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Management and Organizational Studies 2275A/B Lecture Notes - Petty Cash, Sports Agent

Management and Organizational Studies
Course Code
MOS 2275A/B
Philip King

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Chapter 13: The Agency Relationship
The Nature of Agency
Agency: relationship between two persons that permits one person, agent, to affect legal relationships
of another, principal (as binding on principal as if person directly entered them herself)
- About one person representing another in way as to affect latter’s relationships with outside
world (e.g. sports agent negotiates for hockey player, insurance agent sells on behalf of several
insurance companies, travel agent sells tickets, cruises, packages on behalf of carriers, hotels)
- Relationship essential to success of principal, who may not have expertise to handle matter
- Almost every business transaction features agent (e.g. managers carry critical tasks for owner)
Agency Defined: two key relationships
- Agent-Principal Relationship: how to be considered A, A’s duties and authority, P’s obligations
- Outsider-Principal: when is P liable to outsider, when is A liable to outsider
Law of Agency: govern relationships in agency issues; derived largely from tort and contract law
- Very little legislation, other than special statutes for insurance agents, etc.; common law used
Creation of Agency
- Relationships arise by contract between parties most often; other times by conduct
Agency by Agreement: P authorize A to act on behalf, in return for some fee or other remuneration
- Often occurs through contract created expressly and only for single purpose
- Not all employees are agents for business that employs them (e.g. typist not normally agent but
if asked to take money from petty cash for departing employee’s gift, then they’re an agent)
Concept of Authority: key aspect of agency relationship; determines whether contract or not between P
and outsider
- When agent acts within scope of agent’s authority and negotiates contract for P, the P is bound
by the contract whether the P likes it or not
- Principal will be obligated by contract when agent has actual authority or when agent has
apparent authority
- Actual Authority: agent’s authority can be both express (written or oral authority granted by P
to A) or implied (A actually has but is present by implication only)
o Implied when it is inferred from position A occupies
o Reasonably necessary to carry out or otherwise implement A’s express authority
o Arises by virtue of well-recognized custom in particular trade, industry, or profession