AGENCY

Approach:
Identify the legal relations between the parties;
Identify the transactions engaged in by the parties;
What are the obligations (rights and duties) of the parties?
What are the issues?
What causes of action are available?
What remedies are the parties seeking?
Meaning & Definition of Agency:
ection !"#$
%An agent is a person employed to do any act for another or to represent another in dealing with
third persons& 'he person for whom such act is done or who is so represented$ is called the
principal(
'he relationship of agency arises whenever one person called Agent has authority to act on
behalf of another called )rincipal&
ESSENTIALS OF A CONTRACT OF AGENCY
!& 'he principal and third parties must be competent into contracts
An agent may be even a minor who can effectively bind his principal& *ut the principal cannot
make the minor agent liable for misconduct or negligence&
+,ample: )$ a principal gives -$ a minor$ a .ewel worth /s& !00 and instructs fgdgdf to sell it on
credit or for less than /s& 100& - sells the .ewel on credit for /s& 200& ) cannot make him liable
while he is bound by the sale&&
!
3onsideration is not essential& 'hat the principal gives his consent to be represented by the agent
is sufficient consideration for the agent&
CREATION OF AGENCY
An agency may be created in the following ways:
!& By Express Authority: 'he authority of any agency may be e,pressed in words spoken or
written& 4or e,ample$ a contract of agency can be written by means of power of attorney&
#& By Implied Authority: 'he authority of an agent can be interred from the circumstances of
the case&
Illustration: A living in *ombay$ owns a shop in -adras and he occasionally visits it& * is
managing the shop and is in the habit of ordering goods from 3 in the name of A for the
purpose of the shop and of paying to them out of A5s funds with A5s knowledge& * has an
implied authority from A to order goods from 3 in the name of A for the purpose of the shop&
6& By Necessity: ometimes$ e,igencies of circumstances re7uire a man to act for another as
an agent$ though not appointed as such&
Illustration: A horse was sent by rail& 'he owner had not taken delivery of the same at the
destination& o$ the station master had to feed it& It was held that the station master had
become an agent by necessity and was therefore entitled to recover the charges incurred by
him&
2& By Holding Out: Where a master usually sends his servant to pledge his credit for certain
mangdfgfd he is bound by the acts of the servant for similar purposes though done
without his consent&
1& By Estoppel: When one man by words or conduct causes another to believe that some
other person is his agent and that another person had acted on that belief$ he would be
stopped from denying the authority of that another person to act on his behalf&
#
Illustration: a tells * in the presence and within the hearing of ) that he (A) is )5s agent and )
does not contradict this statement *$ on the faith of this statement$ subse7uently enters into a
contract with A$ taking him to be )5s agent& ) is bound by that contract&
8& By Ratification or Expost Eacto Agency : ection !98 of the Indian 3ontract Act lays
down that where acts are done by one person on behalf of another$ but without his
knowledge of authority$ he may elect to ratify or to disown such acts& If he ratifies them
the same effects will follow as if they had been performed by his authority& 'hus
ratification relates back to the date of the original contract and binds the principal as if he
has e,pressly authori:ed it&
6
An agent is one that can create legal relationships between the principal and third parties:
International ;arvester v 3arrigan5s ;a:eldene )astoral 3o&
3apacity
principal must have capacity to do the act which the agent performs on the principal5s behalf&
agent is not re7uired to have legal capacity&
The nature an e!tent of an Agent"# authority
e,press grant by *
relationship between * and A is such that A impliedly has *5s authority
representations made by * to a third party that A has *5s authority
operation of law
operation of statute
ratification
<eneral agency issues:
what forms of authority are at issue?
check which of actual e,press$ actual implied$ ostensible agency or agency by ratification are
applicable for each relevant legal actor& +nsure that you understand the differences between
them&
how has the agency relationship involving A been created?
is there more than one form of agency at issue here?
2
Loo$ for for% of Authority
&
actual authority
ostensible authority
ratification
Actua' Authority
'hey will be hold to have consented if they have agreed to what amounts in law to such a
relationship = even if they don5t recogni:e it themselves and even if they profess to disclaim
it&
'he consent must have been given by each of them = the principal and agent&
It can be e,pressly given or by implication from their words or conduct&
)rimarily one looks to what the parties said and did at the time of the alleged creation of the
agency (or act or transaction): <arnac <rain v ;-4 4aure and 4airclough&
Actua' I%('ie Authority
ubcategories:
incidental authority
usual authority
customary authority
authority implied from the course of dealing in the circumstances of the case
'his type of authority stems from the circumstances of the case and the conduct of the parties:
+7uiticorp&
!
