Lecture Fundamentals of business law (4th): Chapter 18 - Margaret L. Barron, Richard J.A. Fletcher

Chapter 18 - Principle and agent. At the end of this chapter you should understand: the definition of an agency relationship; why contract law is relevant to the law of agency; the methods by which agency can be created including estoppel, necessity or ratification; the different types of agent, their roles and function;...

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Principal and agent

Chapter 18

• An agency is a relationship that exists between one person, the principal,

and another person, the agent, where the agent undertakes to do certain

acts on the principal’s behalf, the

purpose being to bring a third party

into a contractual relationship with the principal.

Creation of an agency

• Expressly created agency (written or verbal)

• Impliedly created agency

- Agency of Necessity

- Cohabitation

- Agency by Estoppel

- Agency by Status

- Agency by Ratification

Agency of Necessity

A person must be entrusted with the

property of another person.

An immediate expense is required to

preserve the property.

The owner of the property is virtually

impossible to contact.

The person entrusted with the property

(agent) must act in the best interests of the owner (principal).

Agency by Ratification

Required when:

No authority to act as agent

Agent exceeds authority given by principal

Working relationships

• Agent - Fiduciary relationship

i.e exercising rights and powers, in good faith, for the benefit of another.

• Employee - Under control and supervision

of employer.

• Independent contractor - Decides how

their work is carried out.

• Trustee - Holds property on behalf of

another person.

Categories of agents

• Special - i.e appointed for a particular

task.

• General - i.e appointed for all normal

matters.

Universal - i.e appointed for all acts

principal can do, e.g

Authority of an agent

• Actual Authority

- Express (written/spoken)

- Implied (by action)

• Apparent Authority (Ostensible

Authority)

- Authority agent has from the viewpoint of the third party, with

Duties of an agent

• To follow the principal’s instructions

• To act personally

• To exercise reasonable skill and

diligence

• To act in principal’s best interest

• Not to make a secret profit

• Not to divulge confidential information

• To keep proper accounts

Rights of an agent

• To receive remuneration for work

performed

• To be indemnified against all losses and expenses incurred while carrying out

principal’s lawful instructions

• To a lien (i.e a right to retain possession

of principal’s property) until liabilities

satisfied

• To stoppage in transit (before received by principal)

Liability of an agent to

principal

 If agent - fails to follow instructions

- acts in a negligent matter  If a loss is incurred

Liability of agent to third party

• Name & existence or existence of principal disclosed

- Act outside authority (i.e breach of warranty)

 Acts on behalf of someone who has not given authority (unless ratified), or

 Exceeds authority (unless ratified)

- Non existent /unascertainable principal

- Agent agrees to be liable

- Usage/custom make agent liable

• Existence of principal not disclosed

- Agent bound

• Torts committed while acting within actual or apparent

Liability of agent to third

party

• Tort committed by an agent acting

within the actual or apparent authority.

Doctrine of undisclosed

principal

• If the agent acts as if he/she is the owner

by not disclosing agency then the principal can later reveal agency agreement and can sue and enforce the contract.

• If third party discovers there was an agency agreement, he can then sue the principal (as well as the agent) for breaches of the contract.

Termination of agency

• By the acts of the parties

- By performance of the agency

- With frustration of the agency agreement

- By mutual agreement

- By revoking the authority of the agent (ineffective to third parties until advised)

• By the operation of Law

- By death of either party

- By bankruptcy of principal

- By bankruptcy of agent

- By insanity of either party

Types of agents (Statute Law)

• Factors/mercantile agent - Goods in agent’s

possession to sell or use for borrowing

• Del Credere agent - Guarantees payment for

goods sold (therefore higher commission)

• Partners - Principals/agents for each other

• Broker - Buys/sells goods without possession

• Real estate agent - Sells/leases vendor’s land;

finds property for sale/lease

• Travel agent - Sells principal’s products; receives

commission based on sales; organises principal’s travel arrangements