Agency: Summary notes

Definition of agency. Agency is the relationship which arises where one per-son, the agent, is authorized to bring another, the principal, into contractual relationship with third parties. Anyone with contractual capacity can employ an agent to make his contracts for him. Note carefully the position of minors and Corporations aggregate, who may not, under certain circumstances, have contractual capacity, e.g. before a certificate of incorporation has been issued.

A person may not act as an agent unless he has authority to do so, but an act done by an agent may be ratified by a principal. Likewise a principal may be es-topped from denying an agent’s authority.

Formation of agency

Generally, the ordinary rules of contract apply, and no particular form is required unless the agent is required to enter into contracts under seal; in which case the authority must be given under seal. (An authority given under seal is known as a power of attorney)

The most common types of agency are:

  1. By express appointment — Either by power of attorney, in writing, orally
  2. By implication — Here the agency is inferred from the conduct of the parties (e.g. husband and wife).
  3. Agency by estoppel — The usual situation is where an employee is allowed by his employer to order goods on credit on his behalf and the goods are afterwards paid for by the employer. If the employee later orders goods on the employer’s behalf from the same tradesmen the employer will be liable to pay for them as he will be estopped from denying the employee’s ostensible authority.

Likewise, similar relationship may arise between husband and wife .where the wife has been allowed to pledge her husband’s credit. In such cases the husband will be bound to pay for goods ordered by the wife necessary to their standard of living. It depends upon the tradesman relying upon the husband’s credit. If the wife was forbidden to pledge her husband’s credit, or the tradesman was warned of the absence of authority or the goods were not necessaries, the presumption of agency does not arise.

4 Agency of necessity — An agency will be inferred on this ground where there is an existing contractual relationship between P and A, and A has in a moment of urgency acted beyond his authority to save P’s interests. His action must have been performed in good faith, and reasonably necessary.

Agency by Ratification. Where an agent has no authority to act on behalf of a principal, or exceeds such authority as he had, the contract is not binding on the principal. But the principal may, if he chooses, adopt and confirm the unauthorized act of the agent. Ratification has the same legal effect as if the agent had been originally authorized to act. Before a valid ratification can arise certain conditions must be fulfilled:

  1. The contract must be professed to be made on behalf of the principal.
  2.  The contract must be ratified in its entirety.
  3. There must be a competent principal at the time of the contract.
  4. The act must be capable of ratification. A void contract cannot be ratified.
  5. The principal, at the time of ratification, must either have full knowledge of everything which he intends to adopt, or he must intend to -ratify the contract whatever the facts may be.

Duties of the Agent.

These include the following:

  1.  To carry out the work he has undertaken to do according to the terms of the agreement using ordinary skill and diligence,
  2.  To acquaint his principal with all matters which come to his notice in connection with the business at hand.
  3.  To keep proper accounts and to render them to his principal on demand.He must hand over all moneys received intact unless there are deductions for agreed remuneration and necessary expenses.
  4.  The agent must himself do the work which he has undertaken, except:

(a) where the principal has expressly permitted it,

(b)   where trade usage permits it,

(c)   where is is necessary for proper performance.

(d)  where an emergency renders it necessary.

5 Not to allow his interest to conflict with his duty.

6 Not to use his position for his own personal benefit to the detriment of his principal.

(7)        Not to make a secret profit or take any bribe. In such circumstances, the principal has the following remedies:

(a)        to dismiss the agent without notice,

(b)        to refuse to pay the agent’s commission, and

(c)        to recover the bribe.

Duties of the Principal. These include the following:

  1.  To pay the agent the agreed remuneration or commission.
  2.  in indeminifying the agent against the consequences of all things lawfully done within the authority conferred upon him.

Rights of Agent.

  1.  Indemnity.
  2.   Remuneration and commission.
  3.  Lien. Certain classes of agents can hold their principal’s good in respect of their remuneration and other lawful expenses incurred in the course of execution of their duties.

Authority of the Agent.

