Notes on Law of Agency

LAW OF AGENCY LAW OF AGENCY LECTURE NOTESLECTURE NOTES

University of Ghana Business SchoolUniversity of Ghana Business School 2010-2011 Academic Year 2010-2011 Academic Year

Commercial Law IICommercial Law II Level 200 Level 200

Prepared by:Prepared by:

Rowland ATTA-KESSON ESQ. Rowland ATTA-KESSON ESQ. 2929THTH JAN 2011 JAN 2011

0. INTRODUCTION 0. INTRODUCTION 1.1. A large proportion of contracts are made, at least A large proportion of contracts are made, at least

on one side through agents.on one side through agents.2.2. Because in most contracts one of the parties is a Because in most contracts one of the parties is a

COMPANY,COMPANY, and companies have to act through and companies have to act through human beings who act on their behalf. human beings who act on their behalf.

3.3. This part of the course is concerned with the law This part of the course is concerned with the law relating to the use of agents who make contracts in relating to the use of agents who make contracts in this way. this way.

4.4. Three parties are involved:Three parties are involved:a.a. the the principal (P), principal (P), b.b. the the agent, (A), agent, (A), and and c.c. the the third party (T) third party (T) with whom the agent negotiates so as with whom the agent negotiates so as

to bring his principal and the third party into a to bring his principal and the third party into a contractual relationship. contractual relationship.

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1.1. There are two major problems which need There are two major problems which need to be discussed. to be discussed.

2.2. These may be called the external and These may be called the external and internal relationship. internal relationship.

a.a. The The external relations external relations are concerned with the are concerned with the ways in which A brings P into contractual ways in which A brings P into contractual relationship with T. relationship with T.

b.b. The The internal relationship internal relationship is concerned with the is concerned with the dealings between P and A and the obligations dealings between P and A and the obligations which they owe each other. which they owe each other.


PRELIMINARY POINT 1PRELIMINARY POINT 1• The word ‘agent’ is used by lawyers in amore The word ‘agent’ is used by lawyers in amore

restricted sense that by businesspeople.restricted sense that by businesspeople.• If you go the If you go the ACCRA MALL ACCRA MALL you will very likely you will very likely

find a shop which describes itself as Sony Agent.find a shop which describes itself as Sony Agent.• It is unlikely that such a shop is in fact an agent It is unlikely that such a shop is in fact an agent

in the legal sense. Almost certainly it is buying in the legal sense. Almost certainly it is buying products from Sony, as the case may be, and products from Sony, as the case may be, and selling them on its own behalf to customers. selling them on its own behalf to customers.

• In the legal terms it is a distributor, rather than In the legal terms it is a distributor, rather than an agent. an agent.


PRELIMINARY POINT 2PRELIMINARY POINT 21.1. Although agencies are usually Although agencies are usually

created by contracts, a contract is created by contracts, a contract is not essential.not essential.

2.2. Within fWithin familiesamilies and between and between friendsfriends a gratuitous agency, in which a gratuitous agency, in which somebody does something for somebody does something for someone else without expecting to someone else without expecting to be rewarded, is very common.be rewarded, is very common.


PRELIMINARY POINT 3PRELIMINARY POINT 3• Classically, the agent has power to make a Classically, the agent has power to make a

contract on behalf of his principal, which will contract on behalf of his principal, which will bind the principal. bind the principal.

• However, it is by no means unusual to have an However, it is by no means unusual to have an agent whose job it is to negotiate but who does agent whose job it is to negotiate but who does not have power to enter binding contracts on not have power to enter binding contracts on behalf of the principal. behalf of the principal.

• So an estate agent is hired to find someone So an estate agent is hired to find someone willing to buy the client’s house. willing to buy the client’s house.

• He will not normally have authority to enter into He will not normally have authority to enter into a binding contract on the client’s behalf. a binding contract on the client’s behalf.


PRELIMINARY POINT 4PRELIMINARY POINT 41.1.An agent may be an agent for some purposes of a particular An agent may be an agent for some purposes of a particular transaction and a principal of other purposes. transaction and a principal of other purposes.

For instance, if a client instructs a stockbroker to buy or sell For instance, if a client instructs a stockbroker to buy or sell shares on his behalf on the stock exchange, the relationship shares on his behalf on the stock exchange, the relationship between the client and the stockbroker is basically that of between the client and the stockbroker is basically that of principal and agent. principal and agent.

But when the broker goes on to the exchange to carry out the But when the broker goes on to the exchange to carry out the instructions, he acts as a principal, because the rule of the stock instructions, he acts as a principal, because the rule of the stock exchange is that all its members deal as principals and not as exchange is that all its members deal as principals and not as agents. agents.

2.2.There are very good commercial reason for this, since the members There are very good commercial reason for this, since the members of the exchange have no time to investigate clients and necessarily, of the exchange have no time to investigate clients and necessarily, therefore do business on the basis that they can trust the other therefore do business on the basis that they can trust the other members of the exchange members of the exchange

(trust here is concerned at least as much with solvency as with (trust here is concerned at least as much with solvency as with dishonesty). An agent who acts in this way is often called a dishonesty). An agent who acts in this way is often called a commission agent. commission agent.


PRELIMINARY POINT 5PRELIMINARY POINT 5• Something like the reverse occurs with a Something like the reverse occurs with a del del

credere credere agentagent, who in effect guarantees that , who in effect guarantees that T will meet his obligation to P. T will meet his obligation to P.

• Such an arrangement would not be unlikely Such an arrangement would not be unlikely where A has much better chances of where A has much better chances of assessing T’s creditworthiness than P does. assessing T’s creditworthiness than P does.

• Of course a I Of course a I del credere del credere agent would expect agent would expect to command a rather better commission. to command a rather better commission.


PRELIMINARY POINT 6PRELIMINARY POINT 61.1. Sometimes it is clear that an intermediary is an agent but Sometimes it is clear that an intermediary is an agent but

unclear whether he acts for one side or the other. Eg unclear whether he acts for one side or the other. Eg insurance insurance The fact that the insurer has equipped the intermediary with The fact that the insurer has equipped the intermediary with

cover notes would be a very good indication that the cover notes would be a very good indication that the intermediary is acting for the insurer. intermediary is acting for the insurer.

On the other hand, the insured quite often tells the On the other hand, the insured quite often tells the intermediary things which would affect the risk and which the intermediary things which would affect the risk and which the intermediary ‘forgets’ to pass on to the insured. intermediary ‘forgets’ to pass on to the insured.

When this happens the insurer will certainly argue that the When this happens the insurer will certainly argue that the intermediary is the agent of the insured. The truth is that the intermediary is the agent of the insured. The truth is that the situation is confused and it is difficult to analyze the practice of situation is confused and it is difficult to analyze the practice of the insurance industry in a way which fits in with basic the insurance industry in a way which fits in with basic principles of agency law. principles of agency law.


TOPICS TOPICS 1. Definition of agency 2.2. Creation Creation of agencyof agency3.3. AuthorityAuthority of the agent4.4. Duties Duties of the agent5.5. DutiesDuties of the principal6.6. Rights Rights of the agent7.7. Liabilities Liabilities of the parties8.8. Disclosed Disclosed and undisclosed undisclosed principals9.9. Termination Termination of agency10.Special typestypes of agent


1. DEFINITION OF AGENCY1. DEFINITION OF AGENCY• There is no single Statute which attempts to There is no single Statute which attempts to

comprehensively deal with the law of agency comprehensively deal with the law of agency in Ghana. Unlike sale of goods (Act 137) and in Ghana. Unlike sale of goods (Act 137) and hire-purchase (NRCD 292).hire-purchase (NRCD 292).

• The law of agency is therefore mainly based The law of agency is therefore mainly based on the common law. on the common law.

• This does not mean that there are no Statutes This does not mean that there are no Statutes which bear of the law of agency. which bear of the law of agency.

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1.1. The concept of agency has not received any The concept of agency has not received any concise, statutorily or judicial definition. Sec concise, statutorily or judicial definition. Sec 82 of the Sale of Goods Act, for example, 82 of the Sale of Goods Act, for example, defines only a specific type of agency-defines only a specific type of agency-Merchantile AgencyMerchantile Agency. .

2.2. The courts have done the same, defining The courts have done the same, defining particular types of agency as the need arises. particular types of agency as the need arises.

3.3. It is therefore better to examine the essential It is therefore better to examine the essential character of an agency relationship instead of character of an agency relationship instead of attempting to define it.attempting to define it.


• According to GHL Fridman (6According to GHL Fridman (6thth Ed., 1990; 9) Ed., 1990; 9) “Agency is the relationship that exists “Agency is the relationship that exists between two persons when one, called the between two persons when one, called the agentagent, , is considered in law to represent the is considered in law to represent the other, called the other, called the principalprincipal, , in such a way as to in such a way as to be be able to affect able to affect the principal’s legal position the principal’s legal position in respect of strangers to the relationship by in respect of strangers to the relationship by making of contracts making of contracts or the or the disposition of disposition of propertyproperty””


• This definition means that the law of agency has no relevance to social or other non-legal obligations.

• The definition also means that it is the legal effects of the conduct of the parties that must be investigated to know whether an agency relationship exists or not.

• There is no need to investigate the parties’ conduct separate from the law or to look at the language they have used to describe their relationship.


• To be able to understand and classify the true legal relationship between the parties and the incident of such relationship, this requires an intricate analysis of the facts and the nature of the relationship between the parties. • Two factors must be considered in such

analysis: – the consent of the parties and– the authority of the agent.


