Law of Agency

• Agency


  A relationship which subsists between the principal and the agent, who has been authorized to act for him or represent him in dealings with others
• Agent


  A person employed to do an act for another or to represent another in dealings with third persons
• Principal


  The person for whom such act is done, or who is so represented
• In an agency, there are two contracts: 1) A contract between the principal and the agent. 2) A contract between the principal and the third party through the work of the agent.
• Types of agent


  • Universal agent
  • General agent
  • Special agent
• No consideration is necessary to create an agency
• Five ways to create an agency


  • Express appointment by the principal
  • Implied appointment by the principal
  • Ratification by the principal
  • Necessity, i.e. by operation of law in certain circumstances
  • Doctrine of estoppel or 'holding out'

  
• Express Appointment


  The principal expressly or specifically appoints the agent to do a particular act or to represent him in a particular transaction
• Implied Appointment


  Where a person (principal), by his words or conduct, holds out another person (agent) as having the authority to act for him
• The relationship between principal and agent may exist between husband and wife
• Partners are each other's agents when contracting in the course of the partnership business
• Ratification


  To accept or to confirm
• Effect of ratification


  The principal has the option to either accept or reject the transaction or contract made by the agent. If he accepts, he shall be liable for it. If he rejects, the agent shall be personally liable for the contract.
• Conditions for a valid ratification


  • The act or contract must be unauthorised
  • The agent must have acted on behalf of the principal
  • The principal must exist or is capable of being ascertained at the time the act was done
  • The principal must ratify the whole act
  • The principal must have full knowledge of all material facts relating to the contract
  • The principal must have contractual capacity
  • The act must not be unlawful
  • The ratification must be made within a reasonable time
  • The ratification must not injure the rights of a third party

  
• Agency by necessity (Emergency)


  There is an emergency where the agent has to act without the principal's instructions, as the agent could not reach the principal for instruction and could not wait for the principal's instructions
• Three conditions to be met for the creation of an agency by necessity


  • It is impossible for the agent to get instructions from the principal
  • The agent's action is necessary, in order to prevent loss to the principal with respect to the interest committed to his charge
  • The agent of necessity must have acted in good faith
• It is impossible for the agent to get instructions from the principal.
• Springer v Great Western Railway Co


  1. D agreed to carry the P's tomatoes from Jersey to Covent Garden market

  2. Owing to bad weather, the ship arrived late at Weymouth

  3. D's workers were on strike

  4. The tomatoes were found to be bad

  5. D decided to sell the tomatoes at Weymouth
• D did not communicate this to the P. P claimed for damages.
• P was entitled to damages because D were not agents by necessity because they have failed to communicate with P when they could have done so.
• Agent by necessity


  The agent's action is necessary, in order to prevent loss to the principal with respect to the interest committed to his charge.
• Great Northern Railway v Swaffield


  1. P had been entrusted to deliver a horse of D but when it reached the destination, nobody came to take the horse

  2. P had to look after the horse and then claimed from D the extra expenses incurred

  3. D refused to pay on the ground that P was not authorized to do so
• P was an agent by necessity and therefore entitled to the claim.
• Estoppel


  Estoppel means a person is prevented from denying what he has said or done
• Agency by estoppel


  • When the principal by his words or conduct, allows a third party to believe that a particular person (A) is his agent
  • Although A is not an agent, the third party believes that A is an agent
  • Consequently, the third party will deal with A on the belief that A is representing the principal
  • The principal cannot later deny that A is his agent – estoppel applies
  • The principal is thus bound by A's action
• Representation by principal


  • There must be a representation by the principal to the third party
  • The representation may be by words, conduct or silence
• The court held that although K had no actual authority to employ the plaintiffs, the company is still bound by the contract as it had created an impression that K is a director by allowing him to act as managing director. Thus, the company was estopped from denying that K was a director and had the authority to contract for the company.
• Agency is a relationship that involves three parties – the principal, the agent and the third party.
• The agent act as a middle man to facilitate the contract or transaction between his principal and the third party.
• Consequently, an agent incurs no personal liability as long as he acts within the scope of authority given to him by the principal.
• An agent's act is binding on the principal if it is done within his authority.
• An agent's act is not binding on the principal if it is done in excess of his authority.
• Actual Authority


  • Actual authority is the authority that is given to the agent by the principal through an agreement
  • Actual authority comprises of authority expressly given by the principal to the agent orally or in writing
  • Authority impliedly expected from an agent
• Apparent/Ostensible Authority


  • This type of authority arises where the principal had led a third party to believe that an agent has authority to do a particular act on behalf of the principal
  • The principal is estopped from denying his words or action in leading the third party to contract with the agent
• Apparent authority may arise in two situations: where a principal, by his words or conduct, leads a third party to believe that his agent has authority to make contracts for him, and where the agent previously had authority to act, but that authority was terminated by the principal without notice to third parties.
• Difference between Implied Authority and Apparent Authority


  • Implied authority is based on the inferences drawn from an agreement between principal and agent
  • Apparent authority is based on the representation made by a principal to the third party irrespective of any agreement between principal and agent
• The principal is liable if the agent is acting within his actual or apparent authority, even if the agent commits fraud or misrepresentation.
• A third party cannot rely on apparent authority if he knew or ought to have known that the agent did not have the authority in question.
• Undisclosed principal


  • An agent might deal with a third party without informing him that he is in fact acting for someone else
  • The third party would assume that the agent is making the contract for himself
  • The third party will be bound by the contract even if he later discovers the existence of the real principal
• Apparent authority


  When a principal is bound by the acts of an agent who does not actually have authority, if the principal knew or ought to have known that the agent did not have the authority in question