Question

Explain, in your own words, why a principal is held liable for the actions of an agent. Your answer should address:

Who is harmed if the principal is not liable.

Identify two consequences to contract negotiations if the principal is not liable.

Answer 1

Answer:

Principal is held liable for the actions of an agent because Principal owes the agent’s duties in contract, tort and statutorily – workers compensation law. It is the principal who select and assigns an agent for his firm or business. The Principal assign the role and responsibility to the agent and authorize the agent to perform assigned works as per agreed terms and conditions of the contract. It is the responsibility and accountability of the principal that he ensures that his agent executes his roles and responsibilities. But if the agent is not able to complete the assign tasks / roles, then the principal is liable, as the principal is the owner of the firm or business and principal has overall responsibility, accountability and liability for his firm/business.

The agent or the third party will be harmed if the principal is not liable. In the agency concept, the principal authorizes the agent and agent works with the third party. So principal, agent and third party are interlinked in the agency business. Principal owns the overall moral accountability, responsibility and liability. Principal authorizes the agent and agent is dealing with the third party. If the principal is not liable, then agent may be liable or the third party will be made liable.

Identify two consequences to contract negotiations if the principal is not liable are as below

• Consequence one: - When principal is not liable, then it is mentioned in the contract agreement between the agent and principal, that the agent will be liable for the assigned roles and responsibilities as per the contract. This result in the liability of agent for the dealing he is doing with the third party.

• Consequence two: - When principal is not liable, then the it is mentioned in the contract agreement between the agent and principal. Then the agent may have contract with third party in such a way that the third party will be made liable as peer the terms and conditions of the contract between agent and the third party. This may result that third party may not accept with this type of contract with agent and the firm.