• Almost all the leading authorities on the law of agency Almost all the leading authorities on the law of agency suggest that the principal and the agent must have suggest that the principal and the agent must have agreed either in the form of a contract, or otherwise, agreed either in the form of a contract, or otherwise, that the agent should represent the principal. that the agent should represent the principal. – For example For example BowsteadBowstead defines agency as “… defines agency as “…the fiduciary the fiduciary

relationship which exists between two persons, one of relationship which exists between two persons, one of whom expressly or impliedly consents that the other whom expressly or impliedly consents that the other should represent him or act on his behalf and other of should represent him or act on his behalf and other of whom similarly consents to represent the former or so to whom similarly consents to represent the former or so to actact.”.”

– The American Restatement of the Law of Agency also The American Restatement of the Law of Agency also defines agency as “…defines agency as “…the relationship which results from the the relationship which results from the manifestation of consent, by one person to another, that manifestation of consent, by one person to another, that the other shall act on his behalf and subject to his control, the other shall act on his behalf and subject to his control, and consent by the other so to actand consent by the other so to act””

– Similarly, Seavey, spoke of agency as “Similarly, Seavey, spoke of agency as “a consensual a consensual relationshiprelationship” and Powell include the notion of agreement ” and Powell include the notion of agreement on the part of the agent in his definition of agency. on the part of the agent in his definition of agency.


• In In GARNAC GRAIN CO. INC v. HMF FAURE AND GARNAC GRAIN CO. INC v. HMF FAURE AND FAIRCLOUGH LTDFAIRCLOUGH LTD, Lord Pearson said; “, Lord Pearson said; “The The relationship of principal and agent can only be relationship of principal and agent can only be establish by establish by the consent the consent of the principal and of the principal and agentagent.” .”

• However his lordship went on to say that they However his lordship went on to say that they would be held to have consented “would be held to have consented “if they have if they have agreed agreed to what in law amounts to such a to what in law amounts to such a relationship, relationship, even if they do not recognise it even if they do not recognise it themselves and even if they have professed to themselves and even if they have professed to disclaim itdisclaim it.” .”

• But consent was necessary, either expressly or by But consent was necessary, either expressly or by implication from their words or conduct. implication from their words or conduct.


• This statement has been criticised for making This statement has been criticised for making consent the basis of agency law. consent the basis of agency law.

• It has been suggested that it is the law that It has been suggested that it is the law that must determine what is or is not agency. must determine what is or is not agency.

• In other words, In other words, what is agency is a matter of what is agency is a matter of legal construction and not a mechanical legal construction and not a mechanical determinationdetermination. .

• A second criticism is that it seeks to exclude A second criticism is that it seeks to exclude situations in which the parties have not truly situations in which the parties have not truly consented to any such relationship. consented to any such relationship.

• Thus Thus one can distinguish between agency arising one can distinguish between agency arising from consent and agency arising from estoppelfrom consent and agency arising from estoppel. .


• The possibility of agency arising without consent The possibility of agency arising without consent was evident in was evident in Boardman v. PhippsBoardman v. Phipps where the where the English House of Lords held that parties to English House of Lords held that parties to whose acting as agents no consent had ever whose acting as agents no consent had ever been given could be treated as ‘self-appointed been given could be treated as ‘self-appointed agents.’agents.’

• From the foregoing, it can be stated that it is not From the foregoing, it can be stated that it is not completely satisfactory to base agency upon completely satisfactory to base agency upon consent, eve though, in many instance, consent consent, eve though, in many instance, consent is a relevant, and possibly a determining factor is a relevant, and possibly a determining factor in the existence as well as the scope of an in the existence as well as the scope of an agency relationship. But this is not the same as agency relationship. But this is not the same as to say that the relationship and its effects to say that the relationship and its effects always arise from and are determined by always arise from and are determined by agreement. agreement.


• This is borne out, by the fact that not all the incidents of the This is borne out, by the fact that not all the incidents of the agency relationship, (i.e. the rights and duties which attach agency relationship, (i.e. the rights and duties which attach to the parties) arise as a result of any to the parties) arise as a result of any special agreement special agreement between thembetween them..

• Many such incidents are attached to the relationship by Many such incidents are attached to the relationship by virtue of some rule of law like equity, quasi-contract, or virtue of some rule of law like equity, quasi-contract, or tort. tort.

• For instance, some of the obligations incumbent upon an For instance, some of the obligations incumbent upon an agent is ‘imposed by law, irrespective of agreement, and agent is ‘imposed by law, irrespective of agreement, and may properly be classified as quasi-contractual. An example may properly be classified as quasi-contractual. An example is the duty of the agent to hand over to this principal money is the duty of the agent to hand over to this principal money belonging to him, and received to the principal’s use. belonging to him, and received to the principal’s use.

• By virtue of the law of torts, an agent who acts gratuitously, By virtue of the law of torts, an agent who acts gratuitously, in the absence of contract because there is no consideration in the absence of contract because there is no consideration is still obliged to exercise care in handling of his principal’s is still obliged to exercise care in handling of his principal’s affairs.affairs.


• The attack upon the importance of consent in agency has also been made elsewhere.

• In Branwhite v. Worcester Finance Ltd Lord Wilberforce suggested that “some wider conception of vicarious responsibility other that of agency, as normally understood, may have to be recognised in order to accommodate some of the more elaborate cases which now arise when there are two person who become mutually involved or associated in one side of a transaction”


• The attack is based on the idea that there are instances when a principal is held liable for the unauthorised acts of the agent. • To make consent a basis for agency

is to say that no principal can be held liable for such unauthorised acts of the agent.


• Meanwhile, it is understood that the common law makes use of estoppel in the form of “apparent authority” to hold someone responsible for the expectations which his acts creates.

• This makes up for the deficiencies in the consent/agreement exposition of agency.

• While consent should not be over-emphasized, it cannot be ignored entirely too.

• Thus, in the modern law of agency, consent is key but with modifications to make it more adaptable to pressing needs.


2. CREATION OF AGENCY– Agency=a relationship BTN 2 legal persons, P and A, in Agency=a relationship BTN 2 legal persons, P and A, in

which the function of the A is to form a contract BTN which the function of the A is to form a contract BTN his P + TP. his P + TP.

– The A does not form contracts with TPs on his own The A does not form contracts with TPs on his own behalf, and so it is not necessary that he has full behalf, and so it is not necessary that he has full contractual capacity. contractual capacity.

– The P must have full contractual capacity.The P must have full contractual capacity.– Agency may be created: Agency may be created:

1.1. by consent, which may be express, implied or by consent, which may be express, implied or retrospective (by ratification); retrospective (by ratification);

2.2. by operation of law; or by operation of law; or 3.3. by estoppelby estoppel


BY CONSENT: EXPRESS CONSENT• Usually A is expressly appointed by the P to

undertake certain transactions. • The appointment IS often ORALORAL. • In commercial transactions it is usual to appoint an

agent in WRITINGWRITING, to avoid misunderstanding of the terms.

• A is given POWER OF ATTORNEY POWER OF ATTORNEY where A = appointed to execute a DEED on behalf of the P, or where A = to act as if he = the P (say because the P goes abroad).

• This is created by deed: it must be signed by the P and expressed to be a deed, signature must be witnessed by two people and the deed document known as the power of attorney must be delivered ‑to the agent.


BY CONSENT: IMPLIED CONSENT • Two persons may by their relationshiprelationship or

their conduct to each other imply an agreement between them that one is the agent of the other.

• If, for example, an employee's duties include making contracts for his employer, say by ordering goods on his account, the employee is, by implied agreementimplied agreement, the agent of the employer for this purpose.


BY CONSENT: RATIFICATION

• If A makes a contract on behalf of P at a time when A has no authority from P, the contract may later be ratifiedratified by P and it then has retrospective effect to the time when A made the contract.

• The following The following CONDITIONSCONDITIONS must be must be satisfied.satisfied.



CONDITION 1CONDITION 1• P must exist and have capacity to enter into the

contract when it is made. For this reason AT COMMON For this reason AT COMMON LAW a company cannot ratify a contract made on its LAW a company cannot ratify a contract made on its behalf before the company is formed [NB: GHANAIAN behalf before the company is formed [NB: GHANAIAN POSITION= ]POSITION= ]. Case: Kelner v Baxter 1866.

• The promoters of a company to be formed to carry on a hotel business obtained stock in trade (wines etc) for the company from the plaintiff.

• The company which was formed 3 weeks later took over and sold the stock but failed to pay for it.

• The plaintiff sued the promoters who argued that they were merely agents of the company which had ratified the contract.

– HELD. the company could not by ratification bind itself the company could not by ratification bind itself retrospectively to a contract made before it existed. retrospectively to a contract made before it existed. The promoters were liable for breach of warranty of The promoters were liable for breach of warranty of authority and must pay. authority and must pay.

CONDITION 2• In making the contract, the principal of the agent

must be identified as a party to the contract. • Case: Keighley Maxsted & Co v Durant 1900 – An agent was authorised to buy wheat at 45/3d per quarter

from D. – D would not sell for less than 45/6d and the agent bought at

that price without disclosing that he was buying for a principal, i.e. KM.

– KM however later purported to ratify the contract but failed to pay the agreed price. D sued them on the contract.

HELD: where there is no immediate contract because the agent lacks authority, an undisclosed principal cannot adopt and ratify the contract. The principal must be 'capable of being ascertained at the time when the act was done' if he is to be allowed to ratify the act afterwards.


