parallel concepts from Tort and Equity, this means that the Principal owes the Third Party a duty of care to ensure that the Agent is honest and efficient, and that a Principal is estopped from denying that an Agent was authorised to act as he or she did. Good faith, or in Latin bona fides, is the mental and moral state of honesty, conviction as to the truth or falsehood of a proposition or body of opinion, or as to the rectitude or depravity of a line of conduct, even if the conviction is objectively unfounded. ...
The Court of Chancery, London, early 19th century This article is about concept of equity in Anglo-American jurisprudence. ...
In law, a duty of care is the legal requirement that a person exercise a reasonable standard of care to prevent injury of others. ...
Estoppel is an equitable doctrine proposing that any person who asks the courts to enforce a legal remedy should have a clear conscience. ...
Summary of law There are three classes of Principal: - Disclosed: at the time of the transaction made by the Agent with the Third Party, the latter knows that the person he is dealing with is acting as an Agent and also knows the Principal’s identity.
- Partially disclosed: at the time of the transaction, the Third Party knows that the person he is dealing with is acting as an Agent acting but does not know the Principal’s identity.
- Undisclosed: The person acting as an Agent represents that he or she is acting on their own behalf and does not disclose the existence of the agency relationship. This is usually because the Principal is wealthy and believes that money can be saved on the proposed deal if his or her involvement is hidden.
Authority For these purposes, the Principal must give, or be deemed to give, the Agent authority to act. - This arises where the Principal's words or conduct reasonably cause the Agent to believe that he or she has been authorised 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. If it is clear that the Principal gave actual authority to Agent, all the Agent's actions falling within the scope of the authority given will bind the Principal. This will be the result even if, having actual authority, the Agent in fact acts fraudulently for his own benefit unless the Third Party was aware of the Agent's personal agenda. If there is no contract but the Principal's words or conduct reasonably led the Third Party to believe that the Agent was authorised to act, or if what the Agent proposes to do is incidental and reasonably necessary to accomplish an actually authorised transaction or a transaction that usually accompanies it, then the Principal will be bound.
- Apparent or ostensible authority:
- If the Principal's words or conduct would lead a reasonable person in the Third Party’s position to believe that the Agent was authorised 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 authorised but there is no actual authority, Third Parties are protected so long as they have acted reasonably. This is sometimes termed "Agency by Estoppel" or the "Doctrine of Holding Out", where the Principal will be estopped from denying the grant of authority if Third Parties have changed their positions to their detriment in reliance on the representations made.
- Authority by virtue of a position held:
- For example, partners have apparent authority to bind the other partners in the firm, their liability being joint and several, and in a corporation, all executives and senior employees with decision-making authority by virtue of their declared position have apparent authority to bind the corporation.
Even if the Agent does act without authority, the Principal may ratify the transaction and accept liability on the transactions as negotiated. This may be express or implied from the Principal's behaviour, e.g. if the Agent has purported to act in a number of situations and the Principal has knowingly acquiesced, the failure to notify all concerned of the Agent's lack of authority is an implied ratification to those transactions and an implied grant of authority for future transactions of a similar nature. A contract is a promise or an agreement that is enforced or recognized by the law. ...
In the broadest sense, a fraud is a deception made for personal gain, although it has a more specific legal meaning, the exact details varying between jurisdictions. ...
Estoppel is an equitable doctrine proposing that any person who asks the courts to enforce a legal remedy should have a clear conscience. ...
In the common law, a partnership is a type of business entity in which partners share with each other the profits or losses of the business undertaking in which they have all invested. ...
A corporation is a legal person which, while being composed of natural persons, exists completely separately from them. ...
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 authorised or merely necessary in promoting the Principal’s business.
Liability of Third Party to Principal The Third Person will be liable to the Principal on the terms of the agreement made with the Agent unless the Principal was undisclosed and there is clear evidence that either the Agent or the Principal knew that the Third Party would not have entered into the agreement if he or she had known of the Principal's involvement.
Duties The relationship between a Principal and an Agent is fiduciary which requires the Agent to be loyal to the Principal. This involves duties: A fiduciary is a person who occupies a position of trust in relation to someone else such that he is required to act for the latters benefit within the scope of that relationship. ...
- not to accept any new obligations that are inconsistent with the duties owed to the Principal. Agents can represent the interests of more than one Principal, conflicting or potentially conflicting, only on the basis of full and timely disclosure or where the different agencies are based on a limited form of authority to prevent a situation where the Agent's loyalty to the any one of the multiple Principals is compromised. For this purpose, express clauses in the agreement signed by each Principal with the Agent may identify specific types or categories of activities that will not breach the duty of loyalty and so long as these exceptions are not unreasonable, they will bind the Principals.
- not to make a private profit or unjustly enrich himself from the agency relationship. Principals usually include a power in their contract with the Agents allowing them to inspect the Agents' accounts if reasonable suspicion of improper behaviour emerges.
In return, the Principal must make a full disclosure of all information relevant to the transactions that the Agent is authorised to negotiate and pay the Agent either the commission or fee as agreed, or a reasonable fee if none was agreed. In law a commission is a patent which allows a person to take possession of a state office and carry out official acts and duties. ...
Termination The Principal can terminate an Agent's authority at any time without having to give notice. 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.
Economic analysis (main article Principal-Agent problem) In economics, the principal-agent problem treats the difficulties that arise under conditions of incomplete and asymmetric information when a principal hires an agent. ...
The analysis of principal-agent relationships is an important topic in economics. The main focus of analysis is on the information asymmetry between the agent, who is assumed to be well informed, and the principal who may not be. In economics, information asymmetry occurs when one party to a transaction has more or better information than the other party. ...
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