Advanced Contract Law: Module B: Law of Agency

Master of Laws (LLM)
Postgraduate Diploma in Laws

Postgraduate Certificate in Laws
Advanced
contract law
Module B: Law of agency

Revised edition, 2020
S. Lane
LWM83B
This Study Guide was prepared for the University of London by:
̆ Suriyakumari Lane, Teaching and Scholarship Lecturer, Queen Mary University of

London
This is one of a series of Study Guides published by the University. We regret that
owing to pressure of work the author is unable to enter into any correspondence
relating to, or arising from, the Guide.
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Contents
Contents
Chapter 1: Introduction..........................................................................................1
1.1 Advanced contract law............................................................................................1
1.1.1 Structure of the course...................................................................................1
1.1.2 Study sequence................................................................................................ 2
1.2 The law of agency.................................................................................................... 2
1.3 How to use this Study Guide................................................................................ 3
1.3.1 Reading.............................................................................................................. 3
1.3.2 A suggested study method..........................................................................4
1.4 Keeping up to date.................................................................................................. 5
1.5 Allocating your time............................................................................................... 5
1.6 Online resources......................................................................................................6
1.7 The examination......................................................................................................6
1.7.1 Preparing for the examination.................................................................. 7
1.7.2 Taking the examination............................................................................... 7
Chapter 2: What is agency?................................................................................. 11
Introduction...................................................................................................................11
2.1 General considerations........................................................................................ 12
2.1.1 Definition........................................................................................................ 12
2.1.2 Theories of agency........................................................................................13
2.2 Internal aspects of agency................................................................................. 15
2.3 External aspects of agency................................................................................. 15
2.4 The boundaries of agency.................................................................................. 16
Chapter 3: Formation of agency......................................................................... 21
Introduction ................................................................................................................. 21
3.1 Conferring express or implied authority....................................................... 21
3.2 Agency by ratification.........................................................................................22
Summary................................................................................................................. 25
Chapter 4: The external effects of agency.........................................................27
Introduction.................................................................................................................. 27
4.1 Express and implied actual authority............................................................28
4.2 Usual authority.....................................................................................................29
4.3 Apparent or ostensible authority................................................................... 30
4.4 Agency by statutory authority......................................................................... 32
Summary................................................................................................................. 32
Chapter 5: Different types of agency ................................................................35
Introduction.................................................................................................................. 35
5.1 General and special agents................................................................................36
5.2 Mercantile agent/factors....................................................................................36
5.3 Brokers......................................................................................................................36
5.4 Del credere agent...................................................................................................36
5.5 Auctioneer...............................................................................................................36
5.6 Confirming house.................................................................................................36
5.7 Estate agents........................................................................................................... 37
5.8 Gratuitous agents................................................................................................. 37
5.9 Commercial agents.............................................................................................. 37
5.10 Agent of necessity..............................................................................................38
Summary.................................................................................................................39
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Advanced contract law: Module B
Chapter 6: Relations between a principal and an agent.................................41

Introduction.................................................................................................................. 41
6.1 Duties of an agent.................................................................................................43
6.1.1 To obey the principle’s instructions.......................................................43
6.1.2 Duty to exercise due care and skill........................................................43
6.1.3 To perform contractual obligations...................................................... 44
6.1.4 Not to allow any conflict of interest.................................................... 44
6.1.5 Not to make a secret profit.......................................................................45
6.1.6 To act as a fiduciary....................................................................................45
6.1.7 Not to take a bribe...................................................................................... 46
6.1.8 Duty to account........................................................................................... 46
6.1.9 Duty of non-delegation of authority....................................................47
6.2 Rights of an agent................................................................................................ 48
6.2.1 The right to commission and remuneration..................................... 48
6.2.2 Right to reimbursement and an indemnity...................................... 48
6.2.3 Right to a lien............................................................................................... 49
Summary................................................................................................................ 50
Chapter 7: Relations with third parties.............................................................53
Introduction.................................................................................................................. 53
7.1 Disclosed agency....................................................................................................54
7.2 Undisclosed agency..............................................................................................56
Summary.................................................................................................................58
Chapter 8: Termination of agency.....................................................................73
Introduction.................................................................................................................. 73
8.1 Methods of termination of an agency...........................................................74
8.2 Irrevocable agency............................................................................................... 75
8.3 Effect of termination........................................................................................... 75
8.4 Commercial agents..............................................................................................76
8.5 Termination and third parties..........................................................................78
Summary.................................................................................................................78
Feedback................................................................................................................81
Chapter 2........................................................................................................................ 81
Chapter 3........................................................................................................................ 81
Chapter 4........................................................................................................................82
Chapter 5........................................................................................................................82
Chapter 6........................................................................................................................83
Chapter 7....................................................................................................................... 84
Chapter 8........................................................................................................................85
ii
Chapter 1: Introduction
1.1 Advanced contract law

Welcome to this course on Advanced contract law, part of the
Postgraduate Laws Programme of the University of London. This
course consists of four modules which aim to give you a detailed
understanding of contract law. The course is primarily based on the
common law of England, as contained in case law; that said, there is
some statute law which has changed or added to the common law, for
example the Consumer Rights Act 2015, which will also be discussed.
1.1.1 Structure of the course

Advanced contract law consists of four modules:
Module A explains the rules of the English law of contract as applicable
in England and Wales. The module contains basic concepts which will
be helpful to you in subsequent modules. For example, the concept of
misrepresentation is relevant to Module D which deals with insurance
contracts. Module A sets out rules relating to the formation of contract
such as agreement, consideration and intention to create legal
relations, the limits of the contractual obligation (as in the common
law rules on privity of contract), the different kinds of terms in a
contract, the factors which vitiate the contract such as mistake and
misrepresentation, rules relating to the discharge of a contract, such as
frustration, and the remedies for breach of contract such as damages.
Module B discusses the law of agency, explaining the rules relating to
a situation where a principal appoints an agent to enter into contracts
with third parties on behalf of the principal. It examines the ways in
which agency can be formed, the rules relating to the external effects
of agency, the various kinds of authority, different types of agency, the
rights and duties of principal and agent, and explains the concepts of
disclosed and undisclosed principals and the various ways in which
agency can be terminated.
Module C discusses the law relating to sale of goods which explains
the rules relating to a contract where a seller sells goods to a buyer. It
discusses the various terms (already introduced in Module A), explains
the meaning of property and the rules on the passing of property and
the passing of risk, explains the nemo dat quod non habet principle and
the exceptions to it, and explains the duties of the seller and the buyer
and sets out the remedies of the seller and the buyer.
Module D discusses the law relating to insurance contracts, and
explains the rules where a person enters into a contract with an
insurance company to insure their life, house, goods, liability, etc. The
module explains the terminology used in insurance contracts, the
nature and characteristics of insurance contracts, the various types
of insurance contracts, what an insurable interest is and the rules
as to the formation of insurance contracts. The module also deals
with the enforceability of insurance contracts, insurable interests
in property, insurable interests in life policies, unlawful insurance,
misrepresentation and non-disclosure. The final chapter deals with the
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remedy of rescission, the rights of insurers, various types of insurance

cover, rules of interpretation, making claims and indemnifying policy
holders.
1.1.2 Study sequence

Modules should be studied in order, A to D.
Learning outcomes for the course

Having studied this course, you should be able to:
• demonstrate an understanding of the basic concepts of the law of contract;
the law of agency; the law relating to sale of goods and the law relating to
insurance contracts
• demonstrate an understanding of the case and statute law stating the rules
of the English law of contract; the law of agency; the law of sale of goods; and
the law relating to insurance contracts
• differentiate between the ratio decidendi and obiter dicta of cases
• apply the legal principles in the cases to problem situations mentioned in the
activities and the sample examination questions.
1.2 The law of agency

