In the English law, the chief person in some inns of chancery is called principal of the house. Principal is also used to designate the best of many things as, the best bed, the best table, and the like. One who, being competent to contract, and who is sui juris, employs another to do any act for his own benefit, or on his own account.
As a general rule, it may be said, that every person, sui juris, is capable of being a principal, for in all cases where a man has power as owner, or in his own right to do anything, he may do it by another. Married women, and persons who are deprived of understanding, as idiots, lunatics, and others, not sui juris, are wholly incapable of entering into any contract, and, consequently, cannot appoint an agent.
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Privacy Policy Quality Policy Statement. Go to Top. For example, when an investor buys shares of an index fund, he is the principal, and the fund manager becomes his agent. As an agent, the index fund manager must manage the fund, which consists of many principals' assets, in a way that will maximize returns for a given level of risk in accordance with the fund's prospectus.
Agents have an obligation to perform tasks with a certain level of skill and care and may not intentionally or negligently complete the task in an improper manner. The principal-agent relationship can be entered into by any willing and able parties for the purpose of any legal transaction. In simple cases, the principal within the relationship is a sole individual who assigns an agent to carry out a task; however, other relationships under this guise have a principal that is a corporation, a nonprofit organization, a government agency or a partnership.
The agent is most often an individual capable of understanding and ultimately carrying out the task assigned by the principal. Common examples of the principal-agent relationship include hiring a contractor to complete a repair on a home, retaining an attorney to perform legal work, or asking an investment advisor to diversify a portfolio of stocks.
In each scenario, the principal is the individual seeking out the service or advice of a professional, while the agent is the professional performing the work. Whether the principal-agent relationship is expressed clearly through a written contract or is implied through actions, the principal-agent relationship creates a fiduciary relationship between the parties involved.
This means the agent acting on behalf of the principal must carry out the assigned tasks with the principal's best interest as a priority. The agent is responsible for completing tasks given by the principal so long as the principal provides reasonable instruction. Additionally, the agent has an obligation to perform tasks that will not intentionally harm the principal.
A duty of loyalty is also implied within the principal-agent relationship, which requires the agent to refrain from putting himself in a position that creates or encourages conflict between his interest and the interest of the principal, also known as the principal-agent problem. Business Leaders. Business Essentials. Estate Planning. But if a person has no authority to act as an agent, or an agent has no authority to act in a particular way, is the principal free from all consequences?
The answer depends on whether or not the agent has apparent authority In agency, the situation in which a principal leads a third party to believe that an agent has authority to bind the principal, even where the agent lacks the actual authority to bind the principal.
Apparent authority is a manifestation of authority communicated to the third person; it runs from principal to third party, not to the agent. Apparent authority is sometimes said to be based on the principle of estoppel. Estoppel is the doctrine that a person will not now be allowed to deny a promise or assertion she previously made where there has been detrimental reliance on that promise or assertion. Estoppel is commonly used to avoid injustice. It may be a substitute for the requirement of consideration in contract making the promise of a gift enforceable where the donee has relied upon the promise , and it is sometimes available to circumvent the requirement of a writing under the Statute of Frauds.
Apparent authority can arise from prior business transactions. Buyer failed to pay Central, which sued Meggs. Meggs v. Central Supply Co. In such cases, and in cases involving the firing of a general manager, actual notice should be given promptly to all customers. See the discussion of Kanavos v.
Ratification usually relates back to the time of the undertaking, creating authority after the fact as though it had been established initially. Ratification is a voluntary act by the principal. Faced with the results of action purportedly done on his behalf but without authorization and through no fault of his own, he may affirm or disavow them as he chooses.
To ratify, the principal may tell the parties concerned or by his conduct manifest that he is willing to accept the results as though the act were authorized.
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