Agency Law

An agent (A) is a person who has been authorized, either expressly, by conduct or by implication, to act for another party which is called the Principal (P). The agent is making and entering into legal relations with a third party on behalf of the principal. The resulting contracts are therefore made between the Principal and the third party and not directly with the agent..

An agency relationship exists in lots of situations: A director acts as an agent for his company. A partner acts as an agent for his partnership. An estate agent is appointed by a seller of a house to find a buyer. A travel agent is appointed by a holiday company to make bookings with customers.

Principal

Agent

3rd Party

By Express agreement
By Estoppel By Implied agreement

By Ratification

By Necessity

Principal expressly appoints the agent Verbally or In Writing. Generally in writing contracts are preferred because exact nature and scope of the relationship can then be set down.

 An

agent is not expressly appointed by the Principal to work on his behalf but agency is implied to have established from the relationship between the parties or from their conduct.

 This

requires four conditions to be satisfied: Principal property is entrusted to Agent Emergency arises making it necessary for agent to act In Principal interest Not possible for agent to communicate with Principal

Mr Swaffield sent his horse by railway to a station at Sandy. The horse arrived late at night, and the railway company lodged the horse overnight for their own account at a livery stable. Mr Swaffield failed to collect it on the following morning. The only basis on which he was prepared to give any instructions about the fate of his horse was that the railway company assumed all responsibility for storing and delivering it to him from the time of its arrival at Sandy. After four months of this, the railway company lost patience. They unilaterally delivered the horse to Mr Swaffields farm and then sued him for the livery charges to date.

A situation in which a person or company inaccurately claims to be an agent for another person or company and conducts some act in that capacity, but which the Principal (who is not actually a Principle) later accepts and recognizes. Because the agent is not actually an agent, any act he/she conducts on behalf of the Principal ordinarily would be invalid; however, agency by ratification exists because the "Principle" confirmed the act.

A situation in which a person or company inaccurately claims to be an agent for another person or company and conducts some act in that capacity, but which the Principal (who is not actually a Principle) later accepts and recognizes. Because the agent is not actually an agent, any act he/she conducts on behalf of the Principal ordinarily would be invalid; however, agency by ratification exists because the "Principle" confirmed the act.

In order for a Principal to ratify the contract : Principal should have exited at the date of contract Principal should have the legal capacity to fulfill the contract Principal should ratify whole contract Principal should ratify with in reasonable time Ratification must be communicated to third parties

Facts Promoter of the company entered into the contract on the behalf of the company before it was incorporated , to purchase some property and third party was not paid . Decision Company did not exist at the time when contract was made , the company could not ratify the contract, the promoter were personally liable to the seller.

Agency may be created without express or implied agreement this arises when Principal holds out to third parties that a person is their agent, even if the Principal and the agent have not as such agreed to form such a relationship. It must be the Principal not the agent who does the holding out and third party must have relied on the facts as held out. If this is so Principal is Estopped from denying that the agent in indeed their agent.

Defendant Company had 4 directors, none of whom had been appointed as the Managing Director. One Director who effectively ran the company entered in various contracts with the claimants On previous occasions, the board on behalf of the company has honored the contract and paid the claimant. But this time the board refused to pay.arguing that the director had NO Expressed authority to make a contract because he was not the Managing Director. Held : Director had acquired authority by Estoppel, by honoring the previous similar contract in the past, the company had given the impression that the director had the authority to make this sort of contract. The claimants had relied on this representation by continuing to deal with the director when purporting to act on behalf of the company.

 What

is the authority of the agent ?

Express authority
Implied authority Apparent authority

In this instance, when the principal/agency relationship is established, the agent is instructed as to what particular tasks are required to be performed and is informed of the precise powers given in order to fulfill those tasks. If the agent subsequently contracts outside of the ambit of their express authority then they will be liable to the principal and to the third party for breach of warrant of authority (see below). The consequences for the relationship between the principal and third party depends on whether the third party knew that the agent was acting outside the scope of their authority. For example, an individual director of a company may be given the express power by the board of directors to enter into a specific contract on behalf of the company. In such circumstances the company would be bound by the subsequent contract but the director would have no power to bind the company in other contracts..