This module introduces you to the law of agency in England and Wales.
Chapter 1 sets out an introduction to the module.
Chapter 2 sets out an introduction to the law of agency.
Chapter 3 examines the various ways in which agency can be formed.
It can be formed by the principal conferring authority on the agent,
expressly or impliedly. Sometimes, when the agent acts, they might not
have authority, but the principal can ratify the act and confer authority.
Chapter 4 sets out the rules as to the external effects of agency and
explains the various kinds of authority: express and implied actual
authority, usual authority, apparent (ostensible authority) and agency
by statutory authority.
Chapter 5 introduces different types of agency such as general and
special agents, mercantile agents/factors, brokers, del credere agents,
auctioneers, a confirming house, estate agents, gratuitous agents,
commercial agents and agents of necessity.
Chapter 6 contains the rules governing the relationship between
principal and agent (i.e. the rights and duties of principal and agent).
Chapter 7 explains the concepts of disclosed and undisclosed
principals.
Chapter 8 discusses various ways in which agency can be terminated,
where agency is irrevocable, the effects of termination of agency, the
termination of the authority of commercial agents and the rules as to
termination and third parties.
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Learning outcomes for Module B

By the end of this module, and having completed the Essential readings and
activities, you should be able to:
• explain the basic concepts of the law of agency
• cite case and statute law containing the principles of the law of agency
• apply the legal principles in cases and statutes to problem situations.
1.3 How to use this Study Guide

Each module of this course has a Study Guide and a version of this
introductory chapter is found in each Study Guide. This Guide provides
a starting point for your study of the course. It introduces and explains
the core syllabus topics. It is not intended to replace independent
study of primary legal materials (i.e. cases and statutes) and secondary
sources such as the textbook and journal articles, but rather to help
you use those other materials effectively. In order to fulfil this function,
this Guide is designed to be easy to read and use. At times it includes
quite detailed discussion of certain issues, but in general it avoids
duplicating material which you may find in the set textbook and the
other readings. It also contains several features to aid your study:
• learning outcomes for the course as a whole and for each module
and each chapter, so you know what you are expected to achieve at
each stage of your study
• learning activities to encourage you to think critically about the
material – please think about how you would answer each question
before you look at the feedback provided
• sample examination questions plus guidance on how each
question might be approached to help you prepare for the
examination for each module
• guidance on Essential reading and Useful further reading.
1.3.1 Reading
The Study Guide refers you to various reading resources. These are
divided into Essential reading and Useful further reading.
Essential reading
Much of the Essential reading for this module is drawn from the
following textbook:
Clarke, M.A., R.J.A. Hooley, R.J.C. Munday, L.S. Sealy, A.M. Tettenborn and
P.G. Turner Commercial law: text, cases, and materials. (Oxford: Oxford
University Press, 2017) 5th edition [ISBN 9780199692088] (referred to
as ‘Clarke’ in this Guide).
This will be supplied in hard copy.
In addition, the Guide refers you to various other Essential readings.
We try to ensure that these are freely available to you. Most will be
available in the Online Library (see ‘Online resources’ below); others
may be available via other free to access websites; and other material
may be available as scans which you can download from the VLE.
3
Useful further reading

The Guide also identifies Useful further reading. You are not required to read all of
this, and we do not undertake to make such readings available to you – though in
fact you may well be able to find many of them in the Online Library or through
other free online resources. You should try to read beyond the Study Guide and
Essential reading if you can. The students who perform best in examinations
for Postgraduate Laws courses are generally those who have taken the time to
develop a broad critical understanding of their subject area, drawing on a range
of sources and academic analyses.
Works that we refer to quite frequently are:
• Burrows, A. (ed.) Principles of English commercial law. (Oxford: Oxford
University Press, 2015) [ISBN 9780198746225] (referred to as ‘Burrows’ in this
Guide).
• Ryder, N., M. Griffiths and L. Singh Commercial law: principles and policy.
(Cambridge: Cambridge University Press, 2012) [ISBN 9780521758024]
(referred to as ‘Ryder’ in this Guide).
• Furmston, M. and J. Chuah Commercial law. (Harlow: Pearson, 2013) 2nd
edition [ISBN 9781447904472] (referred to as ‘Furmston’ in this Guide).
1.3.2 A suggested study method

It is up to you to find a study method which suits you, but the following
is a suggested method:
• You should commence your study by reading Chapter 1 of the
Study Guide.
• Then read Chapter 2 of the Study Guide and the relevant chapter
of the textbook. To gain an in-depth understanding of the legal
principles read the statutes and cases mentioned in the chapter.
The cases can be found by searching the databases in the Online
Library.
• Do the activities contained in Chapter 2. Then look at the feedback
to see whether you have done the activities correctly. Find answers
to the self-assessment questions. Finally, write an answer to the
sample examination question(s).
• Repeat this process in each chapter.
• When preparing for your examinations please keep in mind that we
are not seeking to test your factual knowledge; we are seeking to
test your understanding of the legal principles in cases and statutes
and your ability to apply the law to the examination questions set.
You need to show that you have studied all the material and that
you have understood all the issues in the Study Guide.
Research skills
The Study Guide is designed to provide you with a framework for your
studies: pointing you to key issues and cases. But, as Postgraduate Laws
students, it is also important that you read beyond the Study Guide.
You need to acquire the skills of identifying and reading law materials
and distilling the relevant information. Which are the important cases
and what makes them important? What have commentators said about
the law? The Study Guide helps this process, but it is vital that you read
as much as you can.
4
At first, this can be daunting, but with practice it becomes easier. In

particular, those unfamiliar with the common law can find it difficult,
but the more cases you read the easier it becomes. You will learn how
judges usually organise their judgments: facts of the case, summarising
the arguments on facts and applicable law made by both sides,
the judge’s view of what the law is and, finally, the result. This will
enable you to read quickly. When you read a case or essay, resist the
temptation to make notes as you go along. Read the whole of a judge’s
judgment, then make notes as to what you think the main points of
the judgment are, remembering that the most important part is the
judge’s discussion of the law. What law did the judge apply to reach
the decision (ratio decidendi)? The judge may also have discussed
other issues of law which were not strictly relevant to the decision
(obiter dictum), but which may point the way to the solution of other
problems.
1.4 Keeping up to date

This Study Guide was prepared in 2018 and there may have been
significant developments in the field by the time you read it. If you are
studying the course more than a year after this Guide was published,
be sure to look out for the latest edition of the Study Guide. This will
usually be published on the eCampus at the start of each year. It will
outline any major changes in the relevant law and direct you to related
readings.
You should also track developments in the field through your own
research, for example through Westlaw.
Technically, unless you are advised otherwise then examinations for
the course will be based on the relevant law and related scholarship
as at 1 January in the year of examination, so you will be expected to
be familiar with the law up to that date. You will not be expected to be
familiar with developments after that date (unless advised otherwise),
so you do not need to study them; but equally you are unlikely to be
disadvantaged if you do make intelligent reference to more recent
changes in the law.
1.5 Allocating your time

It is impossible to say with great precision how much time you should
set aside for studying Advanced contract law because your individual
learning rate will depend on your circumstances, fluency in English and
any prior study of law. Furthermore, some topics of the syllabus will
require considerably more time than others.
However, as a full-time Postgraduate Laws student you are expected
to spend approximately 120 hours studying and preparing for the
examination for each module of this course. Our best advice is that you
should allocate a specific amount of time for the study of each module
of the course each week with a view to completing your study of all
topics in the syllabus so as to leave ample time for revision before the
examination.
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1.6 Online resources

At postgraduate level, you will need to undertake your own research
of primary sources and for that you will need to be familiar with the
Online Library and the main legal databases such as LexisLibrary
and Westlaw. Before you commence your studies you should take
a moment to familiarise yourself with the Online Library (http://
onlinelibrary.london.ac.uk/). To access many of the resources you
will need to obtain an Athens password and guidance on how to do
that can be found in the Online Library. A Library and information
skills course is available on the VLE and we would recommend you
review that if you are unfamiliar with the Online Library. A Library
and information skills course is available on the VLE and we would
recommend you review that if you are unfamiliar with the Online
Library.
Much of your research will revolve around locating case reports,
legislation, Essential and Useful further reading.
JustCite is a very useful database for locating case reports, just type in
the names of the parties to a case or the case citation and the search
results will list the databases in which the case report can be found.
For legislation, LexisLibrary contains UK statutes and statutory
instruments. For Useful further reading, DawsonEra and Cambridge
Core are good sources for ebooks relevant to this course and for
journal articles HeinOnline and Cambridge Core will prove useful.
Where an Essential reading is not held in the Online Library there will
be a direction to its location, which may be to the course home page
on the eCampus (or Virtual Learning Environment (VLE)) or to a third-
party website.
Activity 1.1
Before you start your studies, locate the following resources (you will need to
have obtained your Athens password):
1. Yasuda Fire & Marine Insurance Co of Europe Ltd v Orion Marine Insurance
Underwriting Agency Ltd [1995] QB 174.
2. Misrepresentation Act 1967.
3. The journal Modern Law Review.
4. The ebook: Peel, E. Treitel on the law of contract.
Feedback on this exercise can be found at the end of this chapter.
1.7 The examination

