Importance of Agency Law in Business Environment

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An agency has no statutory definition but can however be briefly described as the legal relationship that arises when a person known as the agent is appointed to act on behalf of another party known as the principals while engaging in a business transaction with a third party known. This means that the contact created is therefore between the principal and the third party, which makes the principal liable to the third party. If the agent acts within his/her authority, the principal is bound by this contact, which makes him liable (Dal, 2008).

In this case, Delilah is the agent acting on behalf of the Company while contracting with Evon, Felipe, and Giorgio. The contact between Delilah and Evon, Delilah revealed to Evon that she was in fact acting on behalf of somebody else. In this case, when the third party is aware of the fact that Delilah is actually an agent and the principal’s identity has been revealed to him. Therefore, Delilah is not liable under the contract. She drops out the minute Evon accepted the contact. According to common business law, if the identity of the principal is disclosed to the third party, then the agent is not liable (Dal, 2008). However, the principal is liable because the agent assumed authority and was acting on his behalf.

Importance of Agency Law in Business Environment

In the contract between Delilah and Giorgio, Giorgio was not made aware of the fact that Delilah was actually acting as an agent and as far as he was concerned, she was in fact the principal. In this case, Delilah is liable to the third party and therefore Giorgio can sue both Delilah and I, the principal. Common business law states that in a case where the identity of the principal was partially revealed i.e. the third party knew that Delilah was actually acting as an agent although she does not actually reveal the principals identity, then both the principal and the agent are both held liable.

In the contact between Delilah and Giorgio, Delilah did not reveal to Giorgio that she was not the principal but was acting on the behalf of My Company. This means that as far as Giorgio was concerned, Delilah was the principal. Both Delilah and I are to be held liable in case of breath of contract. This is because Delilah entered into the contact with Giorgio assuming the position of the principal. This makes the contact legally binding. Although the contact was made with Delilah’s name she was acting on my interest as the principal was also makes me liable for any breach of contract. This leads us to the conclusion that a contract entered into by a third party and an agent where the identity of the principal was undisclosed, both the principal and the agent are liable. Therefore, Giorgio can either sue me or Delilah for breach of contract.

Reference
  • Dal, P. G. E. (2008). Law of agency. Chatswood, NSW: LexisNexis Butterworths.Munday, R. J. C. (2008). Agency: Law and principles. Oxford: Oxford University Press.

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