agency

Question 1

Agency definition

Answer 1

Agency is the relationship which exists between two
legal persons (the principal and agent) in which the
function of the agent is to form a contract between his
principal and a third party. Partners, company directors,
brokers, and commercial agents are all acting as agents

Question 2

Formation of agency

Answer 2

The relationship of principal and agent is created by
mutual consent in most cases. This agreement does not
have to be formal or written.

The mutual agreement comes about by express agreement even if it is informal. But it may also be
implied due to the relationship or conduct of the parties.

Question 3

Express agreement

Answer 3

where agent is expressly appointed by the principal. This may be orally or in writing

Question 4

Implied agreement

Answer 4

An agency relationship between two people may be implied by their relationship or by their conduct. For
example, if an employee’s duties include making contracts for his employer, for example by ordering
goods on his account, then they are, by implied agreement, the agent of the employer for this purpose.
An agent authorised in this way is said to have implied
authority

Question 5

Ratification of an agent’s act ; retrospective agreement

Answer 5

Meaning of Ratification
A principal can approve (ratify) an act done by another person on their behalf after it has already happened.

Retrospective Effect
Once ratified, the act is treated as if the agency relationship existed at the time the contract was made.

Result
The principal becomes bound by the contract, even though the agent did not originally have authority when making the agreement.

Question 6

Conditions for ratification

Answer 6

The principal must have existed at the time of the contract made by the agent

The principal must have had legal capacity at the time the contract was made

The ratification must take place within a reasonable time

He ratifies the contract in its entirety

He communicates his ratification to the third party sufficiently clearly

Question 7

Kelner vs Baxter

Answer 7

Baxter, Calisher and Dales, intending to form a company at a later date, contracted to buy wine for £900 from the claimant. When the company was formed it purported to ratify the contract. The wine was consumed and the company went into liquidation before paying the
claimant’s bill of £900.

Held, the ratification was not effective because the company was not in existence at the time the contract
for the wine was made; therefore, the company did not have capacity to enter into contracts. Baxter, Calisher
and Dales were personally liable

Question 8

Formation of an agency agreement without consent

Answer 8

An agency may be created, or an agent’s authority may
be extended, without express consent. This happens by
estoppel, when the principal holds out a person to be
his agent, and where there is an agency of necessity.

Question 9

Agency by estoppel

Answer 9

Meaning
An agency relationship can arise by implication when the principal represents to third parties that someone is their agent, even if no formal agreement exists.

Estoppel / Apparent Authority
The principal is estopped (prevented) from denying the agent’s authority because their conduct created the impression that the person had ostensible or apparent authority.

Important Limitation
Agency by estoppel only arises if the principal creates the impression. If the agent alone claims to be an agent, without the principal’s representation, no agency relationship is formed

Question 10

Agency by necessity

Answer 10

Meaning
An agency of necessity arises when a person acts on behalf of another to protect their property in an emergency, even without prior authority.

Control of Property & Emergency
The person must have control of the principal’s property, and a genuine emergency must exist requiring action to protect it.

Impossible to Get Instructions
It must be impossible to contact the principal to obtain instructions before acting.

Good Faith
The agent must act in good faith and in the best interests of the principal

Question 11

Great northern railway v Swaffield

Answer 11

The defendant owner sent his horse by rail from Kings
Cross to Sandy station. When the horse arrived there was no one to collect it and no one at the station knew the name or address of the owner. The claimant railway company arranged for the horse to be fed and stabled. When the defendant collected the horse he refused to reimburse the railway company for their expenses in having the horse stabled.

Held, the claimant had acted in the best interests of the defendant in arranging to have the horse stabled. An agency of necessity had arisen and the defendant was
bound to pay the cost of stabling the horse

Question 12

Authority of the agent

Answer 12

If an agent acts within the limits of his authority, any contract he makes on his principal’s behalf is binding on
both principal and third party. The extent of the agent’s
authority may be express, implied or ostensible.

A principal does not give the agent unlimited authority to act on his behalf. A contract made by the agent is binding on the principal and the other party only if the
agent was acting within the limits of his authority from
the principal

Question 13

express authority

Answer 13

Definition
Express authority is authority explicitly granted by the principal to the agent to perform specific tasks, including any powers necessary to carry out those tasks.