CONDITIONS 3 + 41. If the other party makes an offer which the A

accepts on behalf of his P (without reservation on either side to the effect that this is by the P) the principal need not ratify the contract but if he does it has retrospective effect. – Hence the other party may withdraw his offer in the

interval between its acceptance by the agent and the ratification by the principal.

2. The principal must either ratify within the time period specified or within a reasonable time; in any case, the principal must ratify before the contract is to come into effect.


EFFECT OF RATIFICATION EFFECT OF RATIFICATION 1.1. Ratification is only effective if the principal is Ratification is only effective if the principal is

genuine and it can be shown that he was genuine and it can be shown that he was prepared to adopt all of the transaction. prepared to adopt all of the transaction. • The principal may only ratify if: he ratifies the whole contract

and not merely parts of it; • He communicates a sufficiently clear intention of ratifying,

either by express words or by conduct such as refusing to return goods purchased for him by an agent who lacked authority (mere passive inactivity does not amount to ratification);• the contract is neither void nor illegal. For that reason the

members of a company cannot, by passing a resolution in general meeting, ratify a contract which was ultra vires the company when made.

2. Ratification relieves the A of any liability for breach of warranty of authority and entitles him to claim from the A any agreed remuneration for making the K


BY OPERATION OF LAW: AGENCY OF NECESSITY

• A principal may, by operation of law, be bound by a contract made on his behalf but without his consentwithout his consent.

• This rule, i.e. agency of necessity, is of very very restricted application restricted application and is generally confined to carriers carriers of goods, by sea or landland;

• Such persons may become agents by necessity.


• The principle of agency of necessity applies when:1. P entrusts goods to A for some purpose such as

transporting them to a distant destination;2. While the goods are in A's possession some

emergency/commercial necessity emergency/commercial necessity arises in which action must be taken to protect the goods;

3. It is not possible for A to communicate with P to obtain his instructions within the time available; and

4. A takes actionaction which is reasonable to protect P's interests & not merely for the convenience of A.


EFFECT OF AGENCY OF NECESSITY • When these conditions are satisfied, –P is bound by any liability which A

undertakes on his behalf, since an agency of necessity has arisen. –Note that there must be an existing

contractual relationship ‑a person cannot a person cannot become the agent of necessity of another become the agent of necessity of another by taking charge of his property uninvited: by taking charge of his property uninvited: Jebara v Ottoman Bank 1927.


• Case: Great Northern Railway v Swaffield 1874 1. S delivered a horse to a railway for transport to another station but failed to

collect it on arrival as agreed. 2. The railway claimed from S the cost of feeding and stabling the horse arguing

that if it had delivered the horse to a stable that would have been a contract made under agency of necessity and S would be bound to pay. Held Held: the railway claim would be upheld for the reasons given.

• Case: Sachs v Mikios 1948 1. V/ M agreed to store furniture which belonged to S. 2. After a considerable time had elapsed M needed the storage space for his

own use. 3. He tried to contact S to get the furniture removed but was unable to trace S. 4. M then sold the furniture. 5. S sued M for conversion and M pleaded agency of necessity in making the

sale. Held: there was no agency of necessity since no emergency had arisen and M had sold the furniture for his own convenience. If M's house had been destroyed by fire and the furniture left in the open M would then have been justified in selling it.


AGENCY BY ESTOPPEL • If P leads X to believe that A is P's agent, and X deals

with A on that basis, P is bound by the contract with X which A has made on his behalf. P is 'estoppedestopped' from denying A's agency. This situation may arise:– when A, who dealt with X as P's authorized agent,

continues to do so after his authority as agent of P has been terminated but P has not made X aware of it.,

• Agency by estoppel does not arise if it is the 'agent' who holds himself out as agent, not the principal': Armagas v Mundogas, The Ocean Frost 1986Armagas v Mundogas, The Ocean Frost 1986.


Agency by estopple also arises: when A, to P's knowledge, enters into transactions with X as if A were P's agent and P fails to inform X that A is not P's agent. CaseCase. Freeman & Lockyer v Buckhurst Park Properties Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd 1964 (Mangal) Ltd 1964 •K and H carried on business as property developers through a company which they owned in equal shares. •Each appointed another director, making four in all, but H lived abroad and the business of the company was left entirely under the control of K. •As a director K had no actual or apparent authority to enter into contracts as agent of the company but he did make contracts as if he were a managing director without authority to do so.•The other directors were aware of these activities but had not authorized them. •The plaintiffs sued the company for work done on K's instructions.

Held: there had been a representationrepresentation by the company through its board of directors that K was the authorized agent of the company. The board had The board had authority to make such contracts authority to make such contracts and also had power to delegate and also had power to delegate authority to K by appointing him authority to K by appointing him to be Managing Directorto be Managing Director. Although there had been no actual delegation to K, the company had by its mere acquiescence led the plaintiffs to believe that A was an authorized agent and the plaintiffs had relied on it. The company. was bound by the contract made by K under the principle of estoppel. The The company was estopped from company was estopped from denying that K was its agent denying that K was its agent although K had no actual although K had no actual authority from the companyauthority from the company


3. AUTHORITY OF THE AGENTINSIGHT :INSIGHT :1. Authority is a very key feature of the law

of agency. 2. However, the notion if very artificial. 3. This is because there are many instances

when an agent is regarded as having an authority to act even where it is impossible to say that has been invested with such authority by the principal.


• The concept of authorityauthority is only useful for the purpose of explaining the legal effects of the agency relationship. • But it does not help in describingdescribing the legal legal

relationshiprelationship of agency between the parties. • In other words, it does not explain whywhy the

agent’s act agent’s act produces a change a change in the principal’s legal position legal position in relation to third parties.

• This missing explanation is covered by the analysis of the relationship relationship in terms of the agent’s POWER POWER to affect his principal’s legal position


1. By the agency relationship, the agent is invested invested by the lawlaw with ‘a facsimile a facsimile of the principal’s oprincipal’s own wn powerpower.’

2. For instance, in respect of the making of a contract, the agent in effect acts, in such a way that he produces the same resultsresults as if the principal had acted personally and the agent had never appeared on the scene at all.


• This POWERPOWER is controlled by the LAW LAW and it may not be abused or misused by the agent to the detriment of the principal. – This underlies the point that the agency relationship is

one that is created by law one that is created by law and not by the conduct of the parties.

– Thus, the parties may bring about these powerpower and liabilitiesliabilities either in two ways, namely by contractcontract or otherwise.

• However, in the absence of any contractabsence of any contract, then the power derived from the agency relationship is derived from the law itself, as is shown in the whole idea of agency by estoppelagency by estoppel.


This means that: • the endowment of the agent with the power to

act results from either1.1. agreementagreement with the agent that the principal will

be bound, which gives rise to actualactual authorityauthority of the agent, i.e. agency arising by the acts of the i.e. agency arising by the acts of the partiesparties

2. the principal’s showing the third party an intentionintention to be bound by the agent’s acts, and his leading the third party reasonably to believe that he will be so bound, which gives rise to apparent authority on the part of the agent, i.e. agency by agency by estoppel. estoppel.


• In sum, the notion of AUTHORITYAUTHORITY may be used to describedescribe the way in which the POWERS POWERS of the agent have been circumscribedcircumscribed by the agreementagreement or conductconduct of the parties.

• But it does not adequately does not adequately explain, in legal in legal termsterms, the naturenature of the relationship relationship between principal and agentbetween principal and agent. This can best be done by talking of the powers and liabilities powers and liabilities that emerge from the creation of the agency relationships.


AGENCY AS A POWER-LIABILITY RELATIONSHIP

1. The relationship inter se of principal and agent is very important from the view point view point of the parties of the parties themselves and also from the viewpoint of the rights and liabilities of viewpoint of the rights and liabilities of strangersstrangers to the relationship.

2. These two aspects of the agency relationship can be described as external and internalinternal.


• The two are related. – For instance, the way an agent binds a third party to

his principal can affect the agent’s right to remuneration and indemnity.

–Whether the agent has properly performed properly performed or exercised his authorityauthority may be connected with the position of a third party as a result.

– The principal’s right to determine the agent’s authority, as between himself and the agent, can affect the third party’s rights. The law of agency is therefore concerned with the powers and liabilities of the principal and agent, i.e. the powers of the agent and liabilities of the principalliabilities of the principal.


TYPES OF AUTHORITY TYPES OF AUTHORITY • 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 his principal.

• In analyzing the limits of an agent's authority it is necessary to distinguish actualactual from apparentapparent (or ostensibleostensible) authority.


ACTUAL AUTHORITY ACTUAL AUTHORITY 1. The actual authority actual authority of an agent is the

authority to make contracts which the principal agreesagrees he shall have. It is a matter It is a matter between principal and agent. between principal and agent.

2. The actual authority may be either:a.a. expressexpress: for example, authority explicitly given

to make a particular contract; orb.b. impliedimplied: for example, from the nature of the

agent's activities, from what is usual in the circumstances.


• The basis of implied incidental authority implied incidental authority is that the principal, by appointing an agent to act in a particular capacity, gives him authorityauthority to make those contracts which are a necessary or normal incident of the agent's activities.

• Commonly incidental authority applies to subordinate acts necessary for the execution of express actual express actual authorityauthority.

• It supplementssupplements the express authority, and may cover such things as the authority to advertise the authority to advertise when given express authority to sell goodsexpress authority to sell goods.


