relationship between principal and third party pdf

Relationship Between Principal And Third Party Pdf

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This chapter focuses on the relationship between principal and agent. In general, the rights and duties of an agent derive either from a contract made with the principal or from the fiduciary nature of their relationship. Although most agencies are consensual, an agency may also arise because of the apparent or usual authority of the agent or through necessity.

In some cases the knowledge of the principal is deemed to be the knowledge of the agent, and vice versa. Where the principal seeks, as against third parties, to take the benefit of an act done by another person on his behalf, the question whether the act was done with our without authority is of little importance, since an unauthorized act may, as a rule be ratified.

The relationship between the principal and third parties

The law of agency is an area of commercial law dealing with a set of contractual , quasi-contractual and non-contractual fiduciary relationships that involve a person, called the agent , that is authorized to act on behalf of another called the principal to create legal relations with a third party. The agent is, thus, required to negotiate on behalf of the principal or bring them and third parties into contractual relationship. This branch of law separates and regulates the relationships between:. The reciprocal rights and liabilities between a principal and an agent reflect commercial and legal realities. A business owner often relies on an employee or another person to conduct a business.

After reading this chapter, you should understand the following:. An agent is a person who acts in the name of and on behalf of another, having been given and assumed some degree of authority to do so. Most organized human activity—and virtually all commercial activity—is carried on through agency. No corporation would be possible, even in theory, without such a concept. Likewise, partnerships and other business organizations rely extensively on agents to conduct their business. Indeed, it is not an exaggeration to say that agency is the cornerstone of enterprise organization.

Law of agency

The rights and liabilities of a principal in relation to third parties under contracts made by his agent depend upon, whether an agent is. The rights and liabilities of a named principal for the acts of his agent may be discussed as below:. If an act is carried on by an agent within his authority, his acts are binding on the principal. However, the act done should be lawful. Example : A authorized his agent, B , to collect money on his behalf.


authority in making the contract on the principal's behalf. • Partially Disclosed Principal is contractually bound with the third party if the agent acts within her.


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JavaScript seems to be disabled in your browser. You must have JavaScript enabled in your browser to utilize the functionality of this website. The liability of the principal to a third person upon a transaction conducted by an agent is based upon facts such as:. Unless the limitations of the agency are known or can be readily ascertained, the principal is bound by unauthorized acts of an agent through which a third party has sustained a loss[v].

As a small business owner, it's likely that you routinely employ other people to perform tasks and make decisions on your behalf. Delegating responsibility can take a lot of weight off your shoulders and bring in expertise that you may not have yourself. For the relationship to work, however, you must ensure that the agent will make optimal decisions on behalf of the business — something that sounds simple, but can be incredibly challenging.

What Is a Principal-Agent Relationship?

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