Extent of Authority
The scope of express authority depends on the precise words used by the principal when appointing the agent.

Consequences of Acting Beyond Authority
If the agent acts outside their express authority, they may be liable to the principal and/or third parties for breach of warranty of authority.

Question 14

implied authority

Answer 14

Definition
Implied authority arises without express instructions, based on the nature of the agent’s role or what is usual or customary in the circumstances.

Relationship with Express Authority
Express authority prevails over implied authority. An agent cannot override express instructions by claiming implied authority.

Effect on Third Parties
Third parties may assume the agent has the usual implied authority to act unless they know that the agent is restricted.

Question 15

Watteau vs Fenwick

Answer 15

The owner of a hotel (F) employed the previous owner (H) to manage it. F forbade H to buy cigars on credit but
H did buy cigars from W. W sued F who argued he was not bound by the contract since H had no actual
authority to make it, and that W believed that H still
owned the hotel.

Held, It was within the usual authority of a manager of a hotel to buy cigars on credit and F was bound by the
contract (although W did not even know that H was the agent of F) since his restriction of usual authority had
not been communicated.

Question 16

Actual authority

Answer 16

Express and implied authority are sometimes referred to together as actual authority. Distinguishes them from ostensible or apparent authority

Question 17

Apparent or ostensible authority

Answer 17

Definition
Apparent authority arises when a principal represents to a third party that a person is their agent, and the third party relies on that representation.

Extent of Authority
Apparent authority can be broader than express or implied authority, potentially exceeding what is usual or necessary for the agent’s role.

Effect on Third Parties
The third party who relies in good faith on the principal’s representation can hold the principal bound by the agent’s acts, even if the agent acted beyond actual authority.

Question 18

Apparent or ostensible authority usually arises when

Answer 18

where the principal has represented the agent as having authority even though he has not actually been
appointed

-where the principal has revoked the agent’s authority
but the third party has not had notice of this

Question 19

extent of ostensible authority

Answer 19

Not Limited to Usual Authority
Ostensible authority is not restricted to what is usual or incidental. A principal can, expressly or by conduct, give an agent greater apparent authority than their actual or implied authority.

Example
A partner in a law or accounting firm has limited implied authority by default. If the other partners allow the partner to act beyond this, they represent that he has wider authority.

Effect
The principal is bound by contracts the agent makes within the limits of the ostensible authority, even if it exceeds actual authority

Question 20

Revocation of authority

Answer 20

Where a principal has represented to a third party that an agent has authority to act, and has subsequently revoked the agent’s authority, this may be insufficient
to escape liability. The principal should inform third parties who have previously dealt with the agent of the
change of circumstances

Question 21

Termination of authority

Answer 21

Agency is terminated when both parties agree that the relationship should end

It may also be terminated by operation of law in the
following situations;

-principal or agent dies

-principal or agent becomes insane

-principal becomes bankrupt or agent becomes bankrupt and this interferes with his position as agent

Question 22

Duties of an agent

Answer 22

Duty to perform agreed task and follow instructions

Duty to exercise care and skill

Duty to avoid a conflict of interest

Duty not to make secret profit

Duty not to take a bribe

Duty to maintain confidentiality

Question 23

Duty to perform agreed tasks and follow instructions

Answer 23

Bertram, Armstrong and Co. v. Godfrey (1830).

The principal instructed his agent to sell stock when the stock reached £85 per unit. The agent delayed selling,
hoping the price would rise. In fact the price fell, and the agent sold the stock for under £85 a share. Held, the agent was liable for the loss as he had not acted in accordance with the principal’s instructions

Question 24

Duty to exercise care and skill

Answer 24

This will be commensurate with his or her office and professional training

Question 25

Duty to avoid conflict of interest

Answer 25

The agent must not put himself first, above the interests of his principal. Possibilities of a conflict of interest must be disclosed to the principal

Question 26

Duty not to take a bribe

Answer 26

A bribe is where an agent accepts a secret commission or other inducement given by a third party in return for completing contracts between the third party and the principal. Boston Deep Sea Fishing and Ice Co Ltd v. Ansell (1888). Ansell was the managing director (agent) of the claimant company. Ansell accepted commission and bonuses to purchase items from a particular supplier. Held, Ansell was in breach of his fiduciary duty as an agent by accepting bribes in return for orders