Important: The information and advice given here is based on the
examination structure used at the time this Guide was written.
However, the University can alter the format, style or requirements
of an examination paper without notice. Because of this, we
strongly advise you to check the instructions on the paper you
actually sit. Your understanding of the material covered by the
syllabus for this module will be assessed by an unseen written
examination of 45 minutes’ length, with reading time.
6
1.7.1 Preparing for the examination

Make sure you study the full range of syllabus topics for each
module
The University of London uses unseen examination as its main form of
assessment because it is both rigorous and fair. By ‘unseen’, we mean
that you will not know what examination question(s) you have to
answer until you are allowed to read the question paper at the start
of the examination. It is therefore very important that you get a good,
broad understanding of the syllabus for each module that you study.
The question may test any topic within the syllabus, or may require you
to draw on your knowledge of several topics. Do not limit your study to
a couple of topics.
Study actively – take notes

Successful examination preparation starts the moment you start
studying. Make sure you make notes on the material you read,
summarising the main points and putting them into your own words.
This will help you to understand and remember key issues, see
relationships between different sources, and develop your own ideas
and lines of argument. Undertaking the learning activities in the Guide
will also help you to do this. And make sure you allow time later on to
go back through your notes and refresh your memory closer to the
examination.
Practise your examination technique

In order to do well in the examination knowledge and understanding
of the subject is not enough – you also need effective examination
technique. Answering questions successfully under examination
conditions requires a particular set of skills which you can develop
through practise. This Guide offers several sample examination
questions, and past papers will be made available on the eCampus
in 2019. Bear in mind that the law may have changed since the older
papers were written. It is sensible to try to answer some questions
under examination conditions – that is, writing an answer in 45 minutes
without looking at your notes or books. Time is very short in the
examination, and the best way to make the most of it is to be prepared
and practise.
1.7.2 Taking the examination

The golden rule for examination success is to answer the question
asked; do not just reel off a pre-prepared answer on a particular topic.
Start by reading the question carefully – it sounds obvious, but it is
essential. Under the examination rules in force at the time of writing
this Guide, you are given five minutes to read the paper before you
start writing your answer. Use that time wisely. Then, spend a few
minutes planning your answer before you start writing it. It is tempting
to start writing straightaway when you have so little time, but planning
your answer should help ensure that it has a clear and coherent
structure. Whether you are writing an essay or tackling a problem
question, your answer should begin with a clear introduction. This need
not be long – two or three short sentences should do. In introducing an
essay, you should generally identify:
7
• what you think the question is asking of you

• the approach that you will be adopting in your answer.
In answering a problem question, start by identifying the main legal
issues that the fact scenario raises. Whichever type of question you
answer, you will not have time to explore all relevant issues in depth.
With only 45 minutes, you need to be selective and concentrate on
what you see as the most important issues – though ideally you will
briefly note, in your answer, other issues that may be relevant and
explain why those you are focusing on are particularly important. In
writing the body of your answer, you will need to be succinct. Avoid
vague generalisations; use clear language in straightforward, short
sentences. Use a structure which is logical and shows that you are
moving from one issue to another in a way that makes thematic
sense. Substantiate your arguments by identifying relevant law. When
referring to cases, you do not need to give a full citation – a short name
(e.g. Yasuda) will usually suffice, though it may also be useful to identify
the relevant court and perhaps the year of judgment. Do not waste
time describing irrelevant facts; just mention the key point(s) of the
case in relation to your argument. If you do all the above – provide a
clearly structured answer which clearly addresses the question and is
supported by reference to relevant legal authority – you should at the
very least achieve a pass.
Better answers generally also do one or both of two things:
• Analyse the question carefully, identifying any underlying
assumptions or points of ambiguity which can then be exposed
and discussed.
• Discuss relevant academic commentary. If you can demonstrate
that you have read beyond the Essential texts by making intelligent
reference to other works, so much the better.
We wish you all the very best with this subject. It is innovative, dynamic
and is being developed as we write! It is a great privilege to share it
with you.
8
Feedback to Activity 1.1

1. The Find resources page of the Online Library is a good starting point (http://
onlinelibrary.london.ac.uk/resources). We are looking for a database in which the
case report will be held so navigate to Databases enter your programme of study
and then scroll to the search engine JustCite. Here you will be able to search on all
or part of the case name (Yasuda) or the case citation ([1995] QB 174). The search
results will indicate which databases have a ‘full text link’ to the report. For the
Queen’s Bench (QB) report the report is held by both LexisLibrary and Westlaw both
of which are subscribed sources. Select either to be taken to the case report.
2. The Misrepresentation Act 1967 is a UK statute. If you have studied UK law
before you will be familiar with the legal database LexisLibrary which holds fully
annotated UK statutes and statutory instruments but, if not, JustCite can help you
locate UK legislation. The UK government website, www.legislation.gov.uk, holds
updated statutes but is not as up to date as LexisLibrary.
3. To locate the Modern Law Review start at the Find resources page of the Online
Library (http://onlinelibrary.london.ac.uk/resources). Select the Journals icon.
Select the A-Z journals list and type in the journal title. You will be then be
presented with a list of the databases in which the Modern Law Review can be
found.
4. To locate Treitel, start at the Find resources page of the Online Library (http://
onlinelibrary.london.ac.uk/resources). Select the icon ebooks. There you will find a
description of, and guidance for, Dawson’s E-Book Collection, click through to
search the collection. You can search on title, author or keyword.
Note that ebooks are also held in other databases in the Online Library. Cambridge
Core and Westlaw also contain ebook resources that will be relevant to your studies.
9
Notes
10
Chapter 2: What is agency?
Introduction
A person (principal) may appoint an agent to enter into contracts on
behalf of the principal with third parties. The contractual rights and
obligations are between the principal and the third party. However, the
agent is instrumental in creating the contractual relationship between
the principal and the third party.
Learning outcomes
By the end of this chapter, and having completed the Essential reading and
• define agency
• explain whether consent between principal and agent is necessary to create
an agency relationship
• explain the three types of relationships which arise as a result of an agency
• explain the three main theories for the creation of an agency relationship
• explain the internal and external aspects of the agency relationship
• explain the boundaries of agency.
Essential reading
• Clarke, Chapter 4 Introduction.
• Garnac Grain Co Inc v HMF Faure & Fairclough Ltd [1968] AC 1130.
• Branwhite v Worcester Works Finance Ltd [1969] 1 AC 55.
• Kennedy v De Trafford [1897] AC 180.
• Potter v Customs and Excise Commissioners [1985] STC 45.
• Boardman v Phipps [1967] 2 AC 46.
• Yasuda Fire & Marine Insurance Co of Europe Ltd v Orion Marine Insurance
• Chaudhry v Prabhakar [1989] 1 WLR 29.

