AGENCY

Definition of Agency An agent is a person who is empowered to represent another legal party, called the principal, and brings the principal into a legal relationship with the party. It should be emphasized that the contact entered into is between the principal and the third party. In the normal course of events, the agent has no personal rights or liabilities in relation to the contact. This outcome represents an accepted exception to the usual operation of the doctrine of privity in contract law. Since the agent is not actually entering into contractual relations with the third party, there is no requirement that the agent has contractual capacity, although, based on the same reasoning, it is essential that the principal has full contractual capacity. Thus, it is possible for a principal to use a minor as an agent, even though the minor might not have contractual capacity to enter into contract on their own behalf. Examples of agency relationships. Estate agents and travel agents are expressly appointed to facilitate particular transactions. Employees may act as agents of their employers in certain circumstances.

A general agent, as the title indicates, his power to act for a principal generally in relation to a particular area of business, whereas a special agent only has the authority to act in one particular transaction.

A del credere agent is one who, in return for an additional commission by way of payment, guarantees to the principal that, in the event of a third partys failure to pay for goods received, the agent will make good the loss.

A commission agent is a hybrid from which lies midway between a full principal/agent relationship and the relationship of an independent trader or client. The agent stands between the principal and the third party and

establishes no contract between those two parties. The effect is that the commission agent owes the duties of an agent of his or her principal, he or she contracts with third party as a principal in his or her own-right.

The position of a mercantile agent/factor is defined in the Factors Act 1889 as an agent: having in the customary courses of his business as such agent authority either to sell goods, or to consign goods for the purpose of sale, or to buy goods, or to raise money on the security of goods.

Marketing agents have only limited authority. They can only introduce potential customers to their principals and do not have the authority either to negotiate or to enter into contracts on behalf of their principals.

Distribution agents are appointed by suppliers to arrange the distribution of their products within a particular area. The distributers ordinarily cannot bind the supplier, except where they have expressly been given the authority to do so.

Franchising arrangements arise where the original developer of the business decides, for whatever reason, to allow others to use their goodwill to conduct an independent business, using the original name of the business.

Commercial agents are specifically covered by the Commercial Agents Regulations 1993, which were enacted in order to comply with EC Directive 86 / 653. The Regulations define a commercial agent as a selfemployed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person, or to negotiate or conclude such transactions on behalf of that person.

A power of attorney arises where an agency is specifically created by way of a deed.

CREATION OF AGENCY
No one can act as an agent without the consent of a principal, although consent need not be expressly stated. In White v Lucas (1887), a firm of estate agents claimed to act on behalf of the owner. It was held that the estate agents had no entitlement to commission, as the property owner had not agreed to their acting as his agent. The principal / agent relationship can be created in a number of ways. It might arise as a distinct contract, which may be made orally or in writing or it may be established purely gratuitously, where some person simply agrees to act for another. The relationship may also arise from the actions of parties. 1) Express Appointment In this situation, the agent is specifically appointed by the principal to carry out a particular task or to undertake some general function. In most situations, the appointment of the agent will itself involve the establishment of a contractual relationship between the principal and the agent, but need not necessarily depend upon a contract between those parties. For the most part, there are no formal requirements for the appointment of an agent, although, where the agent is to be given the power to execute deeds in the principals name, they must themselves be appointed by way of a deed (that is, they are given power of attorney).

2) Ratification

An agency is created by ratification when a person who has no authority purports to contract with a third party on behalf of a principal. Ratification is the express acceptance of the contract by the principal. Where the principal elects to ratify the contract, it gives retrospective validity to the action of the purported agent. There are, however, certain conditions which

have to be fully complied with before the principal can effectively adopt the contract as follows:
The principal must have been in existence at the time that the

agent entered into the contract. In Kelner v Baxter (1866), where promoters attempted to enter into a contract on behalf of the as yet unformed company, it was held that the company could not ratify the contract after it was created and that the promoters, as agents, were personally liable on the contract.
The principal must have had legal capacity to enter into the

contract that it was made when the capacity of the companies to enter into a business transaction was limited by the operation of the doctrine of ultra vires, it was clearly established that they could not ratify any such ultra vires contracts. Similarly, it is not possible for minors to ratify a contract, even though it was made on their name. An undisclosed principal cannot ratify a contract The agent must have declared that s/he was acting for the principal. If the agent appeared to be acting on his or her own account, then the principal cannot later adopt the contact. The principal must to adopt the whole of the contract It is not open to the principal to pick and choose which parts of the contract to adopt, they must accept all of its terms. Ratification must take within a reasonable time It is not possible to state with certainty what will be considered as a reasonable time in any particular case. Where the third party can with whom the agent contracted becomes aware that the agent has acted without authority, a time limit can be set, within which the principal must to indicate their adoption of the contract for it to be effective.

