Contract Creation and Management - Nature of Agency

Topics: Contract, Dispute resolution, Business law Pages: 5 (1630 words) Published: January 4, 2013
Contract Creation and Management - Nature of Agency
LAW 531
June 18, 2012

Contract Creation and Management - Nature of Agency
Successful contract creation is essential for two or more different parties to conduct business. A contract needs to be full of specifics and lacking in ambiguity, otherwise interpretations, based on needs and experience, can and will be made by both sides. One such area of potential ambiguity in a contract is that of agency. Agency is a relationship where a principal (business owner, company officer, etc.) appoints an agent and “the agent is the representative of the principal and acts for, in the place of, and instead of, the principal.” (, 2010, Agency). In the video The Nature of Agency (University of Phoenix, 2010), a contract dispute arises between two companies and one of the main factors in that dispute is whether or not agency is established. This paper will discuss what is required to establish agency and how it effected the formation of a contract between the two disputing parties. In addition, it will look at ways the contract could have been administered differently to mitigate ambiguities and the risks associated with them. Finally, it will consider contract dispute resolution methods and what may be the best way ahead for the disputing parties. Contract Formation and Agency

To form a legally enforceable contract four elements have to be met (Cheeseman, 2010, p. 154). There has to be a mutual agreement between the person making the offer (offeror) and acceptance of the offer by the offeree. The second element is consideration. This is the legally sufficient items bargained or exchanged in the contract, such as money, property or provided services. Contractual capacity is the third element and refers to: “the ability of an individual to enter into a legally binding contract. A party's contractual capacity may be affected by age, mental capacity, mental illness, intoxication and other factors defined by law” (, 2011). Lawful Object is the final element. It means the object of the contract must not be prohibited by law, such as illegal drug sales, receiving stolen property, etc. Failure to meet any of these elements renders a contract un-enforceable in a court of law. In the Nature of Agency video, the question of the enforceability of the contract between Quick Takes Video and Non-Linear Pro arises because Janet, an employee for Quick Takes, signed for the receipt of equipment from Non-Linear Pro. However, the receipt was also a three month lease agreement. The owners are disputing the authority of Janet to accept the agreement, as the offeree, sign the lease and bind Quick Takes to the lease contract, because Janet does not have an express agency with Quick Takes. An express agency grants or confers authority directly to the agent (employee) and only is pertinent to such powers as the principal (owner) expressly gives the agent (, 2010, Express Agency). However, Janet may have an implied agency. This is an agency that is a result of the conduct between the principal and agent and can be “inferred by circumstances that imply an intention to create an agency relationship” (, 2010, definitions). In the video, Janet has an established implied agency because she buys a lot of items for the business without express consent from the owners. Hal, the owner, may also have inadvertently given Janet apparent authority to act as an agent. He told the Non-Linear Pro salesman to ‘make the arrangements with her (Janet)’. Since Hal is the principal, his statement created the impression to the salesman (an outsider); Janet had been given authority to enter into a contract (The Free, 2012). Implied and apparent authority to act as an agent are as legally binding as express agency and Non-Linear Pro could use these facts to establish Janet’s agency in any dispute. Therefore it is clear a contract has been...
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