In answering a question always go through all the forms of authority:
1. Did this person actually have express authority to enter into this act or
transaction - look at employment contract between that person and the sale of
whatever in questions there will usually be some limiting written agreement that
will limit the agent!s authority".
1
An agency agreement can be implied when each has conducted himself in relation to the
other that it is reasonable for the other to infer consent to the agency relationship&
'here are no particular agency laws applicable here = that is semply recognition of the fact
that contracts are not always e,press and can be inferred by the court from the circumstances
=> the promises are e,pressed partly or wholly by conduct rather than by words&
O#ten#i)'e Authority
other two forms consensual
can e,ist without consent?authority or where principal has forbidden agent to do something
or agent has e,ceeded authority
E'e%ent# of o#ten#i)'e authority or Agency )y re(re#entation
representation by words or conduct by the principal (not the agent) to the third party that the
agent acts for him
reliance by the third party on the representation
alteration of the third party5s position resulting from such reliance: /ama 3orporation v
)roved 'in @ <eneral Investments
O#ten#i)'e authority: Re'iance can not )e c'ai%e *here:
it is an unusual transaction: /ama 3orporation&
the third party knows or had the power to know the truth: ;ely ;utchinson
the articles of association do not allow for delegation of the relevant power on the particular
agent: Aorthside Bevelopments
a person with ostensible authority cannot confer ostensible authority on another: 3rabtree
Cickers
8
4reeman Dockyer v *uckhurst )ark )roperties
usual transaction
can rely on power in articles without knowing of it
+,amples:
where principle appoints an agent to a particular position or entrusts agent with some
responsibility
a course of delaings between a third party and a principal through an agent
where principal stands by mute where someone deals with a third party apparently on behalf of
the principal
/ama 3orporation v )roved 'in @ <eneral Investments
unusual transaction
cannot rely on power in articles unless aware of it
4irst port Dtd v *arclays *ank
= applied above principles
Ratification
'he elements are:
'he agent whose act is to be ratified must have purported to have acted for the principal&
at the time that the act was done$ the agent must have had a competent principal&
at the time of ratification$ the principal must be legally capable of doing the act: 4irth v
taines; 'rident <eneral Insurance 3o Dtd v -cAiece *ros )ty Dtd&
the principal must be disclosed or identifiable ('rident <eneral Insurance 3o Dtd v -cAiece
*ros as well as competent to do the act personally: *lack v mallwood (!988)&
the principal must have full knowledge of all material facts relating to the act to be ratified:
'aylor v mith&
E
ratification must take place within a reasonable time of the agent5s act unless the contract
stipulates another$ more specific timeframe: see Dife avers Australasia Dtd v 4rigmobile )ty
Dtd&
'ime for /atification:
;as ratification occurred within a reasonable time?
'he time for ratification by the principal of the agent5s act depends on the circumstances of
the case& If the particular contract specifies a timeframe within which ratification must take
place the that timeframe must be observed& If there is not timeframe specified$ then
ratification must take place within a reasonable period of time: Dife avers Australasia v
4rigmobile&
AF'+: A limit on ratification appears in the rule that ratification cannot be made which
divests persons not parties to the ratified contract of their rights or to affect pre.udicially
those rights where those rights have vested before the act of purported ratification: A=< v
Wilde
will ratification cause an in.ustice to the third party?
has the principal dealt with the third party in a manner suggesting that the contract has gone
off?
Ratification i##ue:
+ho %ay ratify,
Fnly person able to ratify$ is the person:
in whose name the act was purported to be done
which person must be in e,istence at the time the act was done
competent at that time to be the principal of the person doing the act
not necessarily known$ personally or by name$ to the third party
;oward mith
ratification between principal and agent only
agent must disclose at time of contracting that he is acting on behalf of a principal&
principal need not be named but must be capable of identification: Gelly -a,stead v Burrant&
"
+hen can a (rinci(a' ratify,
ee above&
+hat con#titute# ratification,
/atification may take a variety of forms to be effective at general law:
(!) +,press = this re7uires clear and une7uivocal acts: )etersen v -aloney&
(#) Implied = by conduct (such as a putative principal commencing legal proceedings on the
contract concluded by the agent: 3o, v Isles$ Dove @ 3o&
'he act of adoption must be accompanied by full nowledge of all the essential facts: 'aylor
v mith&
'he assignment by the principal of the benefit of a contract entered into by an agent without
authority is a ratification of the contract: 'hompson v ;ickman&
It is also necessary for the entirety of the third party transaction to be ratified = it is not
possible to adopt in part and disclaim in part: ;oward mith&
+hen court# *i'' not in-o$e the octrine of ratification:
ratification occurs after performance of the contract
where there is a time stipulation in which the contract is to be accepted
where there has been a breach or loss under the contract before ratification
where ratification occurs after withdrawal of the offer
will not be effective when it will unfairly pre.udice a third party
What happens if?