3) Implication This form of agency arises from the relationship that exists between the principal and the agent and from which it is assumed that the principal has given authority to the other person to act as his or her agent. In panorama Developments v Fidelis Furnishing Fabrics Ltd (1971) that a company secretary had the implied authority to make contracts in the companys name relating to the day running of the company.

4) NECESSITY Agency by necessity occurs under circumstances where, although there is no agreement between the parties, an emergency requires that an agent take particular action in order to protect the interests of the principal. The usual situation which gives rise to agency by necessity occurs where the agent is in possession of the principals property and, due to some unforeseen emergency; the agent has to take action to safe guard that property: In order for agency by necessity to arise, there needs to be a genuine emergency In Great Northern Railway Co v Sawffeild (1874), the railway company transported the defendants horse and, when no one arrived to collect it as its destination, it was placed in a livery stable. It was held that the company was entitled to recover the cost of stabling, as necessary had forced them to act as they has done as the defendants agents. There must also be no practical way of obtaining further instructions from the principal. In Springer v Great Western Railway Co(1921). It was held that the railway company was responsible to the plaintiff for the difference between the price achieved and the market price in London. The defence of agency of necessity was not available, as the railway company could have contacted the plaintiff to seek his further instructions.

The person seeking to establish the agency by necessity must have acted bona fide in the interest of the principal.

5) ESTOPPEL

This form of agency is also known as agency by holding out and arises where the principal has led other parties to believe that a person has authority to represent him or her. The authority possessed by the agent is referred to as apparent authority. In such circumstances, even though no principal / agency relationship actually exists in fact the principal is prevented (estopped) from denying the existence of the agency relationship and is bound by the action of his or her purported agent as regards any third party who acted in the belief of its existence. To rely any agency by estoppel, the principal must have made a representation as to the authority of the agent. In Freeman and Lockyer v Buckhurst Park Properties Ltd (1964). It was held that it was liable, as the board which has the actual authority to bind the company had held out the individual director as having the necessary authority to enter such contracts. It was, therefore, a case of agency by estoppel. As with estoppel generally, the party seeking to use it must have relied on the representation. In Overbrook Estates Ltd v Glencombe Properties Ltd (1974), a notice which expressly denied the authority of an auctioneer to make such statements as actually turned out to be false was successfully relied on as a defence by the auctioneers employers.

THE AUTHORITY OF AN AGENT

In order to bind a principle, any contract entered into must be within the limits of the authority extended to the agent. The authority of an agent can be either actual or apparent. 1. Actual authority Actual authority can arise in two ways: i. Express actual authority

This is explicitly granted by the principal to the agent. The agent is instructed as tc what particular tasks are required to perform and is informed of the precise powers given in order to fulfill tasks implied actual authority. ii. Implied Authority

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. (this has been referred to above in relation to implied agency.) In Watteau v Fenwick (1893), the new owners of a hotel continued to employ the previous owner as its manager. They expressly forbade him to buy certain articles including cigars. He manager, however, bought cigars from a third party, who later sued the owners for payment as the managers principal. It was held that the purchase of cigars was within the usual authority of a manager of such an establishment and that for a limitation on such usual authority to be effective, it must be communicated to any third party.

2. APPARENT AUTHORITY Apparent authority is an aspect of agency by estoppels considered above at 11.3.5. it can arise in two distinct ways:

a) Where a person makes a representation to third parties that a particular person has authority to act as their agent without actually appointing the agent. In such a case, the person making the representation is bound by the actions of the principal is also liable for the actions of the agent where it is known that the agent claims to be his or her agent impression. and ye does nothing to correct that

b) Where a principal has previously represented to a third party that an agent has the authority to act on their behalf. Even if the principal has subsequently revoked the agents authority, he or she may still be liable for the actions of the former agent unless he or she informed third parties who had previously represented to a third party that an agent has the authority to act on their behalf. Even if the principal has subsequently revoked the agents authority, he or she may still be liable for the actions of the former agent, unless he or she has informed third parties who had previously dealt with the agent about the new situation. In Willis Faber & Co Ltd v Joyce, Principal was liable on policies effected by his agent after revocation of Agents authority because no notice of termination was given to the third party.