• Baskind, E., G. Osborne and L. Roach Commercial law. (Oxford: Oxford
University Press, 2019) [ISBN 9780198825975] Chapter 3 An introduction to the
law of agency.
• Burrows, Chapter 1 Agency.
• Ryder, Chapter 1 Agency: an introduction.
• Furmston, Chapter 3 Agency.
• Dowrick, F.E. ‘The relationship of principal and agent’ (1954) 17 Modern Law
Review 36.
• McMeel, G. ‘Philosophical foundations of the law of agency’ (2000) 116 Law
Quarterly Review 393.
11
2.1 General considerations

2.1.1 Definition
Agency is the fiduciary relationship that arises when one person
(a ‘principal’) manifests assent to another person (an ‘agent’)
that the agent shall act on the principal’s behalf and subject to
the principal’s control, and the agent manifests or otherwise
consents so to act.
(American restatement of the law of agency. (2006) 3rd edition
para.1.01).
Agency is the fiduciary relationship which exists between
two persons, one of whom expressly or impliedly manifests
assent that the other should act on his behalf so as to affect
his relations with third parties, and the other of whom
similarly manifests assent so to act or so acts pursuant to the
manifestation.
(Bowstead and Reynolds on agency. (London: Sweet & Maxwell,
2006) 18th edition, art.1(1))
Agency is the relationship that exists between two persons
when one, called the agent, is considered in law to represent
the other, called the principal, in such a way as to be able to
affect the principal’s legal position in respect of strangers to
the relationship by the making of contracts or disposition of
property.
(Fridman, G.H.L. The law of agency. (1996) 7th edition, p.11)
The law of agency is based on the Latin maxim ‘Qui facit per alium, facit
per se’, which means ‘he who acts through another is deemed in law to
do it himself’.
The concept of agency is difficult to define. Lord Herschell said in
Kennedy v De Trafford [1897] AC 180:
No word is more commonly and constantly abused than the

word ‘agent’. A person may be spoken of as an agent, and no
doubt in the popular sense of the word may properly said to be
an ‘agent’ although when it is attempted to suggest that he is
an ‘agent’ under such circumstances as create legal obligations
attaching to agency that use of the word is only misleading.
Sir John Donaldson in Potter v Customs and Excise Commissioners [1985]

STC 45 said:
The use of the word ‘agent’ in any mercantile transaction is, of

itself, wholly uninformative of the legal relationship between
the parties, and the use of the words ‘independent agent’ takes
the matter no further. Either is consistent with a self-employed
person acting either as a true agent who puts a principal into a
contractual relationship with a third party or with such a person
acting as principal.
An agent is a person who is ‘recognised by law as having power to affect
legal rights, liabilities and relationships of another person (“the
principal”)’ (Bradgate, R. Commercial law. (Oxford: Oxford University Press,
2005)) According to Bowstead (2006), in an agency there is express
12
consent between two people for one (the agent) to act on behalf of the
other (the principal). The consensual relationship is important in that the
authority of the agent is given by the principal. The principal entrusts to
the agent to act on behalf of the principal in a transaction or a part of his
business, where the agent has to represent the principal’s interest (Billins,
R. Agency law. (London: Sweet & Maxwell, 1993)). An agent acts so as to
create, modify or terminate a contractual relationship between the
principal and a third party (Dobson, P. and R. Stokes Commercial law.
(London: Sweet & Maxwell, 2008)).
Although a consensual relationship is recognised as important (Garnac
Grain Co Inc v HMF Faure & Fairclough Ltd [1968] AC), in Boardman v
Phipps [1967] 2 AC 46 it was said that consent is not always necessary to
create a principal/agent relationship. An agency can arise by apparent
authority, irrespective of consent. In agency of necessity, which arises
by operation of law, there is no consent. In an agency relationship
there is a principal who empowers an agent to act on his behalf and
issues instructions for the agent to follow; an agent representing his
principal creates a contractual relationship between his principal and a
third party who enters into a contractual relationship with the principal
based on representations and negotiations with the agent.
Activity 2.1
‘Consent is a requirement to establish a principal/agent relationship’. Discuss.
Feedback: see p.81.
Agency consists of three legal relationships: between principal and

agent, between agent and third party and between principal and third
party.
An agency relationship can be contractual or non-contractual.
Although in most commercial transactions the agency relationship is
based on a contract, a contract is not necessary to create an agency
relationship (Yasuda Fire & Marine Insurance Co of Europe Ltd v Orion
Marine Insurance Underwriting Agency Ltd [1995] QB 174). An example
of a non-contractual agency relationship is Chaudhry v Prabhakar
[1989] 1 WLR 29, where the claimant asked her friend to find her a
second hand car. She particularly wanted a car which had not been
involved in an accident. The friend found a car and assured her that
it had not been involved in an accident. After she bought the car,
she found that it had been involved in an accident and was not
roadworthy. The friend was held liable in negligence. In a contractual
agency relationship there has to be consideration, whereas in a non-
contractual relationship there is no consideration.
An agency agreement can be in writing, oral or implied by conduct.
As regards capacity, it is the principal’s capacity which is important. So,
for example, a principal can appoint a minor to act as his agent.
2.1.2 Theories of agency

There are three main theories to explain the agency relationship: the
power/liability theory, the consent theory and the qualified consent
theory.
13
Power/liability theory
Dowrick states:
The essential characteristic of an agent is that he is invested

with a legal power to alter his principal’s legal relations with
third persons: the principal is under a correlative liability to have
his legal relations altered. It is submitted that this power-liability
relation is the essence of the relationship of principal and agent.
(Dowrick, F.E. ‘The relationship of principal and agent’ (1954) 17
Modern Law Review 36–38)
As Montrose states:
…the term power…is a legal relation, one which exists by

virtue of a legal rule. The power of an agent is not strictly
conferred by the principal but by the law: the principal and
agent do the acts which bring the rule into operation, as a result
of which the agent acquires a power.
(Montrose, J. ‘The basis of the power of an agent in cases of actual
and apparent authority’ (1938) 16 Canadian Bar Review 757)
This is a legal rule which comes into effect when the principal and
agent do the acts necessary to bring the rule into operation. Once the
legal rule comes into operation the agent acquires the power to alter
the principal’s relationship with a third party, and the principal acquires
liabilities. Even if the principal does not confer authority on the agent
or the agent exceeds their power, the rule can come into operation. The
principal’s intention as it appears to a third party is important (i.e. the
objective intention). According to this theory, the agency relationship
is a matter of law. This theory avoids the definitions of agency based on
consent. However, this theory concentrates on the external relationship
between principal and third party, rather than the internal relationship
between principal and agent. This theory is criticised in that some
types of agency cannot be explained by this theory. For example,
estate agents do not have the power to bind buyers and sellers.
Activity 2.2
a. Explain the power/liability theory.
b. Can all types of agency be explained by this theory?
Feedback: see p.81.
Consent theory
According to this theory, if the principal consents to the agent acting
on their behalf, the principal is bound. This theory concentrates on
the internal relationship between principal and agent – their fiduciary
relationship. In Garnac Grain v HMF Faure & Fairclough and Bunge [1968]
AC 1130 Lord Pearson said:
The relationship of principal and agent can only be established

by the consent of the principal and the agent. They will be
held to have consented if they have agreed to what amounts
in law to such a relationship, even if they do not recognise it
themselves and even if they have professed to disclaim it.
14
For Lord Wilberforce in Branwhite v Worcester Works Finance Ltd [1969] 1

AC 552:
The significant words, for the present purpose, ‘are if they have
agreed to what amounts in law to such a relationship…’ These
I understand as pointing to the fact that, while the agency
must ultimately derive from consent, the consent need not
necessarily be to the relationship of principal and agent itself
(indeed the existence of it may be denied) but may be to a state
of fact upon which the law imposes the consequences which
result from agency. It is consensual, not contractual.
A criticism of this theory is that agency can arise without consent, by

operation of law (agency of necessity). Prior consent is not needed for
the creation of an agency relationship (e.g. agency by ratification).
Qualified consent theory

This combines the consent theory with the protection of ‘misplaced
reliance’. Where the principal has consented to the agent acting for him
and the third party has relied on the objective appearance of consent,
the law will protect the third party if his reliance was misplaced (i.e.
his reliance resulted in a loss). McMeel (2000) is of the view that the
qualified consent theory can explain instances of actual and apparent
authority.
2.2 Internal aspects of agency

This is the relationship between principal and agent. There is a
distinction between the grant of authority to the agent by the principal
and the other aspects of the principal/agent relationship. The grant of
authority is a unilateral juristic act which enables the agent to transact
with a third party so as to create a legal relation between principal and
third party.
Once the principal has conferred authority on the agent, the agent
is under a fiduciary duty to the principal to act in the principal’s best
interests. The principal pays a commission to the agent in return for the
agent’s services. Generally, the agent only owes a duty of reasonable
care to carry out their services for the principal. However, the agent’s
duty not to exceed their authority is one of strict liability. The principal
retains power to control the agent.
Activity 2.3
What do you understand by the term ‘internal aspects of the agency’?
Feedback: see p.81.
2.3 External aspects of agency

The apparent authority of the agent as it appears to a third party
affects the relationship between principal and third party, even if the
agent has no actual authority and may be in breach of their contract
with the principal in entering into the transaction with the third party.
15
Activity 2.4
What do you understand by the term ‘external aspects of agency’?
Feedback: see p.81.
2.4 The boundaries of agency

1. Internal relationship only – canvassing agents
Some agents (e.g. estate agents) have no power to affect the relations
of the principal with third party buyers. Such agents have a fiduciary
duty to the principal and are entitled to commission.
2. Indirect representation
This is a type of relationship in civil law countries. Internally, the agent
acts as agent as regards the principal, but externally the agent deals on
their own account, which means that the third party cannot deal with
the principal. This type of agency does not exist in English common
law.
3. Use of representative terminology

Civil lawyers tend to use words such as ‘acts in the name of another’.
But the phrase ‘in the name of’ has no agreed meaning in English law.
4. Companies: agent and organ

As companies have no physical existence, it is sometimes said that
agents act on behalf of the company. This view was prevalent in the
19th century, but now it is said that acts of persons on behalf of the
company are acts of the company itself.
5. Agent and trustee/agent and bailee

A trustee holds property for a beneficiary. A trustee is not normally
subject to the control or the revocation of their powers by the
beneficiary. A trustee may or may not have agency powers. A bailee
possesses goods owned by another. They may have agency powers. An
agent may hold goods on behalf of the principal.
6. Lack of significance of types of agents

Names of types of agents are of no significance in the common law.
Self-assessment questions
1. How would you define an agency?
2. Is consent between principal and agent a requirement to create an agency?
3. What are the three legal relationships in a situation where there is an agent?
4. Can an agency be non-contractual?
5. Are there formalities required for the creation of any agency?
6. Can a minor be an agent?
7. What are three main theories to explain the agency relationship?
8. What do you understand by the internal aspects of agency?
9. What do you understand by the external aspects of agency?
10. What are the boundaries of agency?
16
Summary
• An agency is where the agent acts on behalf of a principal.
• The agent enters into transactions with third parties and the
principal is bound by the transactions.
• There is a legal relationship between principal and agent.
• There is also a legal relationship between principal and third party.
• Consent between principal and agent is required for most types of
agency.
• Consent is not required where there is an agency by apparent
authority and an agency by necessity.
• An agency can be contractual or non-contractual.
• Formalities are not necessary for the creation of an agency.
• The three main theories to explain the agency relationship are:
power-liability theory, consent theory and qualified consent theory.
Reminder of learning outcomes

Having completed this chapter, and the Essential readings and activities, you
should be able to:
• define agency
• explain whether consent between principal and agent is necessary to create
an agency relationship
• explain the three types of relationships which arise as a result of an agency
• explain the three main theories for the creation of an agency relationship
• explain the internal and external aspects of the agency relationship
• explain the boundaries of agency.
Sample examination question

Critically evaluate the three main theories underlying an agency relationship.
Feedback: see p.81.
17
Notes
18
Chapter 3: Formation of agency
Introduction
This chapter examines the various ways in which agency can be
formed: by the principal conferring authority on the agent, expressly
or impliedly. Sometimes, when the agent acts they might not have
authority, but the principal can ratify the act and confer authority.
Learning outcomes
By the end of this chapter, and having completed the Essential readings and
• explain the formation of agency by express authority
• explain the formation of agency by implied authority
• explain the formation of agency by ratification.
Essential reading
• Clarke, Chapter 5 Creation of agency, and the authority of the agent.
• Garnac Grain Co Inc v H M F Faure & Fairclough Ltd [1968] AC 1130.
• Roberts v Ogilby (1821) 9 Price 269.
• Kelner v Baxter (1886) LR 2 CP 174.
• Grover v Matthews [1910] 2 KB 401.
• Keighley, Maxsted v Durant [1901] AC 240.

University Press, 2019) [ISBN 9780198825975] Chapter 4 The creation of the
agency relationship.
• Ryder, Chapter 2 The authority of an agent.
• Corbin, A.L. ‘Ratification in agency without knowledge of material facts’ (1906)
15(7) Yale Law Journal 331.
• Dermott, D.A. ‘Ratification: useful but uneven’ (2009) 17(6) European Review of
Private Law 987.
3.1 Conferring express or implied authority

Agreement
Authority can be conferred by an agreement formed between principal
and agent whereby the principal grants authority to the agent to act
on the principal’s behalf and the agent accepts the authority. In Garnac
Grain Co Inc v H M F Faure & Fairclough Ltd [1968] AC 1130 Lord Pearson
said: ‘The relationship of principal and agent can only be established by
the consent of the principal and the agent’. If the agency is contractual,
21
there will be consideration. But if the agency is non-contractual,

consideration is not a requirement. Coleman J said in Yasuda Fire &
Marine Insurance Co of Europe Ltd v Orion Marine Insurance Underwriting
Agency Ltd [1995] QB 174:
Although in modern commercial transactions agencies are

almost invariably founded upon a contract between principal
and agent, there is no necessity for such a contract to exist. It
is sufficient if there is consent by the principal to the exercise
by the agent of authority and consent by the agent to his
exercising such authority on behalf of the principal.
In a contractual agency, the agent is under an obligation to
perform the agency and the principal is under an obligation to pay
remuneration to the agent.
An agreement to create an agency can be implied by conduct (Garnac
Grain). A might have appointed B to a position where B is usually A’s
agent. The principal acquiescing to another’s act is another example
of a principal’s implied consent. The agent’s consent may be implied
when he purports to act on behalf of another (Roberts v Ogilby (1821) 9
Price 269).
Formalities
Generally, no formalities are necessary and the agency agreement
can be in writing, verbal or even implied by conduct. Exceptionally, an
agency has to be created in writing (e.g. for the agent to deal with land
(ss.53 and 54 Law of Property Act 1925). A power of attorney has to be
created by deed (s.1(1) Powers of Attorney Act 1971).
Activity 3.1
Tom enters into an oral agreement with Malik, for Malik to be his agent in
entering into a sale of goods contract. Is this a valid agency agreement?
Feedback: see p.81.
Capacity
The principal has to have capacity, but the agent does not need to have
capacity.
3.2 Agency by ratification

At the time the agent acts, they may not have authority, but
subsequently, when the principal gets to know that the agent has
acted on their behalf, the principal has the right to authorise the
agent’s act. The ratification may be express or implied from the
principal’s conduct. A ratification is a unilateral juristic act. The
ratification need not be communicated to the person whose act is
ratified or to the third party (Pagnan SpA v Feed Products Ltd [1987] 2
Lloyd’s Rep 601).
A void act cannot be ratified. For example, a forged signature cannot
be ratified (Brook v Hook (1871) LR 6 Ex 89). The principal can only ratify
an act done on their behalf and cannot ratify an act which the agent
has done on the agent’s behalf (Keighley, Maxsted & Co v Durant [1901]
AC 240).
22
The only person who can ratify is the person on whose behalf the
act is done. An act cannot be ratified if the ‘principal’ lacked capacity
when the original act was done, was not born, or where the person
or company existed, but did not fit the description of the ‘principal’
given by the agent. In Kelner v Baxter (1886) LR 2 CP 174, before a
hotel company was formed, the directors to be of the company
ordered some wine. After incorporation they purported to ratify the
transaction. It was held that they could not do so, as the company had
not yet been formed. In Grover v Matthews [1910] 2 KB 401 an agent,
without authority, insured the principal’s property. When the principal’s
property was destroyed, the principal purported to ratify the agent’s
act. It was held that he could not do so, as he could not have taken
out the insurance himself at the time the agent acted. There may be
instances where a principal who is to come into existence in the future
may ratify an act, for example, where an insurance contract specifically
says that it is made on behalf of present and future sub-contractors
(Burrows).
An agent can act for an unidentified principal where the agent does
not name or identify the principal to the third party. In such a case
there can be a later ratification by the principal (National Oilwell (UK)
Ltd v Davy Offshore Ltd [1993] 2 Lloyd’s Rep 582). Where, however, the
agent acts for an ‘undisclosed principal’, without disclosing to the third
party that they were acting for a principal, the ‘undisclosed principal’
cannot later ratify. In Keighley, Maxsted v Durant [1901] AC 240 the
principal had authorised the agent to buy corn at a certain price. The
agent bought corn at a slightly higher price in his own name without
revealing that he was buying as an agent. The court held that the
principal could not ratify.
When the agent’s act is subsequently ratified, it gives retrospective
validity to the agent’s act. Ratification cannot divest a property right.
Ratification is not possible after a time limit has expired. Ratification is
not possible where it would cause unfair prejudice to the party against
whom it is invoked.
If an agent enters into a transaction with a third party, subject to
ratification, if a third party withdraws from the transaction before the
ratification, the ratification is ineffective.
When the principal ratifies, the agent is protected against the third
party. If the principal does not ratify, the agent could be sued for
breach of warranty of authority. Once the principal has ratified the
agent’s act, the principal has to pay commission to the agent and pay
the agent’s expenses.
It is essential that at the time the agent acted, they professed to act on
behalf of the principal who subsequently ratifies the transaction. The
principal should have been competent to perform the contract at the
time the agent acted on the principal’s behalf. It should be possible to
establish the identity of the principal at the time of the agent’s act.
The principal is liable for all the acts of the agent which are
within the authority usually confided to an agent of that
character, notwithstanding limitations, as between the principal
and the agent, put upon that authority. It is said that it is only
23
so where there has been a holding out of authority – which

cannot be said of a case where the person supplying the goods
knew nothing of the existence of a principal. But I do not think
so. Otherwise, in every case of undisclosed principal, or at least
in every case where the fact of there being a principal was
undisclosed, the secret limitation of authority would prevail and
defeat the action of the person dealing with the agent and then
discovering that he was an agent and had a principal.
(Munday, R. Agency: law and principles. (Oxford: Oxford University
Press, 2016))
Activity 3.2
Jane enters into a contract with Tim on behalf of Paul. At the time of the contract
Jane has no authority to act on behalf of Paul.
What is the legal position in the following circumstances?
a. Paul refuses to ratify Jane’s act.
b. Paul ratifies Jane’s act.
c. At the time Jane acted Paul did not have capacity to enter into the contract.
Feedback: see p.81.
In this type of agency, when the agent initially acts, there is no

authority, but the principal subsequently adopts the agent’s act. When
the principal ratifies the agent’s acts the principal acquires rights in
relation to the third party and is bound by duties to the third party. For
agency by ratification to arise, there must be an agreement between
principal and agent, the principal must be competent to act and must
be in existence at the time of the agent entering into the contract;
the principal must ratify the act within a reasonable time; and the
ratification must be undeniable.
1. What are the ways in which agency can be formed?
2. What do you understand by conferring authority on an agent?
3. Is consent between principal and agent necessary to form an agency?
4. Is consideration essential to form an agency agreement?
5. What are the exceptional situations when formalities are necessary to create
an agency agreement?
6. Is there a requirement that the principal and agent should have capacity to
enter into a contract?
7. What do you understand by agency by ratification?
8. Must a ratification be communicated to the agent and the third party?
9. Can a void act be ratified?
10. Can a principal ratify an act, if they did not have capacity when the agent
entered into the transaction with the third party?
11. If a principal ratifies, is an agent protected against a third party?
12. If the principal does not ratify, can the third party sue the agent?
13. Does the principal have to pay commission to the agent after the agent’s act
is ratified?
24
Summary
• Agency can be formed by express or implied authority.
• There has to be an agreement between principal and agent to form
an agency by authority.
• Consent between principal and agent is necessary to form an
agency by authority.
• Consideration is not essential to form an agency by authority.
• Generally, no formalities are needed to create an agency by authority.
• The principal should have capacity to enter into a contract.
• The agent does not need capacity to enter into a contract.
• Agency by ratification is where the agent has no authority at the
time of the transaction with the third party, but subsequently the
principal approves the agent’s act.
• A void act cannot be ratified.
• Once a principal ratifies the agent’s act, the agent cannot be sued
by the third party.
• If the principal does not ratify the agent’s act, the third party can
sue the principal for breach of warranty of authority.
• The principal has to pay commission and expenses to the agent
after ratification.

Having completed this section, and the Essential readings and activities, you
should be able to:
• explain the formation of agency by express authority
• explain the formation of agency by implied authority
• explain the formation of agency by ratification.

What are the ways in which an agency can be formed?
Feedback: see p.82.
25
Notes
26
Chapter 4: The external effects of agency
Introduction
This chapter explains the various kinds of authority: express and implied
actual authority, usual authority, apparent (ostensible authority) and
agency by statutory authority.
Learning outcomes
• explain express and implied actual authority
• explain usual authority
• explain apparent or ostensible authority
• explain agency by statutory authority.
Essential reading
• Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549.
• Garnac Grain Co Inc v H M F Faure and Fairclough Ltd [1967] 2 All ER 353.
• Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB
480.
• Ireland v Livingstone (1872) LR 5 HL 395.
• Robinson v Mollett (1875) LR 7 HL 802.
• Watteau v Fenwick [1893] 1 QB 346.
• Rama Corpn Ltd v Proved Tin and General Investments Ltd [1952] 2 QB 147.
• ING Re (UK) Ltd v Versicherung AG [2006] EWHC 1544 (Comm).
• Summers v Solomon (1857) 7 El & Bl 879.

University Press, 2019) [ISBN 9780198825975] Chapter 5 The authority of an
agent.
• Amucheazi, C. ‘A critical analysis of usual authority in agency contracts’ (2018)
39 Business Law Review 2.
• Hornby, J.A. ‘The usual authority of an agent’ (1961) 19(2) Cambridge Law
Journal 239.
• Lee, P.W. ‘The apparent authority of the unauthorised agent; Kelly v Fraser’
(2014) 26(1) Singapore Academy of Law Journal 258.
• Reynolds, F. ‘Apparent authority’ (2009) 17(6) European Review of Private Law
975.
27
4.1 Express and implied actual authority

Authority means the ‘scope of the agent’s ability to affect the legal
position’ (Dobson, P. and R. Stokes Commercial law. (London: Sweet &
Maxwell, 2008)) of the principal. Actual authority of the agent arises
when the principal expressly or impliedly grants authority. Markesinis
and Munday said ‘actual authority is the authority the agent actually
has pursuant to the consensual agreement which has been reached
between himself and his principal. It is in other words real authority.’
Dobson and Stokes said:
…certainly the most straight forward situation is created by
express agreement. In such a case, the agreement will, to some
extent at least, dictate the scope of the agent’s authority. This
is called ‘actual authority’: the agent can properly do anything
detailed within the agreement.
Summers v Solomon: actual authority may be express or implied
(Markesinis, B. and R. Munday An outline of the law of agency).
If the agent has no authority, the principal is not bound to a third party.
A principal who is bound to a third party is liable for the agent’s acts,
including the agent’s misrepresentations and fraud. The principal is
liable for the agent’s fraud, even if the principal was not fraudulent.
Activity 4.1
Robin, who was going abroad, asked Mandy to sell his business. Mandy
fraudulently represented to Jack that Robin’s business was successful. In fact,
his business was making a loss. Relying on the misrepresentation, Jack bought
Robin’s business. Jack has now discovered the fraud and wishes to sue Robin.
Advise Robin.
Feedback: see p.82.
The principal is liable for the agent’s acts, only if the acts were within
the authority granted to the agent. An agent who exceeds his actual
authority commits a breach of contract as against the principal and the
third party can sue the agent for breach of warranty of authority.
An agency can arise when there is an express or implied agreement
between principal and agent. Although most agreements will be
contractual, a contract is not essential to create an agency. It is essential
that the principal consents to the agent exercising authority on their
behalf and the agent consents to exercising such authority (Yasuda
Fire & Marine Insurance Co of Europe Ltd v Orion Marine Insurance
Underwriting Agency Ltd [1995] QB 174).
Where there is an agency agreement the agent has actual authority. Lord
Denning MR in Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 said:
…actual authority may be express or implied. It is express

when it is given by words, such as when a board of directors
pass a resolution which authorises two of their number to sign
cheques. It is implied when it is inferred from the conduct of
the parties and the circumstances of the case, such as when the
board of directors appoint one of their number to be managing
director. They thereby impliedly authorise him to do all such
things as fall within the usual scope of his office.
28
In this case the directors of a company permitted the chairman to act

