Tuesday, March 21, 2006

On agents

According to our text, the power an agent has to bind the principal is his ability to do so. The authority to bind the principal stems from the principal's consent to be bound by "manifestations" to the agent. Essentially, it means that an the agent who can bind the principal has the power to do so.

The next question in the book is, "is the converse true? Does an agent have the power to bind the principal even though the agent was not authorized to do so?"

The concept is that in an agent/partner relationship, there are going to be times where the agent exceeds his authority. The task is to determine when the principal should bear the risk and where the third party should be allowed to reasonably rely on the agent's actions and hold the principal accountable.

Think of sports agents, or lawyers, or leasing reps, or auto dealerships, or restaurant managers, etc. There are more principal agent relationships than many can see.

No comments: