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Contract Creation and Management Assignment

2012-02-15T16:37:00.000-08:00

Contract Creation and Management Assignment

Kirk B. Carlson

Law/531

Contract Creation and Management

Cheeseman (2010) stated, “Express agency is the most common form of agency. In an express agency, the agent has the authority to contract or otherwise act on the principal’s behalf, as expressly stated in the agency agreement. In addition, the agent may also possess certain implied or apparent authority to act on the principal’s behalf”(p.461). A business owner needs to clearly define the responsibilities and authority that each employee holds. The business owner also needs to clearly state which individuals within the organization have the authority to enter into a contract on the organizations behalf. The author will discuss “The Nature of Agency video” and issues regarding express agency.

The Nature of Agency video

In the scenario described in “The Nature of Agency video” Non-Linear Pro sued Quick Takes Video for breach of contract on a three month lease agreement. Quick Takes Video leased some video editing equipment from Non-Linear Pro that didn’t operate according to Quick Takes Video expectations. Apparently when the equipment was delivered Janet an employee of Quick Takes Video mistakenly signed a three month lease agreement thinking it was a shipping confirmation request. The management of Quick Takes Video called their legal representative and discovered that it may be reasonable to assume by a third party that Janet had the authority to enter into a contract on behalf of the organization.

Authority

Within an organization employees operate at different levels of authority and there are many different types of authority. The employer can directly tell the employee what kind of decisions that they are authorized to make on behalf of the organization. Implied authority is authority that is assumed by an employee performing job duties that require a level of authority. Army Lawyer (2008) stated, "When such authority is considered to be an integral part of the duties assigned to a government employee. That authority is deemed an "integral" part of an official's duties” (p.416). Janet was in charge of receiving shipments and placing product orders with suppliers. It is reasonable to assume that Janet has authority to make decisions on behalf of the organization regarding shipments and the ordering of products. When looking at this case from Non-Linear Pro’s perspective Janet reasonably could have authority to enter into a contract on behalf of the organization. Health care risk management (2009) stated, “apparent authority also known as ostensible authority, apparent authority is the idea that the patient sometimes can reasonably assume the doctor was performing as a hospital employee even if that is not actually the case”(p.31). The sales person of Non-Linear Pro was directed by the president of Quick Takes Video to make arrangements with Janet. The president didn’t say that her authority was limited and that she couldn’t enter into a contract on the organizations behalf. The sales man reasonably could assume that Janet was authorized to enter into a contract on behalf of Quick Takes Video.

The facts

When looking at both cases each company has a legitimate case against each other that potentially could win in a court of law. Quick Takes Video leased equipment from Non-Linear Pro that did not perform according to stated specifications. Non-Linear Pro breached the terms of the contract by leasing equipment that didn’t meet the sales persons stated criteria for the equipment. Quick Takes Video breached the terms of the contract signed by Janet and Non-Linear Pro has a valid reason to pursue legal litigation. Quick Takes Video should counter sue Non-Linear Pro for breach of contract as soon as possible. Non-Linear Pro is taking an active role in trying to prevent Quick Takes Video from recouping damages from Non-Linear Pro for breaching the contract. Quick Takes Video should take a more active role in pursuing Non-Linear Pro for damages. Quick Takes Video by not acting quickly has allowed Non-Linear Pro to sue them for damages that Quick Takes Video should be getting compensated for.

Prevention

When reviewing the scenario Quick Takes Video could have prevented the company from being vulnerable to a law suit. The management of Quick Takes Video should have made an effort to clearly state which employees had the authority to enter into a contract with Non-Linear Pro on behalf of the organization. Quick Takes video should have also stated within the contract the agents that have authority to enter into a contract with Non-Linear Pro. Janet should have taken a more active role in reading the documentation that she was signing on behalf of the organization. Quick Takes Video should have pursued Non-Linear Pro for damages as soon as the organization realized Non-Linear Pro was not going to rectify the problem.

Review

The author of the paper discussed expressed agency and how Janet was acting as an agent of the organization without even knowing it. When Janet signed the contract she binds the organization to the conditions of the contract. Even though the principle didn’t sign the contact the contract is legally binding because the contract was signed by an agent of the organization. When Janet performed her daily duties she gained implied authority to sign documentation on the organizations behalf. Janet was perceived by the sales man of Non-Linear Pro of having apparent authority to sign the contract on behalf of the organization. The managements concern that Janet did not have authority to sign the contract wasn’t valid because the president gave the sales person the impression that Janet had the authority to sign the contract. Janet is clearly at fault for not reading the documentation that she is signing on behalf of the organization. Janet could have avoided the lawsuit by being more attentive to the tasks that she is performing. The author discussed ways in which Quick Takes Video could have prevented the lawsuit by clearly defining agents who had authority to enter into a contract with Non-Linear Pro. Quick Takes Video should have also clarified in writing who had authority to enter into a contract with Non-Linear Pro.

Conclusion

When negotiating a contract it is important to clarify who within the organization has authority to enter into a contract on behalf of the organization. The individuals should be clearly stated in writing to eliminate confusion. The management should clearly define to its employees what decision that the employees are allowed to make on behalf of the organization. The employees should read everything that they are signing before they sign the documentation. If the employee in doubt about signing a particular document they should refer it to upper management for review. The author has discussed “The Nature of Agency video” and how it relates to express agency.

References

Cheeseman, H. R. (2010). Business Law. Legal Environment, Online Commerce, Business Ethics, and international issues. (7th ed.). New York, New York: Pearson Education.

Authority. (cover story). (2008). Army Lawyer, (416), 4.

Ruling may up risk for 'apparent authority'. (2009). Healthcare Risk Management, 31(4), 43-44.

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