Implied agency

From CEOpedia | Management online

Implied agency is an agency created by the client and agent. Relationships between agencies can be created between two parties based on the nature of their connection. An implied agency may arise when the client places the alleged agent in circumstances where it is understood that the agent represents the client and acts on his behalf. There is an implied agency between the parent and the subsidiary, as a result of which the court finds that the parent is the owner of the enterprise run by the subsidiary to claim compensation for the disturbance caused by the local subsidiary (J. Harris 2005, p. 4). An implied agency agreement may exist between the cooperating agent and his or her client (M. Drouillard 2011, p. 85).

In an implied agency, the extent of an agent's decision-making power depends on the conditions of the position. An implied agency can be concluded from commonly accepted industry practices, previous contacts between the parties or the agent's status in the company. Agents do things for directors that they don't have the time for or are unable to do. This creates a relationship between the agent and the director. An agent may be:

  • A person
  • A partnership
  • An organization that has the legal capacity to have rights and assume the duties of acting on behalf of another person

In this way, by delegating authority hierarchies, the agency can cover all employer-employee association (M. E. Cafferky 2014, p. 20).

Implied agency costs

The implied agency costs that are imposed on the newly created capital increase with the amount of external financing required. So a negative shock for an entrepreneur's net worth leads to smaller investments, creating a link between authentic and pecuniary variables. There is a model in which entrepreneurs have a formative advantage over lenders. Only the first group can observe the results of their projects at no cost (B. Carmichael, L. Samson 2002, p. 1).

Problems with implied agency

An agent is a person who works and the client is a party affected by the operation. The problem of the director is that managers can accomplish their own goals, even at the cost of lower profits for owners. The brokerage principle emphasizes loyalty to those who have power over financial assets. In many agency associations, both the director and the agent act in good faith in fulfilling their responsibilities to each other. This consciousness prompted some to propose an alternative to agency theory, which is based on the recognition that agents are not always selfish. This theory is called the stewardship theory (M. E. Cafferky 2014, p. 20).

Examples of Implied agency

  • An example of an implied agency is when a company hires a consultant to help with a certain project. The company may not have a written contract with the consultant, but the consultant is expected to act on behalf of the company and represent its interests. This is an implied agency relationship.
  • Another example of an implied agency is when a company hires a staff member to work in a certain role. The hiring company may not have a written agreement with the employee, but it is expected that the employee will act on behalf of the company and represent its interests. This is also an implied agency relationship.
  • A third example of implied agency is when a company hires a third-party vendor to provide a certain service. The company may not have a written agreement with the vendor, but it is expected that the vendor will act on behalf of the company and represent its interests. This is another example of an implied agency relationship.

Advantages of Implied agency

  • Implied agency provides flexibility to the parties involved. It allows the parties to choose their own terms and conditions and to modify them as necessary. This can be beneficial when the terms of a traditional agency agreement are not suitable for the situation at hand.
  • Implied agency can be cost effective. Since the parties are not bound by a strict contract and can negotiate their own terms, the costs associated with setting up an agency agreement can be avoided.
  • Implied agency can allow for faster decision making. Since the parties are not bound by any legal or contractual requirements, decisions can be made quickly and easily. This is beneficial when time is of the essence.
  • Implied agency can provide greater control. Since the parties are not bound by a contract, they can make decisions on their own, without having to consult a third-party. This can be beneficial when the parties want to maintain control of the situation.

Limitations of Implied agency

  • The implied agency is not legally binding, so the parties involved do not have any legal recourse if the agreement is breached.
  • The implied agency does not create any formal obligations, so the parties involved have no legal obligation to act in accordance with the agreement.
  • The implied agency does not provide any contractual protections, so the parties involved do not have any legal protection if their rights are violated.
  • The implied agency does not provide any legal protection or guidance in disputes or in case of any breach of the agreement.
  • The implied agency does not provide any remedies for breach of the agreement, and the parties involved must rely on their own resources to seek redress.

Other approaches related to Implied agency

  • Contractual Agency: Contractual agency is based on a contract between two parties, which sets out the terms of their relationship and the roles they will perform. The agent is responsible for carrying out the tasks specified in the contract and the client is responsible for paying the agent for the services provided.
  • Ratification: Ratification is the process by which a client or principal ratifies or confirms an action taken by an agent without prior authorization. The principal may accept or reject the action of the agent, but the agent is still responsible for the action taken.
  • Estoppel: Estoppel is the legal principle that prevents a person from denying or questioning the truth of a statement or action that has been made or taken in the past. This principle can be used to create an implied agency relationship when the actions of the agent have been accepted by the principal.
  • Necessity: Necessity is the legal principle that states that an agent may be appointed to act on behalf of a principal in order to meet a pressing need or prevent a greater harm. This principle can be used to create an implied agency relationship when the agent is appointed to meet a pressing need.

In conclusion, implied agency is a relationship between two parties, which arises when the client places the alleged agent in circumstances where it is understood that the agent represents the client and acts on his behalf. There are other approaches related to implied agency, such as contractual agency, ratification, estoppel, and necessity. Each of these approaches has its own set of rules and circumstances which can be used to create an implied agency relationship.


Implied agency — recommended articles
Exculpatory Clause — Approval authority — Binding contract — Fiscal Agent — Statute barred debt — Mudaraba — Special resolution — Ex Gratia Payment — Discharge of contract

References

Author: Katarzyna Satro

Retrieved from "https://ceopedia.org/index.php?title=Implied_agency&oldid=92987"