A makes offer to *
H
Inauthori:ed acceptance by *
H
A withdraws offer
H
9
*5s principal ratifies
*olton )artners v Dambert 4acts = Boctrine in pure form contract would be fine from an
unauthori:ed acceptance& ;eld = /atification was effective not withstanding that the third party
had given notice to the principle of his withdrawal from it& /atification dated back to the time of
the acceptance rendering the withdrawal of the offer inoperative& A was ordered to specifically
perform the contract&
3oncerned an action for specific performance of a contract to take a lease& 'he defendant
lessee wrote the plaintiff lessor offering to take a lease on "&!#&!""8& Fn !6&!#&!""8 a
director of the plaintiff lessor communicated by letter an acceptance of the earlier offer to
lease& Fn !6&!&!""E the defendant lessee withdrew the offer which had been made earlier&
At the time the offer to lease had been accepted by the lessor$ the director of the lessor
who communicated the acceptance did not if fact have authority to bind the company be
accepting the earlier offer& Fn #"&!&!""E the *oard of Birectors ratified the contract of
leases& 'he court ruled: %'he rule is to ratification by a principal of acts done by an
assumed agent is that the ratification is thrown back to the date of the act done$ and that
the agent is put in the same position as if he had had authority to do the act at the time the
act was done by him& J'his is sometimes known as the doctrine of relation back&K(
;FW+C+/ according to Isaacs L (in dissent) in Bavison5s case *olton )artners v
Dambeth was wrongly decided and should not be followed in Australia&
!0
D.TIES OF AGENTS
an agent commonly owes duties of a fiduciary nature to his principal: ;ospital )roducts v I
urgical 3orp
principal and agent duties will arise when you have got either actual e,press authority or
actual implied authority = won5t necessary arise in the case of ostensible authority&
can be e,pressly stated in written agency document i&e& )ower of Attorney&
can be wide and varied&
common effect is that the relationship is fiduciary in nature&
/rinci(a'#" Dutie# an Agent#" Right#
An agent has 2 main rights against a principal:
&0 Re%uneration
Is different from the right to indemnify&
'he right to remuneration compensates an agent for the value of services e,pended in
performing the agency&
'he right to indemnity compensates the agent for costs and liabilities incurred to third
parties&
An agent is entitled to be remunerated as an e,press or implied term of the agency
agreement&
'he courts will look to the circumstances of the case in order to determine whether the
implied right e,ists: Way v Datilla&
If you are a friend of the principal and you are doing someone a favour the right to
remuneration will be more difficult to imply than if you were a professional performing a
particular task&
!!
'he principal is only obliged to pay the agent if the agent complies with the terms of the
agency agreement and when the agent has actually earned the payment&
'his can be a point of contention as to when an agent5s right to remuneration arose = it comes
up fre7uently with real estate agents suing for their commission&
Du,or (+astborne) v 3ooper = An agent appointed in respect to the sale of a cinema =
the agent introduced a purchaser who offered the asking price but no contract was
ever made because the principal decided against proceeding with the sale& Fn
agreement commission was payable on completion of the sale which had not
occurred& 'he agent was in effect asking the court for a declaration that a term be
implied into the contract to the effect that the principle could not refuse to go ahead
with the sale& It was held that no such term could be implied and as a result no
commission was payable nor was the principal liable in damages for breach of
contract&
!#
#& Ine%nity
In respect to the agent5s right to indemnity$ an agent is entitled to be indemnified against
liabilities that they may have occurred on behalf of the principal or to recover any amounts
paid&
'he agent must have lawfully occurred the loss or liability in 7uestion&
If the agent has acted outside the scope of his authority or if the agent suffered loss through
his own negligence or fault then he will not be entitled to indemnify: AM 4armers
3ooperative Bistributing 3o v Aational -ortgage @ Agency 3o of AM&
6& Agent"# right of 'ien
/efers to the agent5s right where there is an outstanding claim to either indemnify or
remuneration&
'he agent5s right to e,ercise a lien by retaining the principal5s goods which are in the agent5s
lawful possession&
different types of lien:
!& general lien = where an agent can retain goods of the principal even though the principal
does not owe the agent anything in respect to those specific goods i&e& documents$ keys etc
kept in relation to money owed on other matters&
3ourts don5t usually favour this type of lien&
operates by permitting the agent to retain a particular item until the principal pays the agent
