The Law of Agency


The Law of Agency is an country of commercial jurisprudence that trades with fiduciary relationship between a individual ( principal ) harmonizing governments, implicitly or expressly, to another individual ( agent ) to move on his behalf to make a legal dealingss with a 3rd party. The relationship between an agent and a chief possibly contractual, non-contractual or quasi-contractual depending on the occupation description or service offered ( Davant, 2002 ) . The principal is therefore bound by the contract understanding between him and the agent every bit long as the agent acts within the stipulated governments accorded to him. For any concern or corporation to spread out, agents are required in covering with the 3rd party on behalf of the employer ( Jennings, 2012 ) . Thus an agent is accorded authorization to stand for the principal when covering with a 3rd party.

In covering with the 3rd party an agent may be allowed to exert governments given to him either expressly ( moving on behalf of the principal expressly on the conferred instructions given to him ) , implicitly ( an authorization an agent has by ground of being able to exert his responsibilities, sometimes through place assumed in the organisation ) or evident authorization an agent may exert, which may non be necessary conferred to him by the principal ( this rule is called evident authorization or jurisprudence by estoppel and holds chief apt when a 3rd party is made to believe that the principal has an agent ) . An agent in a higher place in the corporation may move on behalf of the principal, and convert a 3rd party of the evident authorization exercised even without the principal’s consent ( Davant, 2002 ) . The 3rd party may be wrongly convinced that an agent, though non needfully expressly or implicitly accorded governments, has the existent governments to cover with the 3rd party.

The powers and governments accorded to the agent by the principal to move on his behalf are wholly to profit the principal and non the agent or 3rd party therein. However, the agent may move implicitly or seemingly, and therefore the principal is bound to be apt to the agent’s actions and behaviors when acted within the governments accorded to him. The principal may besides incur liability when the agent deliberately harms a 3rd party ( Jennings, 2012 ) . The principal and the agent are apt for any loss or amendss caused to the 3rd party if the agent and principal’s individuality are partly or to the full unrevealed when covering with the 3rd party. A chief must indemnify the agent for any amendss caused to third party if the agent acted within the existent governments confided to him. The agent though, must indemnify the principal of any payments for any governments exercised outside the stipulated existent or evident governments allowed. Fraud, extortion and other ailments though may bechance the 3rd party when an agent assumes built-in powers by virtuousness of agent – third party dealingss. A popular and good illustration of this sort of scenario is the Colorado Supreme Court instance of Grease Monkey vs. Montoya ( Jennings, 2012 ) .

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Grease Monkey Holding Corporation is a Utah based corporation and Grease Monkey International Company is a to the full owned subordinate of Grease Monkey Holding Company. Arthur Sensenig was the President, Chief Operations Officer ( COO ) and Chairman of the Boards of Grease Monkey International, Inc. on a period between 1983 through 1991. He had wide governments and acted as agent and main officer of Grease Monkey. Sensenig was mandated with raising capital from Bankss and other loaners, up to $ 500,000 without the Boardss blessing ( Davant, 2002 ) .

Between 1983 through 1991 Sensenig was able to extort money from Nick and Aver Montoya under the pretense that it was an investing to Grease Monkey. Furthermore, Sensenig managed to convert the complainant that Grease Monkey was a new and approaching company without an history hence as President and Chairman of the Boards, all financess were directed to his personal history as corporate history ( Miller, 2015 ) . Sensenig went every bit far as composing promissory notes, mailed respondents with the corporation’s letterheads, naming to inform them of the growing of their investing and giving them promotional points like caps and pens. Sensenig defaulted in paying the Montoyas the chief sums of these loans and neither did the full payment of the involvement due on the loans were settled.

The Montoyas filed a ailment against Grease Monkey as Sensenig’s employer, for fraud, breach of contract, deceit, breach of responsibility of good religion and just dealing, promissory estoppel, extreme and hideous behavior and carelessness hiring and supervising. On test the tribunal merely adopted the fraud and deceit claims andfound out that ; the respondents believed they were puting in Grease Monkey, Sensenig’s representation to the respondents was false in which the respondents punctually relied on, Sensenig was moving within his evident authorization when he made the false representation refering the investing and Grease Monkey was therefore apt for the investing. The test tribunal concluded utilizing Section 261 of the Restatement ( Second ) of Agency rule which states that ‘a principal who puts a retainer or other agent in a place which enables the agent, while seemingly moving within his authorization, to perpetrate fraud to 3rd individual is capable to liability to third individual for the fraud, ’therefore set uping Grease Monkey as apt ( Davant, 2002 ) .

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The principal is hence apt though did non hold anterior cognition of the fraud, did non authorise the dealing and did non have any benefits from the dealing. The principal’s liability lies when the agent acts with purpose to function his employer’s involvement and act within his authorized act ( Miller, 2015 ) . The tribunal hence established Grease Monkey apt since as its President, Sensenig acted within his evident authorization commonto a individual at his place and was granted that place by Grease Monkey. Furthermore, the tribunal found substanciable grounds that Sensenig, as Grease Monkey’s President, was authorized to obtain loans on behalf of the corporation, up to $ 500,000without the Board’s blessing. This research therefore agrees with the court’s determination to allow the Montoyas compensation for the amendss incurred.

Grease Monkey erred in harmonizing extensile governments to her President and lacked subsequent inadvertence over his actions. The free will to borrow on the company’s behalf should hold been replaced by a compulsory declaration that every act of borrowing be followed by a Board’s blessing ( Miller, 2015 ) . The company should hold laid down concise existent authorization and clear occupation description with which her President, or seemingly the agent, was mandated to move within its boundaries. The company besides farther erred in allowing a individual mandated with administrative undertakings to presume a gross revenues and selling function, which seemingly may non be his occupation description ( Davant, 2002 ) . Furthermore, the company failed to set up a strong legal model with its clients and borrowers refering payments made to the company hence Sensenig utilized this loop hole to make a benefit for himself. A clearly written grounds of Board enquiry and inadvertence would hold been of import in this instance.

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The Montoyas fell into a inexpensive trap for avoiding simple but indispensable stairss when covering with a company refering fiscal affairs. Because of old dealingss between the Montoyas and Sensenig, the old could hold avoided such scenario by using a legal contract that should hold bound their minutess. This could hold exposed Sensenig’s strategy since such activity would hold to be exposed to the Boardss and would necessitate blessing from a 3rd party. The Montoyas entered into the dealing with Sensenig as a ‘friend’ footing which Sensenig manipulated the opportunity. The Montoyas could hold besides sought for more information from the gross revenues and selling or the legal squad behind Grease Monkey in order to set up the corporation President’s claims. The Montoyas, clearly, may non hold been cognizant of the merchandises and services offered by Grease Monkey hence were easy duped, anterior information of this would hold been of import to avoid their loss.


Davant IV, C. ( 2002 ) . Employer liability for employee fraud: Apparent authorization or respondeat

superior.SDL Rev.,47, 554.

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Jennings, M. ( 2012 ) .Business: Its legal, ethical, and planetary environment. Mason, OH: South-

Western Cengage Learning.

Miller, R. ( 2015 ) .Business Law Today, Standard: Text & A ; Summarized Cases. Cengage acquisition.

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