View the video in this week’s lecture on agency and then discuss the following questions.

Who is the principal in this situation?

Who is the agent in this situation?

Is the agency express or implied?

Video

Agency/voice of Entity Page 1 of 4 www.verbalink.com Page 1 of 4 [Music Playing] Recorded Voice:

Nonlinear Pro has filed suit against Quick Take Video to collect money it claims is owed on a lease for editing equipment. But at least one Quick Take executive has been left in the dark.

Karen: How long have we been partners?

Hal: Eight pretty damn successful years. Why? What’s the problem?

Karen: We’re being sued and I find out about it from a secretary. I at least think you owe me the courtesy of telling me when this company is in legal trouble.

Hal: Now hold on, it’s not that bad. I didn’t tell you because I didn’t want you to get upset. You’re our ace salesman we need you focusing on that not some shop problem.

Karen: Hal, don’t patronize me. I am just as capable as running this place as you are, don’t forget it. Now what’s this little problem all about? Mary says it’s because we didn’t pay for some equipment?

Hal: [Chuckles] Great, if they’re going to gossip I wish they’d get the facts right.

Karen: You know cash flow is a problem and so does everybody else.

Hal: Yeah, well, this doesn’t have anything to do with that. We got a new video editing system on a trial basis. It turned out to be a piece of junk and uh, now they’re trying to charge us for three-month lease when we had it for less than a month.

Karen: Oh, how do they think they can sue us over a lease we didn’t sign?

Hal: Well, it [sighs] it turns out Janet did sign it.

Karen: Oh. Hal: In her defense she thought it was a delivery slip.

Karen: Well, if she signed it, we can’t be accountable, can we? We own the company and we didn’t sign and lease.

Hal: Yeah, I never thought of that. Let me see if I can get Henry. [calls on phone] Agency/Voice of Entity Page 2 of 4 www.verbalink.com Page 2 of 4 Henry: Henry.

Hal: Uh yeah, Henry its Hal Boylston at Quick Take Video.

Henry: Hi, Hal.

Hal: Yeah. Um, I got a quick question. Henry: Have you made up your mind?

Hal: No, we haven’t decided to counter sue if the arbitration doesn’t work out. But uh, I got Karen here with me.

Henry: Yeah. Hal: And she brought up the point that as neither she nor I as owners as partners in the company signed any kind of a lease with Nonlinear Pro how can what they’re doing be legal?

Karen: I was out in LA when this went down. How can we be held responsible? [Music Playing]

Henry: Janet was acting on your behalf. In law she’s considered your agent so whatever she does binds the company.

Karen: She is not my agent. She had no authority to do this.

Henry: Tell me, who orders your supplies and signs for them?

Hal: Well, that depends on the supplies. I mean Janet orders tape stock stuff like that.

Henry: Uh-huh. Hal: I mean I don’t personally order everything we need.

Henry: Well, the line might be fuzzy, but I think if we try to claim that uh, she had not authority we may well lose. I’ll have to check but didn’t you say in your statement that you left Janet to work out the details with that salesman?

Hal: Yeah. Agency/Coice of Entity Page 3 of 4 www.verbalink.com Page 3 of 4

Henry: That may well be construed as giving her the authority. I think we should stick with our original grounds that product simple didn’t work as intended.

Hal: Have you gotten anywhere with your offer to go to arbitration?

Henry: No, I still haven’t heard back yet.

Hal: Okay. Uh, Karen, you have any more questions?

Karen: No. I still think it’s unfair. Thanks for your time, Henry. Bye.

Henry: All right. Bye-bye. Hal: Don’t thank him for his time he’s billing us, probably for a full hour.

Karen: But that didn’t even take five minutes. [Music Plays]

Female Voice: Express agency is that agency that is – or that authority that’s directly given to an agent. Now the reason we’re looking at an agency relationship, we have two parties involved. We have the principle and then we have the agent. And the agent is the person who acts on behalf of the principle. The agents, the agent has the power to legally bind the principle. So the principle has to be very careful in terms of what kind of authority the principle actually gives to the agent.

Now with implied authority we have a situation where the principle has not necessarily directly told the agent that he has this kind of authority. But it’s the kind of authority that somebody in that agent’s position would ordinarily have, and it would be reasonable for third parties to assume that that agent would have that kind of authority.

Announcer: A key question is whether or not Janet had the authority to legally bind Quick Takes.

Female Voice: In that case she probably has some implied authority because of the fact that she does a lot of buying for the partnership. She would also have another kind of authority and that’s what we call a parent authority. And a parent authority is where the principle, by his behavior, creates the impression that the agent has perhaps more power than the agent really has. For example, in this Agency/Coice of Entity Page 4 of 4 www.verbalink.com Page 4 of 4 scenarios where Hal told the salesman that you can make the arrangements with her. Maybe she didn’t have – she didn’t have the authority to enter into a contract on the firm’s behalf, but because of the fact that he told the salesperson make the arrangements with her that creates the impression that she has more contracting authority than perhaps she really does. And because he has created that impression now the third party can rely on that. Unfortunately, with a small business the employees often end up doing a lot more than they might in a larger corporation and so therefore, there’s a lot more implied authority vested in the workers in a small corporation.

I think that one of the things that a company would want to do is if they have people with whom they regularly do business, if they have other corporations, for example with whom they regularly have contractual relationships. They should make it clear to those third parties exactly what the extent of authority of the agents are. And so in that way there’s no confusion.

Another thing that is important for the small business to do is that whenever they send out contracts if they have an employee who they want to just negotiate contracts but who doesn’t have final contracting authority. When they send out bids, for example, it should be clearly stated on that offer that a contract is not formed until it has been approved by the president or the treasurer or whoever has contracting authority