ADM 4716 Lecture 6: Module VI Special Contracts 2 Agency and Employment

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Agency is a relation between a principal and an agent by which the agent is authorized to act on behalf of the principal. They may even enter into contracts with third parties in the name of their principal. The principals will then be bound by these contracts, even if they are unaware of their existence. The agents will not bound by the contract because they are not contracting in their own name but in the name of their principal. First contract (k-1) is between the principal (p) and the agent (a) and creates the agency relationship. The second contract (k-2) is between the principal and the third party (3p) and is made in the name of the principal by the agent. If the agent breaches one of the terms of the contract k-1 between the principal and the agent, the agent will be liable for whatever losses the principal has suffered on account of the breach.

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