LAW OF AGENCY

DEFINITION

• An agent is a person who affects the legal position of another, called a principal, in dealings with third parties.

• A minor or a bankrupt may be an agent.• It is not necessary that an agent should have

contractual capacity but the principal must have full contractual capacity.

TYPES OF AGENTS

• General agent. An agent that is employed to act for his principal in all matters concerning a particular trade or business.• Special agent One employed to make only a particular contract .

• A managing director of a company is the general agent of the company but if a person sends a friend to bid for the sender at an auction the friend is the special agent of the sender.

CREATION OF AN AGENCY

• The power of an agent to affect the legal position of a principal is derived either from the authority vested in the agent, by the principal, or from operation of the law i.e. where the law imposes an agency relationship in certain factual situations.

1.AUTHORITY VESTED IN THE AGENT

a) Actual authorityb) Implied authority

• Usual authority• Customary authority

c) Apparent/ostensible authority

Actual authority

• Equalized to express authority.• Is created by words, either written or oral. • It often derives from a contract between the

principal and agent, although the agent may act gratuitously.

• No particular form is required unless the agent is appointed to execute a deed, in which case he must be given authority in a deed, called the power of attorney

Implied authority

• Authority which permits him to perform all subordinate or incidental acts necessary to exercise his express authority.

• Divided into two;1. Usual authority2. Customary authority

Usual authority

• Relates to agents of certain types acting as the “usual” way of such agents.

• Watteau V. Fenwick (1983) I Q B 346.The defendant had employed H as a manager of a hotel. H’s name alone appeared over the bar as license. The defendant limited H’s actual authority by forbidding him to buy cigars. However the agent did order cigars from W who knew nothing of the existence of the prohibition. The court held that such purchases were within the usual authority of a hotel manager and F was bound to pay for the cigars.

Customary authority

• An agent’s implied authority drives from a locality, market or business usage.

Apparent/ostensible authority

• It exists where the principal’s word or conduct would lead a reasonable person in the third party’s position to believe that the agent was authorized to act, even if the principal and the purported agent had never discussed such a relationship.

• Freeman and Lockver V. Buckhurst park properties ltd (1964)

The articles of the defendant company created the office of managing director. However, at the material time none had been appointed. One director with knowledge of the others purported to act as the managing director. He engaged the plaintiff company to work for the company. The firm was not paid for the services rendered to the company.

In an action to enforce the contract, the company disclaimed liability on the ground that the director was not its managing director and hence had no authority to contract on its behalf in the said contract. It was held that since the company had held out this director as its managing director the plaintiff was entitled to assume that he was its managing director. The company was estopped from denying its representations.

• Apparent authority may arise where there is or was an agency relationship in existence, but unknown to the third party, the actual authority has been limited or terminated.

• It clearly operates to protect the third parties and may arise even where ther has been an agency relationship created between the principle and agent.

• It is based on estoppel.

• Requirements for estoppel to arise are:1. A representation by words or conduct that

the agent has authority.2. The representation must be made by the

principal to the third party.3. The third party must have relied on the

misrepresentation. This is shown by the third party entering into the contract.

• Once these conditions have been satisfied by the principal will be prevented or estopped from denying the agency.

• Normally the principal’s representation precedes the contract but he may be bound by his behaviour subsequent to the contract.

2. OPERAATION OF LAW

a) Agency of necessity b) Agency by ratificationc) Agency from cohabitation

Agency of necessity.

• Occurs when a person is entrusted with another’s property and it becomes necessary to do something to preserve that property.

• Although the person who is entrusted with the property has no express authority to preserve it, he is forced to take an action in order to save it from totally perishing. Because of the necessity such an authority is presumed.

• For an agency of necessity to be legal three conditions must be met:

1. Real emergency.Generally, there is no agency of necessity unless there is a real emergency, such as may arise out of the possession of perishable goods or of livestock requiring to be fed. There must be an emergency.

• GN Railway V SwafieldA horse might have died of hunger or exposure to extremely cold weather at night if the railway company did not make arrangements for stabling it for the night. The court held that the defendant was bound to pay stable charges as agency of necessity had arisen.

2. It must be impossible to get the principal’s instructionsSpringer V G W RailwayS was expecting a consignment of tomatoes which were to be shipped to Weymouth and transported by rail to London. The ship delivered them at Weymouth three days late and owing to a railway strike, the tomatoes could not be unloaded until two days later. When unloaded, they were found to be bad and the railway decided to sell them locally.

• No communication was made to S, although such communication was possible. It was held that the railway company was liable in damages to S, as they should have communicated to S and asked for his instructions as soon as the ship arrived.

3. There must be an actual and definite commercial necessity of the creation of the agencyCouturier V Hastie The captain of the ship had to sell the corn which had become overheated while the ship was on transit. The corn would have been destroyed or become commercially useless if not sold immediately. Agency of necessity was found to have arisen.

• The agency of necessity must act bona fide, in the interest of all parties concerned.

Agency by ratification

• Arises where a principal subsequently ratifies or affirms an unauthorized act done on his behalf by his agent.

• It gives validity to an unauthorized act, and it is retrospective, taking effect from the agent’s act.

• This type of agency arises after the agent has already acted.

• What the agent does is at a time when the relation of principal/agent does not exist.

• The agent has no authority to do what he does at that time he does it.

• Subsequently however, the principal on whose behalf, though without whose authority the agent has acted, accepts the agent’s acts and adopts it just as if there has been a prior authorization by the principal to do what the agent has done.

• Ratification by the principal gives validity to the authorized acts of the agent from the time of the agent’s acts.

• The effect of ratification is to treat the parties as having been in a relationship of principal and agent before the agent acted on behalf of the principal as if they had expressly or implied created that relationship.

conditions for ratificationi. The principal must be in existence at the

date of the contract.ii. The agent must expressly have contracted as

agentiii. The principal must have capacity