Agency plays an essential role in business practices around the globe. The relationship between agents and principals is guided by certain specific rules and principles. However, there is uncertainty concerning the scope of liability between the principal and the agent concerning various actions authorized or unauthorized by the principal. An agent receives either an explicit authority or an apparent authority when acting on behalf of the principal. When an agent acts within the jurisdiction of his authority, the principal is bound by such agreement. The principle of estoppels creates provisions where the principal may be estoppled from denying the acts of the agent (Mann & Roberts, 2012). However, a third party cannot hold the principal responsible for acts, which are not within the express, or the implied authority of the agent.

On termination of the agency relationship, the principal will not be liable for any act of the agents having given the third parties notice on the repudiated contract. However, the principle is bound by any unauthorized acts of the agent unless the limitations of his authority to the third parties are known with certainty. The principal will also be liable for any acts of tort that the agent performs within the jurisdiction of his authority. When an agent acts contrary to the provisions provided in the agency relationship, such acts may bind the principal unless the third party had knowledge that the agent was exceeding his agency authority (Mann & Roberts, 2007).

The rules regarding the liability of the principle are fair. These rules are essential in determining who bears the liability to the third party in case a torturous act. The rules are also essential in guiding the conducts of the third parties when conducting business with an agent. In addition, the rules are essential in define the roles of the principal, agent and the third parties in the conduct of business practices (Miller & Jentz, 2010).

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