as its managing director. The Court of Appeal held that the chairman
had implied authority to act as managing director.
In Garnac Grain Co Inc v H M F Faure and Fairclough Ltd [1967] 2 All ER
353 Lord Pearson said:
The relationship of principal and agent can only be established

by the consent of the principal and agent. They will be held to
have consented if they have agreed to what amounts in law to
such a relationship, even if they do not recognise it themselves
and even if they have professed to disclaim it.
Actual authority may be implied by the conduct of the parties, the

conditions of the case, trade or custom.
Diplock LJ said in Freeman & Lockyer (a firm) v Buckhurst Park Properties
(Mangal) Ltd [1964] 2 QB 480:
An ‘actual’ authority is a legal relationship between principal

and agent created by a consensual agreement to which they
alone are parties. Its scope is to be ascertained by applying
ordinary principles of construction of contracts, including any
proper implications from the express words used, the usages
of the trade, or the course of business between the parties. To
this agreement the contractor is a stranger; he may be totally
ignorant of the existence of any authority on the part of the
agent. Nevertheless, if the agent does enter into a contract
pursuant to the ‘actual’ authority, it does create contractual
rights and liabilities between the principal and the contractor.
In Ireland v Livingstone (1872) LR 5 HL 395 Livingstone wrote to Ireland

asking him to ship 500 tons of sugar and also said ‘Fifty tons more or
less of no moment, if it enables you to get a suitable price.’ Ireland
shipped 400 tons presumably intending to ship the balance later.
Livingstone refused to accept the 400 tons and asked Ireland to cancel
further deliveries. It was held that Livingston was bound to accept the
sugar, as Ireland had construed his letter in a reasonable manner.
According to Munday (Agency: law and principles. (Oxford: Oxford
University Press, 2016)), actual authority could be implied by the
conduct of the parties, the conditions of the case, trade or custom.
An agent expressly authorised to do something, such as a solicitor
instructed to deal with the sale of a house, has implied authority to act
in matters incidental to the action. The agent has implied authority to
act in accordance with the customs of the market. However, the agent
cannot follow the custom of the market if it is contrary to the express
instructions of the principal. In Robinson v Mollett (1875) LR 7 HL 802
the agent could not take advantage of a custom in the London tallow
market that a broker could sell his own goods to the principal, as it
contradicted the express agreement with the principal.
4.2 Usual authority

If one person appoints another person to a position, say managing
director of a company, that person has the usual authority to engage
in acts which it is usual for people in that position to do. If one person
29
uses the services of another, say a solicitor, that person (the solicitor)
has the authority to do acts normally done by other people performing
that service (solicitors). A solicitor’s authority to compromise litigation
is an example of this form of authority (Waugh v HB Clifford & Sons Ltd
[1982] Ch 374).
According to Dobson and Stokes, ‘usual authority is primarily a sub-
division of actual implied authority and thus emanates from, and
enlarges the scope of, the actual authority which exists in its own right
as an independent category of authority.’ The test of usual authority
is ‘what authority would a reasonable person in the agent’s position
believe they possessed’ (Furmston).
Wills J in Watteau v Fenwick [1893] 1 QB 146 said:
…the principal is liable for all the acts of the agent which
are within the authority usually confided to an agent of that
character, notwithstanding limitations, as between the principal
and the agent, put upon that authority. It is said that it is only
so where there has been a holding out of authority – which
cannot be said of a case where the person supplying the goods
knew nothing of the existence of a principal. But I do not think
so. Otherwise, in every case of undisclosed principal, or at least
in every case where the fact of there being a principal was
undisclosed, the secret limitation of authority would prevail and
defeat the action of the person dealing with the agent and then
discovering that he was an agent and had a principal.
Activity 4.2
Rajan instructs his solicitor Amy to appear in a court case instituted against him
by Shami. Shami has now offered to settle the matter out of court.
What action can Amy take with regard to this offer?
Feedback: see p.82.
4.3 Apparent or ostensible authority

Bradgate stated that:
…a principal is bound by the authorised acts of his agents

because he has consented to them and to be bound. A
person may also be bound by acts done by another on his
behalf without his consent, or even in breach of an express
prohibition, if his words or actions give the impression that he
has authorised them.
In Rama Corpn Ltd v Proved Tin and General Investments Ltd [1952] 2 QB
147 Justice Slade said:
Ostensible or apparent authority…is merely a form of estoppel.

It has been termed agency by estoppel, and you cannot call
in aid an estoppel unless you have three ingredients: (i) a
representation, (ii) reliance on the representation, and (iii) an
alteration of your position resulting from such reliance.
Such an agency arises where the principal represents that a person
is acting as their agent (AG for Ceylon v Silva [1953] AC 461). Such an
agent has apparent authority to act on behalf of the principal. The
30
representation must be one of fact to the third party indicating that

the agent has authority to act on the principal’s behalf. The third party
must have knowledge of the representation and agree to enter into a
contract with the agent. The principal may not have given the agent
any authority and may have even prohibited the agent from doing a
specified act, but is bound to a third party if the third party thinks that
the agent has authority.
The common law is guided by the statement in the US Restatement,
Third, Agency, according to which there is apparent authority ‘when
a third party reasonably believes that an actor has authority to act
on behalf of a principal and that belief is traceable to the principal’s
manifestations’. Where a principal has granted a power of attorney, but
with limitations, if the limitations are unknown to the third party, the
agent has apparent authority. The third party is entitled to assume that
an agent has the authority to engage in activities which other agents in
their position would normally have, unless the third party knows of the
restriction in the agent’s authority.
Apparent or ostensible authority arises by estoppel arising from a
representation by the principal that the agent has authority. In Freeman
& Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480
Diplock LJ said:
An ‘apparent’ or ‘ostensible’ authority…is a legal relationship
between the principal and the contractor created by a
representation, made by the principal to the contractor,
intended to be and in fact acted upon by the contractor, that
the agent has authority to enter on behalf of the principal into a
contract of the kind within the scope of the ‘apparent’ authority,
so as to render the principal liable to perform any obligations
imposed on him by such contract. To the relationship so
created the agent is a stranger. He need not be (although
generally is) aware of the existence of the representation but
he must not purport to make the agreement as principal
himself. The representation, when acted on by the contractor by
entering into a contract with the agent, operates as an estoppel,
preventing the principal from asserting that he is not bound
by the contract. It is irrelevant whether the agent had actual
authority to enter into the contract.
In ING Re (UK) Ltd v Versicherung AG [2006] EWHC 1544 (Comm) Toulson
J said:
The doctrine of apparent or ostensible authority is based on

estoppel by representation where a principal (P) represented
to a third party (T) that an agent (A) has authority to act on
P’s behalf, and T deals with A as P’s agent on the faith of that
representation, P is bound by A’s acts to the same extent as if A
had the authority which he was represented as having.
To establish estoppel, a clear representation must be made by the

principal, intended to be acted upon, and the third party should have
relied on the representation.
The representation can be express (oral or in writing) or implied
by conduct, as in Summers v Solomon (1857) 7 E & B 879 where the
principal employed an agent to manage his jewellery shop and paid
31
for jewellery obtained on credit from the third party. The agent bought
jewellery on credit from the third party after leaving employment. The
principal was liable to the third party as the principal had not informed
the third party that the agent was no longer employed by him.
Activity 4.3
Alan represents to Jay that Liz has authority to negotiate a sale of an antique
table. Unknown to Jay, Alan instructs Liz not to sell the table below £2,000. Liz
sells the table to Jay for £1,900.
Advise Alan.
Feedback: see p.82.
4.4 Agency by statutory authority

Statutes such as the Consumer Credit Act 1974, Bills of Exchange Act
1882, Limitation Act 1980, Trustee Delegation Act 1999 and Trustee Act
2000 can confer authority on agents.
1. What do you understand by the authority of the agent?
2. What do you understand by express authority of the agent?
3. What do you understand by the implied authority of the agent?
4. Is the principal liable for a fraudulent misrepresentation committed by the
agent?
5. Is the consent of both parties essential to create an agency agreement?
6. Give examples of situations where an agent has implied authority.
7. What do you understand by usual authority?
8. What do you understand by apparent (ostensible) authority?
Summary
• Authority is the agent’s ability to effect legal relations between the
principal and third party.
• The principal is bound by the agent’s acts even if the agent is
fraudulent, provided the agent has authority.
• An agent who exceeds their authority can be sued for breach of
contract by the principal and is liable for breach of warranty of
authority to the principal.
• An agency is created by express or implied agreement between
principal and agent.
• Actual authority could be implied by the conduct of the parties, the
conditions of the case, trade or custom.
• An agent has the usual authority to do acts which other such
agents can do.
• When a principal represents to a third party that a person has
authority to act, the agent has apparent authority even if they may
not have actual authority.
• When a representation has been acted on, the principal is estopped
from denying that their agent has authority.
32

Having completed this chapter, and the Essential reading and activities, you
should be able to:
• explain express and implied actual authority
• explain usual authority
• explain apparent or ostensible authority
• explain agency by statutory authority.