Implied usual (or customary) authority Implied usual (or customary) authority is that which an agent operating in a particular market a particular market or businessbusiness usually has.Case:Case: Howard v Sheward Howard v Sheward 1866 1866 An estate agent warrantedwarranted to a purchaser that a house was structurally sound. Held: the principal vendor was the principal vendor was bound by his agent's bound by his agent's statementstatement since it was normal practice (and normal practice (and therefore within the therefore within the agent's implied authority) agent's implied authority) for an estate agent to give an assurance.

CaseCase: Panorama Developments Panorama Developments (Guildford) Lid v Fidelis Furnishing (Guildford) Lid v Fidelis Furnishing Fabrics Lid 1971 Fabrics Lid 1971 A company secretary orderedordered the hire of cars ostensibly for his company. In fact they were In fact they were for his personal usefor his personal use. The company wanted to escape paying for the cars. HeldHeld: the hire of cars was within the was within the usual administrative tasks of a usual administrative tasks of a company secretarycompany secretary therefore had the usual authorityusual authority of an agent to bind the company in this way even though the authority was abused. The company had to pay for the cars.


1.Between principalprincipal and agent, agent, the agent’s express authority is paramount; the agent cannot contravene the agent cannot contravene the principal's express instructions by claiming that the principal's express instructions by claiming that he had implied authority for acting in the way he he had implied authority for acting in the way he diddid. 2.But as far as third parties are concerned, they are entitled to assume that the agent has implied usual implied usual authority unless they know to the contraryauthority unless they know to the contrary. Case: Case: Watteau v Fenwick 1893 Watteau v Fenwick 1893 The owner of a hotel (F) employed the previous The owner of a hotel (F) employed the previous owner H to manage it. F forbade H to buy cigarsowner H to manage it. F forbade H to buy cigars on credit but H did buy cigars from W. W sued on credit but H did buy cigars from W. W sued F who argued that he was not bound by theF who argued that he was not bound by the contract, since H had no actual authority to make contract, since H had no actual authority to make

it, and that W believed that H still owned theit, and that W believed that H still owned the hotel.hotel. Held: Held: it was within the usual it was within the usual authority of a manager of a hotel to buy cigars on credit and Fauthority of a manager of a hotel to buy cigars on credit and F was was bound by the contract (although W did not even know that H was the bound by the contract (although W did not even know that H was the agent of F) since hisagent of F) since his restriction of usual authority had not been restriction of usual authority had not been communicated.communicated.02/23/11 LAW OF AGENCY 2011 ATTA-KESSON

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APPARENT AUTHORITY 1.1. The apparent (or ostensible), authority, of an agent is The apparent (or ostensible), authority, of an agent is

that which his principal that which his principal representsrepresents to other persons to other persons (with whom the agent deals) that he has given to the (with whom the agent deals) that he has given to the agent. agent.

2.2. As a result an agentAs a result an agent with limited express or implied with limited express or implied actual authority can be held in practice to have a moreactual authority can be held in practice to have a more extensive authority.extensive authority.

3.3. Apparent authority and implied authority overlap and Apparent authority and implied authority overlap and will often coincide exactly. will often coincide exactly.

1.1. If, forIf, for example, a principal employs a stockbroker to sell shares example, a principal employs a stockbroker to sell shares it is an implied term of theit is an implied term of the arrangement between them that arrangement between them that the broker shall (unless otherwise agreed) have actual the broker shall (unless otherwise agreed) have actual authorityauthority to do what is to do what is usual usual in practice for a broker selling in practice for a broker selling shares for a client (but no more thanshares for a client (but no more than that). that).


• Any person who deals with the broker is on his side entitled to assume (unless, informed to the contrary) that the broker has, as his apparent and actual authority, the usual authority of a broker by his client.

• Thus far the two forms of authority are co extensive.‑

• Apparent authority (unlike actual. implied authority) is not, however, restricted to what is usual and/or incidental.

• The principal may expressly or by inference from his conduct confer on the agent any amount of exceptional apparent authority. 02/23/11 LAW OF AGENCY 2011 ATTA-KESSON

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• For example a partner has considerable but limited implied authority merely by virtue of being a partner. If, however, the other partners allow him to exercise a greater authority than is implied, they represent that he has it and they are bound by the contracts which he makes within the limits of this apparent authority.

• For apparent authority to be created so as to bind the principal where the third party acted on it the following conditions must be met:

1. there must be representations or holding out by the principal (not by the agent claiming apparent authority: Armagas v Mundogas, The Ocean Frost 1986);

2. the representation must be one of fact; and3. the third party must rely on that representation.


DUTIES OF THE AGENT• When an agent agrees to perform services When an agent agrees to perform services

for his principal for reward there is a for his principal for reward there is a contract between them. But even if the contract between them. But even if the agent undertakes his duties without reward agent undertakes his duties without reward he has obligations to his principal. he has obligations to his principal.

• The agent's duties are listed below.The agent's duties are listed below.• Performance Performance the agent who agrees to act the agent who agrees to act

as agent for reward has a contractual as agent for reward has a contractual obligation to perform his agreed task and obligation to perform his agreed task and obey instructions. obey instructions. Case: Case: Turpin v Bilton Turpin v Bilton 18431843


InIn Turpin v Bilton Turpin v Bilton 18431843– A broker agreed to arrange insurance of his A broker agreed to arrange insurance of his

principal's ships but failed to do so. principal's ships but failed to do so. – A ship was lost at sea. A ship was lost at sea. – Held: the broker was liable to make good the Held: the broker was liable to make good the

loss. loss. – But an unpaid agent is not bound to carry out his But an unpaid agent is not bound to carry out his

agreed duties (there is no consideration). agreed duties (there is no consideration). – In addition, any agent may refuse to perform an In addition, any agent may refuse to perform an

illegal act.illegal act.


• As earlier noted earlier; an As earlier noted earlier; an unpaid unpaid agent is not bound to agent is not bound to carry out his agreed duties (there is no consideration). carry out his agreed duties (there is no consideration).

• in addition, any agent may refuse to perform an illegal act.in addition, any agent may refuse to perform an illegal act. as regards the compulsion to perform his duties, we have as regards the compulsion to perform his duties, we have two kinds of agents; it is said that a gratuitous agent (not two kinds of agents; it is said that a gratuitous agent (not paid) is not liable.paid) is not liable.

• Friedman is one of the scholars who propounds this theory Friedman is one of the scholars who propounds this theory arguing that in the common law there is not liability for arguing that in the common law there is not liability for nonfeasance only for malfeasance. He is liable only if he nonfeasance only for malfeasance. He is liable only if he attempts to perform and does it negligently. HOWEVER THE attempts to perform and does it negligently. HOWEVER THE PAID AGENT IS LIABLE FOR MALFEASANCE. PAID AGENT IS LIABLE FOR MALFEASANCE.

• This distinction is unreal and contrary to legal theory. in the This distinction is unreal and contrary to legal theory. in the beginning of contract law there was no liability for beginning of contract law there was no liability for malfeasance, later on the judges said that a man may do malfeasance, later on the judges said that a man may do more damaged by nonfeasance than by malfeasance. more damaged by nonfeasance than by malfeasance.


• Care and skill a ‑ paid agent undertakes to maintain the standard of skill and care to be expected of a person in his profession. • For example, an accountant has a duty to his

client to show the skill and care of a competent accountant. • An unpaid agent if he acts as agent (which he

need not do) must show the skill and care which people ordinarily use in managing their own affairs.


• Personal performance the ‑ agent is presumably selected because of his personal qualities and owes a duty to perform his task himself and not to delegate it to another. “DELEGATUS NON POTEST DELEGARE”

• But he may delegate in a few special circumstances, if delegation is necessary, such as a solicitor acting for a client would be obliged to instruct a stockbroker to buy or sell listed securities on the Stock Exchange.


• AccountabilityAccountability an ‑ an ‑ agent must both agent must both provide full information to his principal provide full information to his principal of his agency transactions and account to of his agency transactions and account to him for all moneys etc arising from them,him for all moneys etc arising from them,

• The agent must keep proper accounts The agent must keep proper accounts and show them to the principal when and show them to the principal when ever the principal requests to see them ever the principal requests to see them

• And must not show same to third parties And must not show same to third parties without principal’s knowledge and without principal’s knowledge and consent.consent.


• The agent is also under a duty to keep the The agent is also under a duty to keep the principal’s money separate from his own. principal’s money separate from his own.

• And any at mixture is regarded as the And any at mixture is regarded as the principal’s unless the agent can prove clearly principal’s unless the agent can prove clearly otherwise. otherwise.

• The banking rule of first in first out does not The banking rule of first in first out does not apply and an agent is deemed to have taken apply and an agent is deemed to have taken out 1out 1stst the principals money. the principals money.


• To To avoid a conflict avoid a conflict of of interest interest the ‑ the ‑ agent owes to agent owes to his principal a duty not to put himself in a his principal a duty not to put himself in a situation where his own interests conflict with situation where his own interests conflict with those of the principal; for example, he must not those of the principal; for example, he must not sell his own property to the principal (even if the sell his own property to the principal (even if the sale is at a fair price).sale is at a fair price).

• Case: Case: Armstrong v Jackson Armstrong v Jackson 19171917 A client instructed A client instructed his stockbroker to buy for him 600 shares of X Ltd. his stockbroker to buy for him 600 shares of X Ltd. The broker sold to his client 600 shares which he The broker sold to his client 600 shares which he himself ownedhimself owned. .

• Held: Held: the sale was made in breach of the broker's the sale was made in breach of the broker's duty and would be set aside.duty and would be set aside.