what is owing on it: /e 3lune&
10 Right of #to((age in tran#it:
imilarly to an unpaid seller if an agent has paid a third party for goods but has not been paid
by the principal then the agent can e,ercise the right to stop the goods in transit until the
principal pays for them&
!6
Agency an Thir /artie#
agent acting for a disclosed and named principal
liability of agency for misrepresentation
agent acting for disclosed but unnamed principal
agent lacks authority although claiming a principal e,ists&
agent acting for an undisclosed principal&
Agency acting for a i#c'o#e an na%e (rinci(a'
A disclosed principal is one whose e,istence has been revealed to the third party although the
identity of the principal may not be known&
An undisclosed principal is the opposite = that is where the third party believes the agent is
contracting personally&
'he general position in relation to a disclosed principal is that where the agent has made a
contract with a third party the principal can sue or be sued on the contract& In contrast with
the case of the undisclosed principal who will only be bound if the contract was in the
agent5s actual authority&
An agent must make clear that he?she is acting as an agent preferably by adding the word
agent after their signature&
Lia)i'ity of agent# for %i#re(re#entation
An agent may be liable to a third party for a wrong in tort not withstanding that the agent in
not liable to a third party in contract&
Although the agent will normally drop out of the picture once the contract is settled they will
however be liable for negligent misrepresentation made prior to entry into the contract by the
principal and the third party and for breach of s6" 4'A !99" (N) = misleading and deceptive
conduct; /oots v Fentory&
!2
Agent acting for i#c'o#e )ut unna%e (rinci(a'
Bifferent from first scenario because although e,istence of the principal is disclosed the
name of the principal is not given&
Isually makes no difference whether principal is named or not when you are trying to
determine the rights or liabilities of a principal under a contract& What is important is whether
the e,istence of the principal is disclosed&
'here are some cases where it has been suggested that where the principal is not named the
courts will more ready assume that the agent was contracting personally: 'eheran=+urope v
' *elton ('ractors)&
Aormally the mere fact that the agent has not identified the principal will not make the agent
personally liable: -arsh @ -cDennan v tanyers 'ransport&
Agent 'ac$# authority a'though c'ai%ing a (rinci(a' e!i#t#0
'his is a cause of action that can be taken by a third party against an agent where none of the
forms of authority are said to e,ist& o the third party can still sue the agent for )reach of
*arranty of authority&
*asis for the cause of action against the agent by the third party is that the agent has
misrepresented authority: 3ollen v Wright& If the agent has not contracted personally but
purports to contract as agent but it is found that there is no authority between the principal
and the agent then the agent may be liable to the third party of the basis that they
misrepresented that they had authority&
'he agent5s liability for breach of warranty is strict and it doesn5t depend on the state of mind
of the agent& o it doesn5t matter that the agent honestly thought that he or she was
authori:ed&
If you have a case of ostensible authority then there won5t be generally any need to sue an
agent for breach of warranty of authority = even though the third party will have suffered no
loss in that situation as the principal is still bound on the basis of ostensible authority&
Where the agent is fraudulent = they knew they weren5t authori:ed but claimed to be then the
agent may also be liable in deceit: )olehill v Walter; <ould v Caggelas&
!1
If the agent is negligent there may also be a case of negligence to be made out: ;edley *ryne
v ;eller&
Conc'u#ion:
4inally we can say that$ an agent may be even a minor who can effectively bind his principal&
*ut the principal cannot make the minor agent liable for misconduct or negligence&
3onsideration is not essential& 'hat the principal gives his consent to be represented by the agent
is sufficient consideration for the agent& An agent is one that can create legal relationships
between the principal and third parties& 'he time for ratification by the principal of the agent5s
act depends on the circumstances of the case& If the particular contract specifies a timeframe
within which ratification must take place that timeframe must be observed& If there is not
timeframe specified$ then ratification must take place within a reasonable period of time& 'he
general position in relation to a disclosed principal is that where the agent has made a contract
with a third party the principal can sue or be sued on the contract& In contrast with the case of the
undisclosed principal who will only be bound if the contract was in the agent5s actual authority&
!8