You are on page 1of 7

Agency

What is an agency?
The individuals engaging in business activity carry on the
business by themselves, and on their own behalf, either
individually or collectively. It is not uncommon, however, for such
individuals to engage others to represent them and negotiate
business deals on their behalf. Indeed, the role of the
‘middleman’ is a commonplace one in business and commerce.
The legal relationship between such a representative, or
middleman, and the business person making use of them is
governed by the law of agency. Agency principles also apply
in relation to companies registered under the companies legislation
and the directors and other officers of such companies.

Who is an agent?
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 a third party.
The agent has no personal rights or liabilities in relation to the
contract.
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.
ex.estate agents and travel agents

Explain creation of agency?


No one can act as an agent without the consent of the principal,
although consent need not be expressly stated.
The principal/agent relationship can be created in a number of
ways. It may arise as the outcome of a distinct contract, which may
be made either 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 the
parties. It is usual to consider the creation of the principal/agency
relationship under five distinct categories.

• Express appointment
This is the most common manner in which a principal/agent
relationship comes into existence. 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 principal’s name, they must
themselves be appointed by way of a deed that is, they
are given power of attorney.

• 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:
• The principal must have been in existence at the time that the
agent entered into the contract
• The principal must have had legal capacity to enter into the
contract when it was made .
• An undisclosed principal cannot ratify a contract The agent must
have declared that he or she 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 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 place 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, however, the third
party 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 indicate their adoption of the contract for
it to be effective.

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.

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
principal’s property and, due to some unforeseen emergency, the
agent has to take action to safeguard that property:
• In order for agency by necessity to arise, there needs to be a
genuine emergency.
• There must also be no practical way of obtaining further
instructions from the principal.
• The person seeking to establish the agency by necessity must
have acted bona fide in the interests of the principal.
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 the 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 (estoppel) 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.

What is Actual authority?


In order to bind a principal, 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.
Actual authority can arise in two ways:
• Express actual authority
This is explicitly granted by the principal to the agent. The agent is
instructed as to what particular tasks are required to perform and is
informed of the precise powers given in order to fulfill those tasks.

• Implied actual 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.

What are the duties of agent to principal?


• 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, of course, does
not apply in the case of gratuitous agencies, where there is no
obligation whatsoever on the agent to perform the agreed task.
• 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, however, should be that appropriate to the agent’s
professional capacity and this may introduce a distinction in the
levels expected of different agents.

• To carry out instructions personally


Unless expressly or impliedly authorised to delegate the 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.

•To account
There is an implied duty that the agent keep proper accounts of all
transactions entered into on behalf of the principal. The agent is
required to account for all money and other property received on
the principal’s behalf and should keep his or her own property
separate from that of the principal.

• 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 claim any profit which might
have been made by the agent.

•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 agent’s profit, but full disclosure is a
necessary precondition

Not to take a bribe This duty may be seen as merely a particular


aspect of the general duty not to make a secret profit, but it goes so
much to the root of the agency relationship that it is usually treated
as a distinct heading in its own right.

What are the rights of an agent?


• 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.
• 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.
• To exercise a lien over property owned by the principal
This is a right to retain the principal’s goods, where they have
lawfully come into the agent’s 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, not a general one which entitles the agent to retain any
of the principal’s goods, even where no money is owed in relation
to those specific goods. 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.