• ConfidenceConfidence the agent must keep in ‑ the agent must keep in ‑confidence that he knows of his principal's confidence that he knows of his principal's affairs, even after the agency relationship affairs, even after the agency relationship has ceased.has ceased.

• Any benefit Any benefit mustmust be handed over to the be handed over to the principal unless he agrees that the agent may principal unless he agrees that the agent may retain it. retain it.

• Although an agent is entitled to his agreed Although an agent is entitled to his agreed remuneration, he must account to the remuneration, he must account to the principal for any other benefits. principal for any other benefits.


• If he accepts from the other party any If he accepts from the other party any commission, reward or discount for himself commission, reward or discount for himself as an inducement to make the contract as an inducement to make the contract with him, that is a bribe and the contract is with him, that is a bribe and the contract is fraudulent' The agent may be dismissed. fraudulent' The agent may be dismissed.

• Even if the agent has acted honestly Even if the agent has acted honestly throughout and substantial benefits have throughout and substantial benefits have accrued to the principal, the former may accrued to the principal, the former may not keep any benefit not keep any benefit Boardman v PhippsBoardman v Phipps 1967.1967.


Case. Case. Boston Deep Sea Fishing & Ice Co v Boston Deep Sea Fishing & Ice Co v Ansell Ansell 1888 1888 –A, who was managing director of the plaintiff A, who was managing director of the plaintiff

company, accepted commissions from company, accepted commissions from suppliers on orders which he placed with suppliers on orders which he placed with them for goods supplied to the company. them for goods supplied to the company. –He was dismissed and the company sued to He was dismissed and the company sued to

recover from him the commissions. recover from him the commissions. –Held the company was justified in dismissing Held the company was justified in dismissing

A and he must account to it for the A and he must account to it for the commissions.commissions.


DUTIES OF THE PRINCIPAL1.1. Provided the agent has performed the acts Provided the agent has performed the acts

he was employed to do, and has abided by he was employed to do, and has abided by his duties, his duties, the principal has a duty to pay the principal has a duty to pay him his agreed remunerationhim his agreed remuneration, even if he has , even if he has derived no benefit from his acts. derived no benefit from his acts.

2.2. However, he need not pay if the However, he need not pay if the transactions undertaken by the agent were transactions undertaken by the agent were illegal, illegal, unless unless the agent did not know of the the agent did not know of the illegality.—illegality.—


1.1. The principal has a duty not to prevent his The principal has a duty not to prevent his agent from performing the acts for which he agent from performing the acts for which he is to receive remuneration.is to receive remuneration.

2.2. If the principal agrees to pay the agent only If the principal agrees to pay the agent only on the occurrence of a certain event which on the occurrence of a certain event which the agent is to bring about, and then the the agent is to bring about, and then the event happens without the agent's event happens without the agent's intervention, intervention, the principal does not have to the principal does not have to paypay..

3.3. Finally, the principal has a duty to indemnify Finally, the principal has a duty to indemnify his agent for expenses legitimately incurred.his agent for expenses legitimately incurred.


RIGHTS OF THE AGENTS• The agent is entitled to be repaid his expenses and to The agent is entitled to be repaid his expenses and to

be indemnified by his principal against losses and be indemnified by his principal against losses and liabilities liabilities ((Hicheni, Harrison, Woolston & Co,y Jackson Hicheni, Harrison, Woolston & Co,y Jackson & Sons& Sons 1943). 1943).

• These rights are limited to acts of the agent done These rights are limited to acts of the agent done properly properly within the limits of his authoritywithin the limits of his authority: : if he acts in if he acts in an unauthorised manner or negligently he loses his an unauthorised manner or negligently he loses his entitlement.entitlement.

• He may recover expenses properly paid even if he was He may recover expenses properly paid even if he was not legally bound to pay, for example, a solicitor who not legally bound to pay, for example, a solicitor who pays counsel's fees (which the counsel cannot recover pays counsel's fees (which the counsel cannot recover at law) may reclaim this expense from his client.at law) may reclaim this expense from his client.


• The agent is also entitled to be paid any The agent is also entitled to be paid any agreed remuneration for his services by agreed remuneration for his services by his principal. The amount may have his principal. The amount may have been expressly agreed or be implied, for been expressly agreed or be implied, for example by trade or professional example by trade or professional practice. If it is agreed that the agent is practice. If it is agreed that the agent is to be remunerated but the amount has to be remunerated but the amount has not been fixed, the agent is entitled to a not been fixed, the agent is entitled to a reasonable amount. reasonable amount.


• Case: Case: Way v Latilla Way v Latilla 19371937 – An agent undertook to provide information An agent undertook to provide information

on gold mines in West Africa. on gold mines in West Africa. –No remuneration had been agreed. No remuneration had been agreed. –Held: Held: in the circumstances agreement that in the circumstances agreement that

there should be remuneration was inferred there should be remuneration was inferred and £5,000 was a reasonable sum to award. and £5,000 was a reasonable sum to award. (NB it does not follow that every agent is (NB it does not follow that every agent is entitled to reward: it must be implied if it is entitled to reward: it must be implied if it is not expressed).not expressed).


Estate Agent• There is a considerable body of case law on the There is a considerable body of case law on the

claims of estate agents for their agreed claims of estate agents for their agreed remuneration although the property has not been remuneration although the property has not been sold or has been sold to a purchaser not sold or has been sold to a purchaser not introduced by the agent. introduced by the agent.

• Unless the contract states very clearly a contrary Unless the contract states very clearly a contrary intention, the courts are inclined to hold that the intention, the courts are inclined to hold that the parties intended commission to be paid only out of parties intended commission to be paid only out of the proceeds of an actual sale to a purchaser the proceeds of an actual sale to a purchaser introduced by the agent. introduced by the agent.

• The following matters in particular have been The following matters in particular have been considered.considered.02/23/11 LAW OF AGENCY 2011 ATTA-KESSON

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• The principal is entitled to withdraw from the The principal is entitled to withdraw from the transaction there is no implied term that he will not ‑transaction there is no implied term that he will not ‑prevent the agent from earning his commission.prevent the agent from earning his commission.

• Case: Case: Luxor (Eastbourne) v Cooper Luxor (Eastbourne) v Cooper 19411941– L employed C to find a purchaser for four cinemas at a L employed C to find a purchaser for four cinemas at a

price of £ 185,000. price of £ 185,000. – C introduced a purchaser who offered £185,000 for the C introduced a purchaser who offered £185,000 for the

cinemas 'subject to contract'. cinemas 'subject to contract'. – L withdrew from the negotiations and C sued for his agreed L withdrew from the negotiations and C sued for his agreed

fee of £10,000. fee of £10,000. • Held: Held: the claim must fail. The House of Lords held that the claim must fail. The House of Lords held that

there was no implied term such as C asserted. There there was no implied term such as C asserted. There was no need to imply such a term in order to give the was no need to imply such a term in order to give the contract business efficacy.contract business efficacy.


• The principal may agree to pay a fee to the agent if The principal may agree to pay a fee to the agent if he is able 'to find a purchaser' or 'find a person he is able 'to find a purchaser' or 'find a person willing and able to purchase'.willing and able to purchase'.

• If a purchaser introduced by the agent then enters If a purchaser introduced by the agent then enters into a binding contract to purchase, the agent has into a binding contract to purchase, the agent has earned his fee. earned his fee.

• If however, the purchaser whom he introduces If however, the purchaser whom he introduces merely makes a conditional offer to purchase e.g. merely makes a conditional offer to purchase e.g. 'subject to contract' or 'subject to survey' etc, the 'subject to contract' or 'subject to survey' etc, the agent has not found a purchaser in the strict agent has not found a purchaser in the strict sense. It is doubtful whether even an sense. It is doubtful whether even an unconditional or a person willing and able to unconditional or a person willing and able to purchase. purchase.


• But if he does not withdraw his offer it may But if he does not withdraw his offer it may suffice. suffice. Case: Case: Christie, Owen and Dayies v Christie, Owen and Dayies v Rapacioli Rapacioli 19741974

• The purchaser made an offer and later paid a The purchaser made an offer and later paid a deposit and signed his copy of the contract. The deposit and signed his copy of the contract. The vendors then withdrew. vendors then withdrew.

• The agent claimed his fee for having introduced The agent claimed his fee for having introduced 'a person ready able and willing to purchase'. 'a person ready able and willing to purchase'.

• Held: Held: on these facts the agent had earned his fee. on these facts the agent had earned his fee. (NB there was more than an unconditional offer (NB there was more than an unconditional offer here).here).


LIABILITIES OF THE PARTIES• In an agency relationship it is In an agency relationship it is

generally the case that the principal is generally the case that the principal is liable to the third party for contracts liable to the third party for contracts formed by his agent within his actual formed by his agent within his actual or apparent authority. or apparent authority. • Thus he must perform his side of the Thus he must perform his side of the

bargain. bargain.


• Liability of the principal for agent's Liability of the principal for agent's fraud, torts or misrepresentations. fraud, torts or misrepresentations. – Although apparent authority does not in Although apparent authority does not in

itself create an agency relationship itself create an agency relationship (though agency by estoppel is similar), it (though agency by estoppel is similar), it does mean that the alleged principal is does mean that the alleged principal is bound even if the acts are fraudulent. bound even if the acts are fraudulent. –This also applies to fraudulent contracts This also applies to fraudulent contracts

entered into for the agent's own purposes entered into for the agent's own purposes or acts carried out by the agent within his or acts carried out by the agent within his actual actual authorityauthority. .


