When a business is conducted between a buyer and a seller via a representative, the legal relationship between the seller / the principal and the representative / the agent is governed by the Law of Agency. A fiduciary relationship created under the law of agency in which one person has a legal authority to act for another, can arise from1. 1. An oral or written expressed agreement, whereas agent is appointed by the principal for a particular task, 2. Ratification of an agent’s conduct that the principle didn’t authorise, 3. Implied agreement created by assumed agent authority to enter into contracts, 4. A Necessity principal/agent relationship a relationship that arises in an emergency situation where agent assumes an authority. The exercise of this assumed authority by the person for the best interest of the principal without any prior agreement. 5. Estopel occurs when the principal creates an impression of an agent where there is no actual principal/agent relationship. In the Principal-agent relationship, the agent acts under the control or direction of the principal. However, the principal has to give the agent authority in which the agent must act with in. There are two types of authorities the agent exercises. The first is, an Actual authority that occurs either expressly given by the principal or implied in the agency agreement. The second authority, the Apparent or Ostensible authority is the type of authority that arises when the principal creates an impression of an agent to a third party that possesses to carry out certain actions when such authority does not, in fact, exist. This type of authority often arises from a principal/agent relationship created by implied agreement2. Agent has also a fiduciary duty, based on contract law. The scope of an agent’s duty to the principal is determined by the terms of the agreement between the parties and the extent of the authority conferred. An agent’s primary duties are to act...
References: 1. Pentony, B., Graw, S., Lennard, J. & Parker, D. Understanding Business Law (LexisNexis Butterworths: 4th ed, 2011).
2. Gibson, A. & Fraser, D. Business Law (Pearson Education Australia: 6th ed, 2012).
3. Jeff Fitzpatrick et al, Business and Corporations Law (LexisNexis Chatswood: 4th ed, 2011).
4. Paul Latimer, Australian business law (CCH Australia: 29th Ed, 2010).
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