In: Operations Management
Provide four ways in which an agent can bind a principal to contracts entered into by the agent.
Ways in which the principal can be bound to a contract entered by the agent:
1. Express agency: If there is a contract between the principal and the agent, where the principal has granted power of attorney to the agent giving him the right to make decisions on his/her behalf. In this case, the principal is bound to that particular contract.
2. Implied agency: Cases where the agent is represented as someone who has the authority and is the principal. Although there is no agreement or contract between the agent and the principal, due to specific circumstances implied agency applies and the contract entered by agent binds the principal.
3. Necessity agency: Cases where the agent has undertaken some actions or expenses which were necessary at that moment binding the principal to the contract.
4. Employment: Every employee is an agent of his/her employer. If an employee agrees to something with the client it is assumed that he/she is acting on the principal's behalf, making the employer/principal bound to the contract.