• The principle of vicarious liability for The principle of vicarious liability for torts is well-established in torts is well-established in employment law. employment law. • It states that an employer has joint It states that an employer has joint

and several liability for the torts of his and several liability for the torts of his employee where the employee’s torts employee where the employee’s torts are committed in the course of his are committed in the course of his employment. employment.


• Vicarious liability also applies to principals where Vicarious liability also applies to principals where there is no employment relationship but where there is no employment relationship but where the agent is acting within the limits of his or her the agent is acting within the limits of his or her apparent authority. apparent authority.

• Hence a principal is liable for misrepresentation Hence a principal is liable for misrepresentation and the torts of deceit, negligence etc which are and the torts of deceit, negligence etc which are committed by an agent acting within his apparent committed by an agent acting within his apparent authority (clearly no agent would be given actual authority (clearly no agent would be given actual authority to act in this way). authority to act in this way).

• In such a case the principal can claim an indemnity In such a case the principal can claim an indemnity from his agent if he has had to compensate a third from his agent if he has had to compensate a third party: party: Lister Lister v v Romford Ice and Cold Storage Co Ltd Romford Ice and Cold Storage Co Ltd 1957.1957.02/23/11 LAW OF AGENCY 2011 ATTA-KESSON

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Liability of the agentLiability of the agent• An agent contracting for his An agent contracting for his

principal within his actual and/or principal within his actual and/or apparent authority generally has no apparent authority generally has no liability on the contract and is not liability on the contract and is not entitled to enforce it. entitled to enforce it. • However, there are circumstances However, there are circumstances

when the agent will be personally when the agent will be personally liable and can enforce it:liable and can enforce it:


1.1. when he intended to undertake personal liability as ‑when he intended to undertake personal liability as ‑where he signs a contract as party to it without signifying where he signs a contract as party to it without signifying that he is an agent. In particular, he will be liable on a that he is an agent. In particular, he will be liable on a cheque which he signs without indicating his agency cheque which he signs without indicating his agency status:status:

2.2. where the principal was undisclosed;where the principal was undisclosed;3.3. where it is usual business practice or trade custom for an where it is usual business practice or trade custom for an

agent to be liable and entitled; for example, advertising agent to be liable and entitled; for example, advertising agents are liable to the media for contracts made on agents are liable to the media for contracts made on their client's behalf,their client's behalf,

4.4. where the agent is acting on his own behalf even though where the agent is acting on his own behalf even though he purports to act for a principal (see he purports to act for a principal (see Kelner v Baxter Kelner v Baxter 1866, 1866, where the agents thought they were acting on where the agents thought they were acting on behalf of a company principal which was not yet in behalf of a company principal which was not yet in existence);existence);02/23/11 LAW OF AGENCY 2011 ATTA-KESSON

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1.1. where the agent contracts by deed without where the agent contracts by deed without having a power of attorney from the principal.having a power of attorney from the principal.

2.2. Where an agent enters into a collateral contract Where an agent enters into a collateral contract with the third party with whom he has t with the third party with whom he has t contracted on the principal's behalf, there is a contracted on the principal's behalf, there is a separate liability and entitlement to enforcement separate liability and entitlement to enforcement on that collateral contract.on that collateral contract.

3.3. It can happen that there is joint liability of agent It can happen that there is joint liability of agent and principal. and principal.

4.4. This is usually the case where an agent did not This is usually the case where an agent did not disclose that he acted for a principaldisclose that he acted for a principal


Breach of warranty of authorityBreach of warranty of authority• An agent who exceeds his apparent authority will generally An agent who exceeds his apparent authority will generally

have no liability to his principal, since the latter will not be have no liability to his principal, since the latter will not be bound by the unauthorised contract made for him. bound by the unauthorised contract made for him.

• But the agent But the agent will will be liable in such a case to the third party be liable in such a case to the third party for breach of warranty of authority.for breach of warranty of authority.– If A purports to enter into a contract with X on behalf of P, A If A purports to enter into a contract with X on behalf of P, A

warrants, or guarantees, to X that P exists and has capacity to warrants, or guarantees, to X that P exists and has capacity to enter into the contract, and that A has authority from P to make enter into the contract, and that A has authority from P to make the contract for him. the contract for him.

– If any of these implied statements proves to be untrue, then If any of these implied statements proves to be untrue, then (unless P ratifies the contract) X may claim damages from A for (unless P ratifies the contract) X may claim damages from A for his loss, provided that X was unaware that A had no authority to his loss, provided that X was unaware that A had no authority to make the contract. A is liable even though he was himself make the contract. A is liable even though he was himself unaware that he lacked authority, say because P had died.unaware that he lacked authority, say because P had died.


DISCLOSED AND UNDISCLOSED PRINCIPALSDISCLOSED AND UNDISCLOSED PRINCIPALS– In normal circumstances the agent In normal circumstances the agent

discloses to the other party that he (the discloses to the other party that he (the agent) is acting for a principal whose agent) is acting for a principal whose identity is also disclosed. identity is also disclosed. –The contract, when made is between the The contract, when made is between the

principal and the other party. The agent principal and the other party. The agent has no liability under the contract and no has no liability under the contract and no right to enforce it. If, in making the right to enforce it. If, in making the contract, the agent discloses that he acts contract, the agent discloses that he acts for an unnamed principal the position is for an unnamed principal the position is the same.the same.


• Undisclosed principalUndisclosed principal– If a person enters into a contract apparently on If a person enters into a contract apparently on

his own account as principal but in fact as agent his own account as principal but in fact as agent on behalf of a principal, the doctrine of the on behalf of a principal, the doctrine of the undisclosed principal determines the position of undisclosed principal determines the position of the parties.the parties.– If the contract is not performed as agreed the If the contract is not performed as agreed the

third party may, on discovering the true facts:third party may, on discovering the true facts:• hold the agent personally bound by the contract (as hold the agent personally bound by the contract (as

the agent appeared to be contracting on his own the agent appeared to be contracting on his own account); account); oror• elect to treat the principal as the other party to the elect to treat the principal as the other party to the

contract.contract.02/23/11 LAW OF AGENCY 2011 ATTA-KESSON

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• But he must elect for one or the other within a But he must elect for one or the other within a reasonable time of discovering the facts, and reasonable time of discovering the facts, and cannot sue both principal and agent cannot sue both principal and agent Chesterions Chesterions v Barone v Barone 1987. 1987.

• A A third party who commences legal proceedings third party who commences legal proceedings against either agent or principal may withdraw against either agent or principal may withdraw (before judgement is given) in order to sue the (before judgement is given) in order to sue the other other Clarkson Booker Lid v Andjel Clarkson Booker Lid v Andjel 1964. 1964.

• If, If, however, he obtains judgement on the breach however, he obtains judgement on the breach of contract he cannot sue the other even if the of contract he cannot sue the other even if the judgement is unsatisfied.judgement is unsatisfied.


• The undisclosed principal will usually The undisclosed principal will usually intervene and enforce the contract on intervene and enforce the contract on his own behalf against the other party his own behalf against the other party since it is really his contract, not the since it is really his contract, not the agent's. agent's. • Until such time as the principal takes Until such time as the principal takes

this action, the agent himself may sue this action, the agent himself may sue the third party (since he is treated as the third party (since he is treated as the other party to the contract).the other party to the contract).


• The undisclosed principal's right to The undisclosed principal's right to intervene in a contract made by his intervene in a contract made by his agent is limited to those contracts which agent is limited to those contracts which the agent was authorised to make as the agent was authorised to make as agent he cannot ratify an unauthorised ‑agent he cannot ratify an unauthorised ‑act nor seek to take over the agent's act nor seek to take over the agent's contract without the third party's contract without the third party's consent: consent: Keighley, Maxsted & Co v Keighley, Maxsted & Co v Durant Durant 1900.1900.


• The undisclosed principal is also The undisclosed principal is also prevented from taking over a contract prevented from taking over a contract in the following circumstances:in the following circumstances:• where the agent, when making the where the agent, when making the

contract, expressly denied that a contract, expressly denied that a principal was involved (this is principal was involved (this is misrepresentation);misrepresentation);• where the contract terms are such that where the contract terms are such that

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• Case; Case; Humble v Hunter Humble v Hunter 18481848 • The principal (P) authorised his agent (A) to The principal (P) authorised his agent (A) to

charter out his ship. charter out his ship. • A contracted with a third party for the A contracted with a third party for the

charter of the vessel, describing himself as charter of the vessel, describing himself as 'owner' of it. 'owner' of it.

• Held: Held: The principal could not enforce the The principal could not enforce the contract against the third party because the contract against the third party because the agent had implied that he was the owner agent had implied that he was the owner and hence the principaland hence the principal. P's ownership . P's ownership contradicted the contract's termscontradicted the contract's terms


• where the identity of the parties where the identity of the parties is material to the third party ‑is material to the third party ‑that is, where the third party that is, where the third party wanted to contract with the wanted to contract with the agent and would not have agent and would not have contracted at all if he had known contracted at all if he had known of the identity of the principal. of the identity of the principal.


• Case: Case: Said v Bull Said v Bull 1920 1920 • A theatre critic, X, had had a disagreement with the A theatre critic, X, had had a disagreement with the

manager of a particular theatre and had been banned manager of a particular theatre and had been banned from attending there. from attending there.