WARRANT OF AUTHORITY
If a person claims to act as agent, but without the authority to do so, the supposed principal will not be around by any agreement entered into. Neither is there a contract between the supposed agent and the third party, for the reason that the third party intended to deal not with the purported agent but

with the supposed principal. However, the supposed agent may lay themselves open to action for breach of warrant of authority. If an agent contracts with a third party on behalf of a principal, the agent impliedly guarantees that the principal exists and has contractual capacity. The agent also implies that he or she has the authority to make contracts on behalf of that principal. If any of these implied warranties prove to be untrue, then part may sue the agent in quasi-contract for breach of warrant of authority. Such an action mar arise even though the agent was unaware of any lack of authority. In younge v Toynbee , a firm of solicitors was instructed to institute proceedings against a third party. Without their knowledge, their client was certified insane, and although this automatically ended the agency relationship, they continued with the proceedings. The third party successfully recovered damages for breach of warrant of authority since the solicitors were no longer acting for their former client.

THE RELATIONSHIP OF PRINCIPAL AND AGENT

This considers the reciprocal rights and duties owed to each other. The duties of agent to principal The agent owes a number of duties, both express and implied, to the principal. 1. To perform the agreed undertaking according to the instructions of the principal A failure to carry out instructions will leave the agent open to an action for breach of contract. This does not apply in case of gratuitous agencies, where there is no obligation on the agent to perform the agreed task In Turpin v. Bilton, an agent was held liable for the loss sustained by his failure to insure his principals ship prior to his undertaking 2. To exercise due care and skill

An agent will owe a duty to act with reasonable care and skill, regardless of whether the agency relationship is contractual or gratuitous The level of skill to be exercised should be that appropriate to the agents professional capacity. This may introduce a distinction in the levels expected of different agents In Keppel v. Wheeler, the defendant estate agents were held liable for failing to secure the maximum possible price for a property 3. To carry out instructions personally Unless expressly or impliedly authorized to delegate work, an agent owes a duty to the principal to act personally in the completion of the task The right to delegate may be agreed expressly by the principal, or it may be implied from customary practice or arise as a matter of necessity. In any such case, the agent remains liable to the principal for the proper performance of the agreed contract 4. To account There is an implied term that the agent keep proper accounts of all transactions entered into on behalf of the principal The agents is required to account for all money and other property received on the principals behalf and should keep his or her own property separate form that of the principal There are general equitable duties which flow from the fact that the agency relationship is a fiduciary one that is, based on trust. These general fiduciary duties are:

1. Not to permit a conflict of interest to arise An agent must not allow the possibility of personal interest to conflict with the interests of his or her principal without disclosing that possibility to the principal.

Upon full disclosure, it is up to the principal to decide whether or not to proceed with the particular transaction If there is a breach of this duty, the principal may set aside the contract so affected and can claim any profit which might have been made by the agent In McPherson v. Watt a solicitor used his brother as a nominee to purchase property which he was engaged to sell. It was held that since the solicitor had allowed a conflict of interest to arise, the sale could be set aside. It was immaterial that a fair price was offered for the property. 2. Not to make a secret profit or misuse confidential information An agent who uses his or her position as an agent to secure financial advantage for him or herself without full disclosure to his principal, is in breach of fiduciary duty. Upon disclosure, the principal may authorize the agents profit. Full disclosure is a necessary precondition In Boardman v. Phipps, agents were held to account for profits made form information which they had gained from their position as agents, even though their action also benefited the company for which they were acting. 3. Not to take bribe This duty may be seen as merely a particular aspect of the general duty not to make a secret profit In Boston Deep Sea Fishing & Co Ltd v. Ansell, the managing directors of the company was held to have breached his fiduciary duties as an agent by accepting bribe in return for orders. In Mahesan v. Malaysian Government Officers Co-operative Housing Society, the plaintiff received a bribe to permit a third party to profit at his principals expense. Where it is found that an agent has taken a bribe, the following civil remedies are open to the principal: To repudiate the contract with the third party;

 To dismiss the agent without notice; To refuse to pay any money owed to the agent or to recover such money already paid; and To claim damages in the tort of deceit for any loss sustained as a result of the payment of the bribe

THE RIGHTS OF AN AGENT

The agent does benefit from the clear establishments of three general rights 1. To claim remuneration for services performed It is usual in agency agreements for the amount of payment to be stated, either in the form of wages or commission or, indeed both Where a commercial agreement is silent on the matter of payment, the court will imply a term into the agreement, requiring the payment of a reasonable remuneration In Re Richmond Gate Property Co Ltd, it was held that no remuneration could be claimed where an agreement stated that payment would be determined by the directors of the company, but they had not actually decided on any payment. 2. To claim indemnity against the principal for all expenses

legitimately incurred in the performance of services Both contractual and non-contractual agents are entitled to recover money spent in the course of performing their agreed task. In the case of contractual agents, the remedy is based on an implied contractual term. In the case of a gratuitous agent, it is based on the remedy of restitution Money can only be claimed where the agent has been acting within his or her actual authority

3.

