Imputation law: Encyclopedia II - Imputation law - Agency

Imputation law - Agency

In the majority of agency situations, Agents must be allowed some degree of discretion in the conduct of routine transactions. Hence, there is no need to seek specific authorisation for every deal or detail within a deal. But, when the Agent acts with actual or apparent authority, all the Agent's knowledge will be imputed to the Principal. If Principals were allowed to hide behind their agents' own ignorance, mistakes or failures to communicate, a Principal could, by using an Agent, achieve a better result than if he or she had acted personally. For example, if the particular deal turned out well, the Principal could adopt the transaction. But, if it turned out badly, the Principal could desavow it. Indeed, were it not for imputation, there would be a perverse incentive to conduct business through Agents rather than personally. Consequently, the Principal cannot exploit ignorance to his or her own advantage by instructing the Agent to withhold key information or by appointing an Agent known to be secretive.

This rule in favour of imputation relates to the generality of the duties an Agent owes to a Principal, in particular the Agent's duty to communicate material facts to the Principal. Since the purpose of the law is to offer protection to Third Parties who have acted in good faith, it is reasonable to allow them to believe that, in most cases, the Agents have fulfilled this duty. After all, the Principal selects the Agents and has the power to control their actions both through express instructions and incentives intended to influence their behaviour which will include laying down routines for how Agents should handle information, and the extent to which Agents will be rewarded for transmitting information of commercial value. The result is a form of strict liability in which the legal consequences of an Agent's acts or omissions are attributed to a Principal even when the Principal was without fault in appointing or supervising the Agent.

Adapted from the Wikipedia article "Agency", under the G.N U Free Docmentation License. Please also see http://en.wikipedia.org/wiki