Chapter 7 Agency Law Slides

7/28/2019 Chapter 7 Agency Law Slides

1/31

Agency Law


2/31


3/31

An agent (A) is a person who has beenauthorized, either expressly, by conductor by implication, to act for another

party which is called the Principal (P).The agent is making and entering intolegal relations with a third party on

behalf of the principal. The resultingcontracts are therefore made betweenthe Principal and the third party and

not directly with the agent..


4/31

An agency relationship exists in lots ofsituations:

A director acts as an agent for hiscompany.

A partner acts as an agent for hispartnership.

An estate agent is appointed by a seller

of a house to find a buyer. A travel agent is appointed by a holiday

company to make bookings with

customers.


5/31

Principal

Agent 3rd Party


6/31

By Expressagreement

By Impliedagreement

ByNecessity

ByRatification

By Estoppel


7/31

Principal expressly appoints theagent Verbally or In Writing.

Generally in writing contractsare preferred because exactnature and scope of the

relationship can then be setdown.


8/31

An agent is not expresslyappointed by the Principal to

work on his behalf but agencyis implied to have establishedfrom the relationship between

the parties or from theirconduct.


9/31

This requires four conditions to

be satisfied:Principal property is entrusted to

AgentEmergency arises making it

necessary for agent to act

In Principal interest

Not possible for agent to

communicate with Principal


10/31

Mr Swaffield sent his horse by railway to a station at

Sandy. The horse arrived late at night, and the railwaycompany lodged the horse overnight for their own

account at a livery stable. Mr Swaffield failed to collect iton the following morning. The only basis on which hewas prepared to give any instructions about the fate ofhis horse was that the railway company assumed all

responsibility for storing and delivering it to him fromthe time of its arrival at Sandy. After four months of this,the railway company lost patience. They unilaterallydelivered the horse to Mr Swaffields farm and then sued

him for the livery charges to date.


11/31

A situation in which a person or company

inaccurately claims to be an agent foranother person or company and conductssome act in that capacity, but which

the Principal (who is not actually aPrinciple) later accepts and recognizes.Because the agent is not actually an agent,any act he/she conducts on behalf of thePrincipal ordinarily would be invalid;however, agency by ratification existsbecause the "Principle" confirmed the act.
http://financial-dictionary.thefreedictionary.com/Agenthttp://financial-dictionary.thefreedictionary.com/Agent


12/31

A situation in which a person or company

inaccurately claims to be an agent foranother person or company and conductssome act in that capacity, but which

the Principal (who is not actually aPrinciple) later accepts and recognizes.Because the agent is not actually an agent,any act he/she conducts on behalf of thePrincipal ordinarily would be invalid;however, agency by ratification existsbecause the "Principle" confirmed the act.
http://financial-dictionary.thefreedictionary.com/Agenthttp://financial-dictionary.thefreedictionary.com/Agent


13/31

In order for a Principal to ratify the contract :

Principal should have exited at the date ofcontract

Principal should have the legal capacity tofulfill the contract

Principal should ratify whole contract

Principal should ratify with in reasonabletime

Ratification must be communicated to third

parties


14/31

Facts

Promoter of the company entered into thecontract on the behalf of the company beforeit was incorporated , to purchase someproperty and third party was not paid .

Decision

Company did not exist at the time whencontract was made , the company could notratify the contract, the promoter werepersonally liable to the seller.


15/31

Agency may be created without express or

implied agreement this arises when Principalholds out to third parties that a person is theiragent, even if the Principal and the agent have

not as such agreed to form such a relationship.It must be the Principal not the agent whodoes the holding out and third party musthave relied on the facts as held out. If this is soPrincipal is Estopped from denying that theagent in indeed their agent.


16/31

Defendant Company had 4 directors, none of whom had

been appointed as the Managing Director.One Directorwho effectively ran the company entered in variouscontracts with the claimantsOn previous occasions, theboard on behalf of the company has honored the contractand paid the claimant.But this time the board refused to

pay.arguing that the director had NO Expressedauthority to make a contract becausehe was not theManaging Director.

Held :Director had acquired authority by Estoppel, byhonoring the previous similar contract in the past, thecompany had given the impression that the director hadthe authority to make this sort of contract.The claimantshad relied on this representation by continuing to dealwith the director when purporting to act on behalf of the

company.


17/31

What is the authority of the

agent ?