• He wanted to see the first night of a new play at the He wanted to see the first night of a new play at the theatre and so asked Y, whom the manager did not theatre and so asked Y, whom the manager did not know to be connected with X, to obtain a ticket for know to be connected with X, to obtain a ticket for him. him.

• X was refused admission on the ticket. X was refused admission on the ticket. • Held.. X's identity was of great importance to the Held.. X's identity was of great importance to the

theatre and it would not have contract with Y if it had theatre and it would not have contract with Y if it had known that X was his principal. X could not enforce known that X was his principal. X could not enforce admission on the ticket.admission on the ticket.


TERMINATION OF AGENCY• Agency is terminated by Agency is terminated by act of the act of the

parties parties in any of the following ways.in any of the following ways.– If an agent is employed for a particular If an agent is employed for a particular

transaction, such as sale of a house, he transaction, such as sale of a house, he ceases to be agent when the transaction ceases to be agent when the transaction is completed.is completed.– In the same way, agency for a fixed In the same way, agency for a fixed

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• Either party may give notice to the other or they Either party may give notice to the other or they may mutually agree to terminate the agency. may mutually agree to terminate the agency.

• But certain types of agency are irrevocable:But certain types of agency are irrevocable:– where the agent has where the agent has 'authority coupled with an 'authority coupled with an

interestinterest' and the agency has been created to ' and the agency has been created to protect his interests; for instance, protect his interests; for instance, where a debtor where a debtor appoints his creditor as agent to sell the debtor's appoints his creditor as agent to sell the debtor's property and recover the debt from the proceeds, property and recover the debt from the proceeds, he cannot withdraw his authorityhe cannot withdraw his authority;;

– where the agent has begun to perform his duties where the agent has begun to perform his duties and has incurred liability;and has incurred liability;

– where statute declares the agency to be where statute declares the agency to be irrevocable, as, when it is a power of attorney for a irrevocable, as, when it is a power of attorney for a limited period expressed to be irrevocable, or when limited period expressed to be irrevocable, or when it is formed under the Powers of Attorney Act.it is formed under the Powers of Attorney Act.


• Agency is terminated by Agency is terminated by operation of law operation of law (with (with some exceptions for irrevocable agencies) in any some exceptions for irrevocable agencies) in any of the following circumstances:of the following circumstances:– death of the principal or the agent (whether the death of the principal or the agent (whether the

survivor has notice or not);survivor has notice or not);– insanity of the principal or the agent (but note the insanity of the principal or the agent (but note the

continuing effect of an enduring power of attorney continuing effect of an enduring power of attorney once registered);once registered);

– bankruptcy of the principal, and also bankruptcy of bankruptcy of the principal, and also bankruptcy of the agent if, as is likely, it renders him incapable of the agent if, as is likely, it renders him incapable of performing his duties; andperforming his duties; and

– frustration, say by the agency becoming unlawful frustration, say by the agency becoming unlawful because the principal has become an enemy alien.because the principal has become an enemy alien.


• The termination of agency only affects The termination of agency only affects the principal and agent at first, as it the principal and agent at first, as it brings the actual authority of the agent brings the actual authority of the agent to an end. to an end. • Third parties who knew of the agency Third parties who knew of the agency

are entitled to enforce any later are entitled to enforce any later contracts made by the former agent contracts made by the former agent against the principal until they are against the principal until they are actually or constructively informed that actually or constructively informed that the agency has been terminated. the agency has been terminated.


• For example, when a partner retires from a firm he For example, when a partner retires from a firm he remains an 'remains an 'apparent memberapparent member' and liable on ' and liable on contracts of the firm made after his retirement contracts of the firm made after his retirement with persons who knew him to be a partner, when with persons who knew him to be a partner, when he was one, he was one, until notice of his retirement has been until notice of his retirement has been given to those personsgiven to those persons. .

• Therefore, Therefore, a retiring partner should advertise his a retiring partner should advertise his retirement generally and ensure that existing retirement generally and ensure that existing suppliers and customers are actually informed of suppliers and customers are actually informed of his retirementhis retirement. General advertisement ensures . General advertisement ensures that persons who dealt with the firm for the first that persons who dealt with the firm for the first time time after after the partner's retirement cannot claim the partner's retirement cannot claim that the partner was still that the partner was still apparently apparently a member.a member.


SPECIAL TYPES OF AGENTDEL CREDERE AGENTSDEL CREDERE AGENTS

– A del credere A del credere agent undertakes (in return for extra commission) agent undertakes (in return for extra commission) responsibility for due payment of the contract price by persons whom responsibility for due payment of the contract price by persons whom he introduces to his principal. he introduces to his principal.

– He undertakes that a buyer He undertakes that a buyer will will pay for goods delivered to him but not pay for goods delivered to him but not that he that he will will accept the goods.accept the goods.

– It is a form of financial support which is convenient where the other It is a form of financial support which is convenient where the other party and his creditworthiness party and his creditworthiness is is unknown to the principal, as where unknown to the principal, as where he is in a different country. he is in a different country.

– A A factor who sells goods on credit terms, or an advertising agent who factor who sells goods on credit terms, or an advertising agent who obtains orders (for advertisements to be published in the media) may obtains orders (for advertisements to be published in the media) may assume this liability.assume this liability.

– A del credere A del credere agent undertakes to indemnify his principal against loss. agent undertakes to indemnify his principal against loss. The undertaking is not a guarantee and so it may be enforced without The undertaking is not a guarantee and so it may be enforced without need of written evidence.need of written evidence.• a company has only limited capacity to enter into contracts, broadly being a company has only limited capacity to enter into contracts, broadly being

those transactions which are incidental to the company's objects as defined those transactions which are incidental to the company's objects as defined in its memorandum of association (i.e. Regulations).in its memorandum of association (i.e. Regulations).


FACTORS OR MERCANTILE AGENTSFACTORS OR MERCANTILE AGENTS• A A factor (also called a 'mercantile agent') is a person whose factor (also called a 'mercantile agent') is a person whose

ordinary business ordinary business is is to sell goods, to consign them for sale, to sell goods, to consign them for sale, to buy goods, or to raise money on the security of goods. to buy goods, or to raise money on the security of goods.

• His principal gives him implied authority to enter into such His principal gives him implied authority to enter into such transactions and usually, gives him possession of the goods. transactions and usually, gives him possession of the goods.

• A A simple example is a motor dealer simple example is a motor dealer to to whom the owner of a whom the owner of a vehicle delivers the vehicle (and registration document) vehicle delivers the vehicle (and registration document) with authority to sell it.with authority to sell it.

• When in possession of goods a factor has wider authority When in possession of goods a factor has wider authority than an ordinary agent. than an ordinary agent.

• When an ordinary agent has possession of goods for sale When an ordinary agent has possession of goods for sale etc, his apparent authority is no greater than the actual etc, his apparent authority is no greater than the actual authority given to him by the principal. authority given to him by the principal.


• But a factor or mercantile agent in possession of But a factor or mercantile agent in possession of goods, or documents of title to goods, with the goods, or documents of title to goods, with the consent of the owner, may sell, pledge or otherwise consent of the owner, may sell, pledge or otherwise dispose of them so as to bind the owner (in excess of dispose of them so as to bind the owner (in excess of the actual authority given by him) provided that:the actual authority given by him) provided that:– the factor acts in the ordinary course of his business; andthe factor acts in the ordinary course of his business; and– the other party acts in good faith and is unaware that the the other party acts in good faith and is unaware that the

agent is exceeding his authority: agent is exceeding his authority: – Case: Case: Folkes v King Folkes v King 1923 1923 F delivered his car to H, a motor F delivered his car to H, a motor

dealer, with instructions to sell it at a price not less than dealer, with instructions to sell it at a price not less than £575. £575. The dealer sold to K (in circumstances as described The dealer sold to K (in circumstances as described above) for £340.above) for £340. Held: Held: although the dealer had no actual although the dealer had no actual authority to sell below £575 F was bound by the contractauthority to sell below £575 F was bound by the contract


• The purpose of the rule is to protect persons The purpose of the rule is to protect persons who deal with mercantile agents in ignorance who deal with mercantile agents in ignorance of their lack of actual authority. of their lack of actual authority.

• However, the rule only applies when the However, the rule only applies when the goods (or documents goods (or documents of of title) are voluntary title) are voluntary delivered to the factor for some purpose delivered to the factor for some purpose incidental to his business (of sale, purchase incidental to his business (of sale, purchase or pledging). or pledging).

• The principal is bound even though the factor The principal is bound even though the factor then sells or pledges without authoritythen sells or pledges without authority


BROKERSBROKERS• There are many kinds of broker in different trades. Any There are many kinds of broker in different trades. Any

broker is essentially a middleman or intermediary who broker is essentially a middleman or intermediary who arranges contracts in return for commission or brokerage. arranges contracts in return for commission or brokerage.

• He does not usually have possession of the goods and He does not usually have possession of the goods and (unlike a factor) does not deal in his own name. (unlike a factor) does not deal in his own name.

• When a contract has been arranged he sends a ‘When a contract has been arranged he sends a ‘bought bought notenote' to the buyer and a ' to the buyer and a 'sold note'sold note' to the seller which ' to the seller which evidences the existence and terms of the contract.evidences the existence and terms of the contract.

• If a broker, even innocently, makes a contract for the sale of If a broker, even innocently, makes a contract for the sale of goods by a person who has no right to sell, the broker is goods by a person who has no right to sell, the broker is liable for the tort of conversion.liable for the tort of conversion.