To exercise a lien over property owned by to principal

This is a right to retain the principals goods, where they have lawfully come into the agents possession, and hold them against any debts outstanding to him or her as a result of the agency agreement The nature of the lien is usually a particular one relating to specific goods which are subject to the agreement. The general lien is only recognized on the basis of an express term in the contract, or as a result of judicially recognized custom, as in the area of banking

RELATIONS WITH THIRD PARTIES

In the words of Wright J in Montgomerie v UK Mutual Steamship Association, once an agent creates a contract between the principal and a third party, prima facie at common law, the only person who can sue is the principal and the only person who can be sued is the principal. In other words, the agent has no further responsibility. This general rule is, however, subject to the following particular exceptions, which in turn tend to depend upon whether or not the agent has actually disclosed the existence of the principal. Where the principals existence is disclosed Although the actual identity of the principal need not be mentioned, where the agent indicates that he is acting as an agent, the general rule is as stated above; only the principal and the third party have rights and obligations under the contract. Exceptionally, however, the agent may be held liable as a party to the contract. This can occur in the following ways:

At third party insistence

Where the agent has expressly accepted liability with the principal in order to induce the third party to enter the contract, he or she will attract liability. By implication

Where the agent has signed the contractual agreement in his or her own name, without clearly stating that he or she is merely acting as a representative of the principal, he or she will most likely be liable on it. In relation to bill of exchange

As in the previous situation, where an agent signs a bill of exchange without sufficiently indicating that he or she is merely acting as the agent of a named principal, he or she will become personally liable on it. In relation to the execution of a deed

Where the agent signs the deed other than under a power of attorney, he or she will be personally liable on it. Where the agent acts for a non-existent principal

In such circumstances, the other party to the agreement can take action against the purported agent. Where the principals existence is not disclosed Even in the case of an undisclosed principal, where the agent has authority but has failed to disclose that he or she is acting for a principal, the general rule is still that a contract exists between the principal and the third party, which can be enforced by either of them. The following, however, are some modifications to this general rule: The third party is entitled to enforce the contract against the agent and, in turn, the agent can enforce the contract against the third party. In both case, the principal can intervene to enforce or defend the action on his or her own behalf.

As stated previously, an undisclosed principal cannot ratify any contract made outside of the agents actual authority.

Where the third party had a special reason to contract with the agent, the principal may be excluded from the contract. This will certainly apply in relation to personal contracts, such as contracts of employment and, possibly, on the authority of Greer v Downs Supply Co, where the third party has a right to set off debts against the agent.

Authority exists in Said v Butt, where a theatre critic employed someone to get him a ticket for a performance he would not have been allowed into, for claiming that an undisclosed principal will not be permitted to enforce a contract where particular reasons exist as to why the third party would not wish to deal with him or her. This decision appears to run contrary to normal commercial practice and is of doubtful merit.

It is certain, however, that where the agent actually misrepresents the identity of the principal, knowing that the third party would not otherwise enter into the contract, the principal will not be permitted to enforce the contract. In Archer v Stone, specific performance was refused because third party asked the agent specifically whether he was acting for the principal or his nominees and agent falsely replied in negative.

Payment by means of an agent

Payment by means of an agent can take two forms: A. Payment by the third party to the agents to pass on to the principal

In this situation, if the principal is undisclosed, then the third party has discharged liability on the contract and is not responsible if the agent absconds with the money. However, if the principal is disclosed, then they payment to the agent only discharges the third partys responsibility if it can be show that the agent had authority, either express or implied, to receive money. B. Payment by the principal to the agent to pass on to the third party In this situation, the general rule is that if the agent does not pay the third party, the principal remains liable. This remains the case with an undisclosed principal. In Irvine & Co v Watson &Sons, A bought oil, on behalf of the P, from the third party, the terms being cash on or before delivery. The third party delivered the oil without insisting on pre-payment and P, not realizing that the third party had not been paid, settled with A. It was held that the third partys not insisting upon pre-payment did not mislead P into paying A and P was thus liable.

Breach of warrant of authority

As has been stated above, where an agent purports to act for a principal without actually having the necessary authority, the agent is said to have breached his or her warrant of authority. In such circumstances, the third party may take action against the purported agent.

Liability in tort
An agent is liable to be sued in tort for any damages thus caused. However, the agents right to indemnity extends to tortuous acts done in the performance of his or her actual authority. In addition, the principal may have action taken against him or her directly, on the basis of vicarious liability.