Kinh tế học - Chapter 18: Principal and agent

This is the prescribed textbook for your course.Available NOW at your campus bookstore!Copyright © 2000 McGraw-Hill AustraliaPrincipal and agentChapter 181Copyright © 2000 McGraw-Hill AustraliaAgencyAn agency is a relationship that exists between one person, the principal, and another person, the agent, where the agent undertakes to do certain acts on the principal’s behalf, the purpose being to bring a third party into a contractual relationship with the principal.2Copyright © 2000 McGraw-Hill AustraliaCreation of an agencyExpressly created agency (written or verbal)Impliedly created agency - Agency of Necessity - Cohabitation - Agency by Estoppel - Agency by Status - Agency by Ratification3Copyright © 2000 McGraw-Hill AustraliaAgency of NecessityA person must be entrusted with the property of another person.An immediate expense is required to preserve the property.The owner of the property is virtually impossible to contact.The person entrusted with the property (agent) must act in the best interests of the owner (principal).4Copyright © 2000 McGraw-Hill AustraliaAgency by RatificationRequired when: No authority to act as agent Agent exceeds authority given by principal 5Copyright © 2000 McGraw-Hill AustraliaWorking relationshipsAgent - Fiduciary relationship i.e. exercising rights and powers, in good faith, for the benefit of another.Employee - Under control and supervision of employer.Independent contractor - Decides how their work is carried out.Trustee - Holds property on behalf of another person.6Copyright © 2000 McGraw-Hill AustraliaCategories of agentsSpecial - i.e. appointed for a particular task.General - i.e. appointed for all normal matters.Universal - i.e. appointed for all acts principal can do, e.g. Power of Attorney.7Copyright © 2000 McGraw-Hill AustraliaAuthority of an agentActual Authority - Express (written/spoken) - Implied (by action)Apparent Authority (Ostensible Authority) - Authority agent has from the viewpoint of the third party, with whom the agent is dealing.8Copyright © 2000 McGraw-Hill AustraliaDuties of an agentTo follow the principal’s instructionsTo act personallyTo exercise reasonable skill and diligenceTo act in principal’s best interestNot to make a secret profitNot to divulge confidential informationTo keep proper accounts9Copyright © 2000 McGraw-Hill AustraliaRights of an agentTo receive remuneration for work performedTo be indemnified against all losses and expenses incurred while carrying out principal’s lawful instructionsTo a lien (i.e. a right to retain possession of principal’s property) until liabilities satisfiedTo stoppage in transit (before received by principal)10Copyright © 2000 McGraw-Hill AustraliaLiability of an agent to principal  If agent - fails to follow instructions - acts in a negligent matter  If a loss is incurred11Copyright © 2000 McGraw-Hill AustraliaLiability of agent to third partyName & existence or existence of principal disclosed - Act outside authority (i.e. breach of warranty)  Acts on behalf of someone who has not given authority (unless ratified), or  Exceeds authority (unless ratified) - Non existent /unascertainable principal - Agent agrees to be liable - Usage/custom make agent liableExistence of principal not disclosed - Agent boundTorts committed while acting within actual or apparent authority12Copyright © 2000 McGraw-Hill AustraliaLiability of agent to third partyTort committed by an agent acting within the actual or apparent authority.13Copyright © 2000 McGraw-Hill AustraliaDoctrine of undisclosed principalIf the agent acts as if he/she is the owner by not disclosing agency then the principal can later reveal agency agreement and can sue and enforce the contract.If third party discovers there was an agency agreement, he can then sue the principal (as well as the agent) for breaches of the contract. 14Copyright © 2000 McGraw-Hill AustraliaTermination of agencyBy the acts of the parties - By performance of the agency - With frustration of the agency agreement - By mutual agreement - By revoking the authority of the agent (ineffective to third parties until advised)By the operation of Law - By death of either party - By bankruptcy of principal - By bankruptcy of agent - By insanity of either party15Copyright © 2000 McGraw-Hill AustraliaTypes of agents (Statute Law)Factors/mercantile agent - Goods in agent’s possession to sell or use for borrowingDel Credere agent - Guarantees payment for goods sold (therefore higher commission)Partners - Principals/agents for each otherBroker - Buys/sells goods without possessionReal estate agent - Sells/leases vendor’s land; finds property for sale/leaseTravel agent - Sells principal’s products; receives commission based on sales; organises principal’s travel arrangementsCompany director - Agent of company16Copyright © 2000 McGraw-Hill Australia