• Case: Case: Fowler v Hollins Fowler v Hollins 1875 1875 the subject matter was cotton the subject matter was cotton purchased through a broker from a seller who had no title. purchased through a broker from a seller who had no title.

• The broker merely received a commission.The broker merely received a commission. Held Held the true the true owner could recover, as damages from the broker, the full owner could recover, as damages from the broker, the full value of the cotton.value of the cotton.


• A broker may be subject to rules or trade custom. A broker may be subject to rules or trade custom. • By employing such a broker the principal gives implied By employing such a broker the principal gives implied

consent to these rules even if unaware of them.consent to these rules even if unaware of them.• An An insurance broker insurance broker is is an agent of an insurer who an agent of an insurer who

arranges contracts of insurance with the other party arranges contracts of insurance with the other party who wishes to be insured. who wishes to be insured.

• However, in some contexts (for example, when the However, in some contexts (for example, when the broker assists a car owner to complete a proposal broker assists a car owner to complete a proposal form) he is also treated as the form) he is also treated as the agent of the agent of the insured. insured.

• Insurance, especially marine insurance, has Insurance, especially marine insurance, has complicated rules applicable to the relationship complicated rules applicable to the relationship (insurer broker insured).‑ ‑(insurer broker insured).‑ ‑


CONFIRMING HOUSESCONFIRMING HOUSES• A confirming house is an intermediary between A confirming house is an intermediary between

a foreign buyer and a Ghanaian exporter. a foreign buyer and a Ghanaian exporter. • The exporter may know nothing of the buyer or The exporter may know nothing of the buyer or

his credit rating. his credit rating. • The buyer employs the confirming house as The buyer employs the confirming house as

guarantor it assumes responsibility for ‑guarantor it assumes responsibility for ‑payment of the price when the goods are payment of the price when the goods are shipped. shipped.

• It may also attend to the export formalities It may also attend to the export formalities (customs declarations etc) and/or arrange for (customs declarations etc) and/or arrange for the goods to be shipped.the goods to be shipped.


ESTATE AGENTSESTATE AGENTS• An estate agent is an intermediary who seeks to find a An estate agent is an intermediary who seeks to find a

buyer of a house or other property belonging to his buyer of a house or other property belonging to his principal. This profession is regulated by the Estate Agents principal. This profession is regulated by the Estate Agents Act 1979 which among other things requires an estate agent Act 1979 which among other things requires an estate agent to give notice of his charges to his principal and to insure to give notice of his charges to his principal and to insure against liability for loss of any deposit paid by a buyer to the against liability for loss of any deposit paid by a buyer to the agent as stakeholder etc pending completion of the sale.agent as stakeholder etc pending completion of the sale.

• Unless the contract between principal and agent explicitly Unless the contract between principal and agent explicitly provides otherwise, the estate agent is only entitled to his provides otherwise, the estate agent is only entitled to his commission out of the proceeds of sale to a buyer commission out of the proceeds of sale to a buyer introduced by him. introduced by him.

• He cannot have reward or compensation if the seller finds a He cannot have reward or compensation if the seller finds a buyer by other means or withdraws the property after a buyer by other means or withdraws the property after a buyer has been found but before a contract of sale is buyer has been found but before a contract of sale is agreed.agreed.


AUCTIONEERSAUCTIONEERS• An auctioneer is an agent who is authorised to sell An auctioneer is an agent who is authorised to sell

property at auction, usually in a room or place to property at auction, usually in a room or place to which the public has access. which the public has access.

• He is the agent of the vendor. He is the agent of the vendor. • But when the sale has been completed he is also the But when the sale has been completed he is also the

agent of the buyer for the purpose of making a agent of the buyer for the purpose of making a written record of the sale. written record of the sale.

• This serves to provide the written evidence (against This serves to provide the written evidence (against both parties) which is required toboth parties) which is required to make enforceable a make enforceable a contract for the sale of land (although obviously contract for the sale of land (although obviously auctioneers are involved in many other sales than just auctioneers are involved in many other sales than just those of land).those of land).


• An auctioneer should sell only for cash An auctioneer should sell only for cash (though he may (though he may accept payment by cheque). accept payment by cheque).

• He may receive He may receive a deposit in part payment but may only pay a deposit in part payment but may only pay it over to the vendor if the purchaser consents or if he it over to the vendor if the purchaser consents or if he defaults on the contractdefaults on the contract. .

• An auctioneer warrants that he has authority to sell to the An auctioneer warrants that he has authority to sell to the highest bidder unless he announces that the seller has set a highest bidder unless he announces that the seller has set a 'reserve price' 'reserve price' (will withdraw the property if that price at (will withdraw the property if that price at least is not bid). least is not bid).

• He does not of course disclose what that price is. If the He does not of course disclose what that price is. If the seller has asked a reserve price and the auctioneer fails to seller has asked a reserve price and the auctioneer fails to say so, then the property must be knocked down to the say so, then the property must be knocked down to the highest' bidder (and the vendor as principal will recover the highest' bidder (and the vendor as principal will recover the deficiency from the auctioneer).deficiency from the auctioneer).

• An auctioneer, like a broker, is liable in conversion to the An auctioneer, like a broker, is liable in conversion to the true owner if he sells property ontrue owner if he sells property on behalf of a principal who behalf of a principal who has no right to sell.has no right to sell.


BANKERSBANKERS• The duties owed by a bank to its customer are The duties owed by a bank to its customer are

similar to those owed by an agent, but the banker-similar to those owed by an agent, but the banker-customer contract is not one of agency in the customer contract is not one of agency in the normal run of things, such as in the operation ofnormal run of things, such as in the operation of a a current account.current account.

• Banks often do act as agents for their customers: Banks often do act as agents for their customers: examples are where they undertake to arrangeexamples are where they undertake to arrange the the buying and selling of shares buying and selling of shares or or where they offer where they offer advice on other investments,advice on other investments, such as life such as life assurance and pensions.assurance and pensions.


• Two difficult points arise in connection with Two difficult points arise in connection with banks' agency role.banks' agency role.– The giving of investment advice, whichThe giving of investment advice, which (among (among

other things) extends the financial agent's duty not other things) extends the financial agent's duty not to obtain reward withoutto obtain reward without disclosure to the principal. disclosure to the principal. Commission rates and the benefits accruing to Commission rates and the benefits accruing to group companiesgroup companies must therefore be disclosed.must therefore be disclosed.

– Many banks are financial conglomerates offering, Many banks are financial conglomerates offering, for example, Corporate finance as well as normal for example, Corporate finance as well as normal banking services. This situation can lead to a conflict banking services. This situation can lead to a conflict of interest for the bank asof interest for the bank as agent, as when it is agent, as when it is operating a firm's current account while advising a operating a firm's current account while advising a predator on itspredator on its takeover. This conflict must be takeover. This conflict must be resolved by agreement or withdrawal.resolved by agreement or withdrawal.


ADVERTISING AGENTSADVERTISING AGENTS• Although businesses involved in handling advertising Although businesses involved in handling advertising

for customers are commonly known as advertising for customers are commonly known as advertising agencies, agencies, this is not this is not the case in reality. the case in reality.

• In fact they are principals in their own right: In fact they are principals in their own right: Ernmett Ernmett v De Witt v De Witt 1957.1957.

• They are solely liable to the media owner (e.g. They are solely liable to the media owner (e.g. newspapers, TV) for payment for advertising space. newspapers, TV) for payment for advertising space.

• If the agency becomes insolvent the media owner If the agency becomes insolvent the media owner cannot seek payment from the customer whose cannot seek payment from the customer whose products were being advertised. products were being advertised.

• If the advertiser becomes insolvent, the agency must If the advertiser becomes insolvent, the agency must still pay the media owner.still pay the media owner.– Nevertheless, advertising agencies still owe duties to their Nevertheless, advertising agencies still owe duties to their

clients such as to act in good faith and with care and skill.clients such as to act in good faith and with care and skill.


CONCLUSIONCONCLUSION• The basic concept of agency is that an The basic concept of agency is that an

intermediary (the agent) negotiates a contract intermediary (the agent) negotiates a contract between the person whom he represents (the between the person whom he represents (the principal) and another person (the third party), principal) and another person (the third party), thereby creating a bilateral relationship between thereby creating a bilateral relationship between them in which the agent is not personally them in which the agent is not personally involved. involved.

• However, the tripartite situation (principal ‑However, the tripartite situation (principal ‑agent third party) creates some special legal ‑agent third party) creates some special legal ‑problems.problems.


• In practice the most important In practice the most important aspect of the law of agency is the aspect of the law of agency is the extent of the agent's authority to extent of the agent's authority to commit his principal to a commit his principal to a transaction. It often happens that transaction. It often happens that the principal does not know of the the principal does not know of the contract until it is made.contract until it is made.• The principal may be an individual, The principal may be an individual,

a partnership or a company. a partnership or a company. 02/23/11 LAW OF AGENCY 2011 ATTA-KESSON

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• In the case of a partnership or a company In the case of a partnership or a company there are some special considerations to be there are some special considerations to be kept in view: kept in view: – In partnership transactions, each partner acting In partnership transactions, each partner acting

alone has a wide apparent authority to commit alone has a wide apparent authority to commit the firm to contracts which he makes on its the firm to contracts which he makes on its behalf;behalf;

– a company has only limited capacity to enter into a company has only limited capacity to enter into contracts, broadly being those transactions contracts, broadly being those transactions which are incidental to the company's objects as which are incidental to the company's objects as defined in its Regulations.defined in its Regulations.


Documents

Notes on Law of Agency