It frequently happens that an agent is expressly assigned a task to accomplish, but the minor details are not spelled out in the oral or written authority given to him. It can be safely assumed that the agent has implied authority to do what must be done in order to accomplish the purpose of the express agency. This refers to the way in which the scope of express authority may be increased. Third parties are entitled to assume that agents holding a particular position have all the powers that are usually provided to such an agent. Without actual knowledge to the contrary they may safely assume that the agent has the usual authority that goes with their position.

Watteau Vs Fenwick Fred owned a hotel. He sold it to the defendants, who then hired him as the hotel manager. Fred continued to hold the license for the hotel, which was placed over the door. The claimants in the case supplied cigars to Fred on credit. The claimants believed Fred was the hotel owner. They didnt know that the defendants (the actual owners), whom they had never heard of, had forbidden Fred to buy cigars on credit. The claimants learnt of this and sued for the outstanding amount. Courts decision: The court declared that a manager of such an establishment had authority to purchase cigars. If limitations where imposed on this authority, then these limitations needed to be communicated to third parties to make the limitations effective.

Watteau v Fenwick Fact : The New Owner of a Hotel continued to Employ the Original Owner as the Manager In the agency agreement the New owner ordered the A NOT to buy certain items including Cigars Held : The purchase of cigars was within the usual authority of manager of a Hotel. Also the restriction was NOT communicated to the world at large, before the contract was made. There can be 2 outcome A liable to P 1 also P liable to 3rd party A liable to 3rd party 2 In the above case the 1st solution was undertaken

This type of authority, which is an aspect of agency by estoppel, can arise in two distinct ways: (i) Where a person makes a representation to third parties that a particular person has the authority to act as their agent without actually appointing them as their agent. In such a case the person making the representation is bound by the actions of the ostensible/apparent agent. The principal is also liable for the actions of the agent where they are aware that the agent claims to be their agent and yet does nothing to correct that impression (ii) Where a principal has previously represented to a third party that an agent has the authority to act on their behalf..

To create the wider ostensible authority 1) It must be the company that make the representation as to wider than usual authority 2) The representation must be one of fact ,no law . 3) The representation must be made to third parties. 4) The third party must in fact have relied on the representation 5) The third party must have altered their position as a result of relying on the representation.

It is not necessary for the Principal to be Identified to the 3rd Party General Rule Contract is between the Principal and the 3rd party. Agent is neither liable nor entitled under the contract. Agent will be personal liable in the following exceptional circumstances : Personal Undertaking Agent showed an intention to undertake personal Liability (Personal Undertaking) Refusal by A (himself) Agent refuses to identify the Principal Fictitious P Agent is acting on behalf of a Fictitious Principle.

An undisclosed principal is where the principals existence has not been made known to the third party. When the third party discovers the existence of P, he can elect to treat P or A as bound by the transaction.

1)

2)

3)

4)

Fiduciary relationship is to take Good Care of P Assets, by acting in the Best Interest of the P Following consequences : (A-BSP) A Accountable for Assets Held A has a Duty to Account to P for all money and property received. B Best interest A must Always act in the Best interests of P. S Secret Profit A Must NOT make a Secret Profit. P Personal Interest, (Self interest) A must NOT allow his Personal Interests to Conflict with

Repudiate Contract by Principal , (Principal can repudiate the contract with the 3rd Party.) Dismissal W/O Notice, (Agent can be dismissed without notice) Refuse to Pay Agent, (Principal can refuse to pay any money owed to Agent or Recover any money already paid.) Recover From Agent (Principal can recover any secret profit made or any bribe)

1. Remuneration/Commission(To claim Remuneration of Commission for the services performed.) 2. Reimburancement (To claim an indemnity against P for all expenses reasonably incurred in carrying out his obligations.) 3. Lien Over Property (To exercise a Lien over P's property. The lien allows the agent to retain possession of P's property that is lawfully in A's possession until any debt to A (e.g. arrears of remuneration) have been paid by P. )

By acts of the parties agreement, completion of duties or passage of time. By operation of law - on the death, bankruptcy or insanity of P or A

December 2007 December 2011