The authority of the agent my be either express or implied. An agent’s authority extends to do in the usual way any act necessarily and ordinarily incidental to the effective execution of his express authority. Likewise an agent who carries on a trade or business has authority to do whatever is usual in the ordinary course of that trade or business. Such an authority is known ostensible.

In Watteau v Fenwic 1893 F employed,H as manager of a hotel, and H was for¬bidden by F to buy cigars for the business. In breach of this instruction, H ordered some cigars and other goods from th Plaintiff. It was held that the owner of the the hotel was bound by the manager’s act because it matched with his position.

Particular kinds of Agent

  1. Auctioneers. An auctioneer is primarily the agent of the seller but on the drop of the hammer he also becomes the agent of the buyer.
  2.  Fators. A factor is an agent if it is in the customary course of his business as such agent to sell goods, or to consign goods for sale, or to buy goods, or to raise money on the security of goods.
  3. Brokers. A broker is an agent who negotiates and contracts for the pur¬chase and sale of goods and other property. He is an agent of both parties, but he does not have actual possession of the goods.
  4. Del credere agents. A del credere agent is one who, in return for an extra commission, gives an undertaking that he will indemnify his principal if the third party introduced by the agent does not pay for the goods delivered to him.
  5.   Bankers. The general relationship between banker and customer is that of debtor and creditor. The banker may also be the agent of his customer, e.g. when he collects payment on cheques drawn on other banks which has been paid into his account by the customer.

Breach of Warranty of Authority.

If the agent acts for the principal without the latter’s authority and enters into a contract with a third party,the agent will be personally liable to the third party in damages for breach of warranty of authority whether his misrepresentation was fraudulent or innocent.

The agent is liable even if he acts in ignorance of the fact that his authority has been terminated (Yongue v Toynbee 1910).

The agent is not liable:

  1. if he has expressly denied having authority;
  2.  if the third party knows of the want of authority;
  3. if the agent’s representation does not in fact cause the third party to change his legal position;
  4.  if the agent makes it clear that he contracts as principal himself. Relationship between Principal and Agent and Third Parties

Relationship between principal and agent and third parties

  1.  Where the agent is contracting for a named principal and the third party is fully aware of the agency, then, provided that the agreement is within the agent’s authority, or has been ratified, the third pary can sue the principal. There are however exceptions to this rule:
  2.   Where the agent executes a deed in his own name, or signs a bill of ex¬change in his own name, he will be liable.
  3.  Where trade custom makes the agent liable.
  4. Where he contracts for a principal who, at the time of the contract, does not exist.

2 Where the agent discloses the existence but not the name of his principal the third party can sue the principal. But where an agent contracts in writing and does not clearly upon the face of the contract exclude his liability so that he appears upon the face of the contract to be personally liable, he will be unable to relieve himself of liability by proving that he was contracting as agent.

3 Where neither the existence nor the identity of the principal is disclosed, the doctrine of undisclosed principal arises, and when the principal is discovered , either the agent or the principal may be sued by, or sue, the third party.

The third party cannot sue both principal and agent. He must make his choice between them, and judgement obtained against one of them bars proceedings against the other.

Termination of Agency

A contract of agency may be terminated as follows:

  1. By an act of the parties

(a)   Agreement between principal and agent.

(b)  Revocation of the agent’s authourity by the principal.

(c) Renunciation of his authority by the agent.

In certain circumstances the agent’s authority is irrevocable, e.g. where he has incurred a personal liability in accordance with the terms of the contract of agency. Because it is essentially a contract for personal services specific performance of a contract of agency will not be granted. Nevertheless, if the agency is terminated by revocation the party terminating it may well be liable for damages for breach of contract. Also, the interests of third parties will not be allowed to be prejudiced by revocation.

2 By operation of law

(a)  At the end of a fixed period.

(b)   By performance, i.e. when the agent has executed all he was authorized to do.

(c)  On the death or insanity of either party.

(d)   The bankruptcy of the principal ends the agent’s authority.

(e)   In the event of supervening illegality or frustration

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