18/31

Express authority

Implied authority

Apparent authority


19/31

In this instance, when the principal/agencyrelationship is established, the agent is instructed as towhat particular tasks are required to be performed andis informed of the precise powers given in order tofulfill those tasks. If the agent subsequently contractsoutside of the ambit of their express authority thenthey will be liable to the principal and to the thirdparty for breach of warrant of authority (see below).The consequences for the relationship between theprincipal and third party depends on whether the thirdparty knew that the agent was acting outside the scopeof their authority.

For example, an individual director of a company maybe given the express power by the board of directors toenter into a specific contract on behalf of the company.In such circumstances the company would be boundby the subsequent contract but the director would have

no power to bind the company in other contracts..


20/31

It frequently happens that an agent is expressly

assigned a task to accomplish, but the minor detailsare not spelled out in the oral or written authoritygiven to him.

It can be safely assumed that the agent has implied

authority to do what must be done in order toaccomplish the purpose of the express agency.

This refers to the way in which the scope of expressauthority may be increased. Third parties are entitledto assume that agents holding a particular positionhave all the powers that are usually provided to suchan agent. Without actual knowledge to the contrary

they may safely assume that the agent has the usualauthorit that oes with their osition.


21/31

Watteau Vs Fenwick

Fred owned a hotel. He sold it to the defendants, who

then hired him as the hotel manager. Fred continued tohold the license for the hotel, which was placed over thedoor. The claimants in the case supplied cigars to Fred oncredit. The claimants believed Fred was the hotel owner.

They didnt know that the defendants (the actualowners), whom they had never heard of, had forbiddenFred to buy cigars on credit. The claimants learnt of thisand sued for the outstanding amount.

Courts decision: The court declared that a manager ofsuch an establishment had authority to purchase cigars.If limitations where imposed on this authority, then theselimitations needed to be communicated to third partiesto make the limitations effective.


22/31

Watteau v FenwickFact :TheNew Ownerof aHotelcontinued toEmploy the Original Owneras the

ManagerIn the agency agreementthe New ownerordered theA NOT to buy certain items including

CigarsHeld :The purchase of cigars was within the usualauthority of managerof a Hotel.Also the restrictionwas NOT communicated to the world at large, beforethe contract was made.There can be 2 outcome

A liable to P 1 also P liable to 3rd party A liable to 3rd party 2

In the above case the 1st solution was undertaken


23/31


24/31

To create the wider ostensible authority

1) It must be the company that make therepresentation as to wider than usual authority

2) The representation must be one of fact ,no law .

3) The representation must be made to thirdparties.

4) The third party must in fact have relied on the

representation5) The third party must have altered their

position as a result of relying on therepresentation.


25/31

It is not necessary for the Principal to be Identified to the3rd Party

General Rule

Contract is between the Principal and the 3rd party.

Agent is neither liable nor entitled under the contract.Agent will be personal liable in the followingexceptional circumstances :

Personal UndertakingAgent showed an intention to

undertake personal Liability (Personal Undertaking) Refusal by A (himself)Agent refuses to identify the

Principal

Fictitious P Agent is acting on behalf of a Fictitious

Principle.


26/31

An undisclosed principal is where theprincipals existence has not been made

known to the third party. When the thirdparty discovers the existence of P, he canelect to treat P or A as bound by the

transaction.


27/31

Fiduciary relationship is to take Good Care of PAssets, by acting in the Best Interest of the PFollowing consequences : (A-BSP)

1) AAccountable for Assets Held A has a Duty toAccount to P for all money and property

received.2) BBest interest A must Always act in the Best

interests of P.

3) SSecret Profit A Must NOT make a SecretProfit.

4) PPersonal Interest, (Self interest) A must NOT

allow his Personal Interests to Conflict withthose of P.


28/31

Repudiate Contract by Principal ,(Principal can repudiate the contract with the 3rdParty.)

Dismissal W/O Notice, (Agent can be dismissed

without notice)

Refuse to Pay Agent, (Principal can refuse to payany money owed to Agent or Recover any moneyalready paid.)

Recover From Agent (Principal can recover anysecret profit made or any bribe)


29/31

1. Remuneration/Commission(To claim

Remuneration of Commission for the servicesperformed.)

2. Reimburancement (To claim an indemnity againstP for all expenses reasonably incurred in carrying

out his obligations.) 3. Lien Over Property (To exercise a Lien over P's

property. The lien allows the agent to retain

possession of P's property that is lawfully in A'spossession until any debt to A (e.g. arrears ofremuneration) have been paid by P. )


30/31

By acts of the parties -agreement, completion of duties

or passage of time. By operation of law - on the

death, bankruptcy or insanity ofP or A


31/31

December 2007

December 2011

Documents

Chapter 7 Agency Law Slides