Commerce has been with the world since time immemorial.
From the times of the Stone Age and thereafter when barter trade was the preferred mode of acquisition of needed items, through till the period in history when the concept of currency was introduced as the medium of exchange, we have constantly sought for a mechanism to ensure that transactions are fair to both parties.
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Barter proved to be a smart way of getting what you wanted until the following challenges and more were identified:
- Double coincidence of wants – this implied that each of the two parties needed to have what the other needed and that the respective quantities should have been judged to be proportional.
- Movement of goods – Barter implied that goods had to be carted from one place to another. This proved to be inconvenient for the traders.
- Lending – Lending became a major obstacle to barter as commodities were usually not identical, and as such, assessment of exchange was a challenge.
- Saving – It became almost impossible to save as items were mostly perishable and as such, could not last for long.
These challenges and more stimulated the need to adopt a common medium of exchange that would be acceptable by all, and then, the currency question came in. With the advent of money, and later, electronic modes of payment for goods and services, traders could now work with each other in relative comfort.
But then came another phenomenon which necessitated the need to adopt written or established legal procedures to do business.
Some of these merchants, upon realizing the comfort the adoption of a common currency brought in, formed partnerships or agencies in a bid to pull human resources together, so as to ensure greater returns; principal-agent relationships became the order of the day.
Formation of a principal – agent relationship could materialize through several ways; listed below are a few of them:
- By agreement – Two parties, the principal and the agent, either orally or in a written mutually – binding document, agree that they would transact business with each other, in accordance with the roles specified in the agreement policy.
- By implication – This arises when no written or oral contract is prepared, but, the nature of the relationship between the two parties metamorphoses into a principal – agent liaison.
- By necessity – A principal – agent relationship can also arise out of necessity, when one (the agent), as per the current events, may decide to act for or on behalf of the principal. This occurs, especially in an instance of perishable commodities.
- By Estoppel – Here, a principal convinces a third party that he has in agent working on his behalf, which may not be true, but merely, indicated so, for the purpose of progress of the transaction. The “agent” is then “forced” to act on behalf of the principal, so that a condition may exist which would facilitate the execution of the transaction.
- By ratification – The agent acts on behalf of the principal, though no such agreement has existed. The principal then agrees to formally accept the role the agent plays, so as to continue to do business with him.
- By co – habitation – Co – habitants can assume principal – agent relationships without the need for an express formal agreement.
The law of agency creates the necessary working conditions for business relationships between a principal and an agent, and when the due process is followed to the letter, both parties immensely benefit from this relationship.
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