Distinguish between express and implied actual authority and apparent
(ostensible) authority, citing examples.
Feedback: see p.82.
33
Notes
34
Chapter 5: Different types of agency
Introduction
This chapter introduces different types of agency such as general and
special agents, mercantile agents/factors, brokers, del credere agents,
auctioneers, a confirming house, estate agents, gratuitous agents,
commercial agents and agents of necessity.
Learning outcomes
• explain general and special agents
• explain mercantile agents/factors
• explain brokers
• explain del credere agents
• explain auctioneers
• explain a confirming house
• explain estate agents
• explain gratuitous agents
• explain commercial agents
• explain agents of necessity.
Essential reading
• Section 2(1) Factors Act 1889. Available via LexisLibrary in the Online Library.
• Section 1(1) Estate Agents Act 1979. Available via LexisLibrary in the Online
Library.
• Commercial Agents (Council Directive) Regulations 1993 (SI 1993/3053).
Available via LexisLibrary in the Online Library.

• Parker, B. ‘Compensating commercial agents’ (2006) 65(3) Cambridge Law
Journal 502.
• Vranaki, A. ‘Compensation for commercial agents’ (2008) 71(2) Modern Law
Review 271.
35
5.1 General and special agents

A general agent has the authority to act generally on behalf of the
principal. On the other hand, a special agent is appointed for a specific
task. Bradgate is of the view that this is a historical difference and that
the appointment of a special agent is not commercially attractive
(Bradgate, R. Commercial law. (Oxford: Oxford University Press, 2005)).
5.2 Mercantile agent/factors

Mercantile agents dispose of goods on behalf of principals and the
principal gives them possession of the goods for the purpose of
disposing of them. The mercantile agent could contract in their own
name and receive payment (Chitty on Contracts. (London: Sweet
& Maxwell, 2004) 19th edition). The Factors Act 1889 gave agents
authority to pass title to goods in their possession. Mercantile agents
can pass good title to third parties even in the absence of express
authority. Third parties get good title only if they act in good faith.
5.3 Brokers
A broker is an agent who ‘negotiates contracts for the sale and
purchase of goods and other property but does not have possession
of the goods’ (Bradgate, 2005). Unlike a factor, a broker cannot sell the
principal’s goods in their own name.
5.4 Del credere agent

This type of agent ‘negotiates contracts for a principal and guarantees
to the principal that the third party will pay any sums due under
that contract…The del credere agent charges the principal an extra
commission for providing the guarantee’ (Bradgate, 2005). Such an
agent is only liable to pay the price to the principal if the buyer defaults
or becomes insolvent. Such agents are useful when the principal does
not know the creditworthiness of overseas buyers.
A del credere agency does not have to be evidenced in writing and can
be implied from a course of conduct.
5.5 Auctioneer
An auctioneer has authority to sell at an open sale, but has no authority
to provide a warranty unless expressly authorised to do so. Auctioneers
are agents of the seller, but may be agents of the buyers for certain
purposes.
5.6 Confirming house

A confirming house usually acts on behalf of international clients
who wish to import goods. A confirming house can be an agent of
an overseas buyer and buy goods in the domestic market without
becoming liable to the seller on the contract of sale; buy from the
seller as principal and resell to the overseas buyer; act as agent of the
overseas buyer for the contract of sale but also enter into a collateral
36
contract with the seller agreeing to be liable for the solvency of the
overseas buyer; buy from the seller as principal, but be an agent to the
overseas buyer.
5.7 Estate agents

A person who wishes to sell property instructs an estate agent to find
a buyer. Such an agent provides a description of the property and
its value to potential buyers. Such agents do not have the power to
conclude contracts on behalf of the principal. See also s.1(1) Estate
Agents Act 1979.
5.8 Gratuitous agents

Such agents are non-contractual agents. Only a minority of agents are
gratuitous. In Yasuda Fire & Marine Insurance Co of Europe Ltd v Orion
Marine Insurance Underwriting Agency Ltd [1995] QB 174 Colman J said:
Although in modern commercial transactions agencies are

almost invariably founded upon a contract between principal
and agent, there is no necessity for such a contract to exist. It
is sufficient if there is consent by the principal to the exercise
by the agent of authority and consent by the agent to his
exercising such authority on behalf of the principal.
5.9 Commercial agents

A commercial agent is:
…a self-employed intermediary who has continuing authority

to negotiate the sale or purchase of goods on behalf of another
person (‘the principal’), or to negotiate and conclude the sale
or purchase of goods on behalf of and in the name of that
principal.
(reg.2(1) Commercial Agents (Council Directive) Regulations
1993 (SI 1993/3053))
The agent must be self-employed; the agent must have ‘continuing

authority’; the agent must have ‘continuing authority’ to negotiate on
behalf of the principal.
A person who buys or sells as principal, acting on their own behalf, is
not a ‘commercial agent’.
The Commercial Agents (Council Directive) Regulations 1993
(SI 1993/3053) govern commercial agents.
A principal owes a commercial agent the following duties, which must
be exercised dutifully and in good faith:
• Providing the commercial agent with the necessary documents
relating to the goods.
• Obtain for the agent the necessary information about the contract.
• Notify the agent if the expected transactions are significantly lower
than expected.
• Notify the agent of the acceptance or refusal of a commercial
transaction which the agent has got for the principal.
37
• The agent is under a duty to look after the interests of the principal
and act dutifully and in good faith and the agent must make proper
efforts to negotiate and conclude transactions. The agent must
communicate to the principal all the necessary information and
comply with reasonable instructions given by the principal.
5.10 Agent of necessity

An agency of necessity arises when a person acts on behalf of another
in an emergency. In such an event the agent has authority to act, even
though there is no actual authority.
According to Bradgate (2005), there are four requirements to be
satisfied for the agency of necessity to arise. First, there must be an
emergency. Second, as a result of the emergency it must be impossible
to obtain instructions from the principal. Third, the agent must have
acted bona fide in the interests of the principal. Finally, the agent must
have acted reasonably.
With improved communication, the second requirement is rarely
satisfied.
Where the requirements of agency of necessity are satisfied, the agent
has power to enter into contracts with third parties and dispose of the
principal’s property. If the principal sues the agent, the agent will have
a defence and the agent can seek reimbursement for expenses from
the principal. The agent’s action must be for the benefit of the principal
and the agent must act in the bona fide interests of the principal. The
principal should not have forbidden the agent’s act in advance.
Activity 5.1
Read the following scenarios and state the type of agency:
a. Ben wants to sell his house. He instructs Smith & Co to find a buyer for his
house and promises to pay a commission on completion of the sale.
b. Ming instructs John (who is also selling paintings for other customers) to sell a
valuable painting at an open sale.
c. Sally asks her friend Ian (who is an expert on cars) to find her a good second
hand car. She does not promise Ian any commission. Ian agrees to find Sally a
car.
d. Rod is the master of the ship Oceana. He is carrying a cargo of apples for Katy
from South Africa to the UK. When the ship docks en route at Barcelona, Rod
phones Katy to say that the apples are deteriorating. However, Katy has had
an accident and is in hospital, so that she is unable to answer the phone. Rod
sells the apples at a cheap price in Barcelona.
e. Mary is a dress designer and asks Paul to negotiate sales of the dresses in her
shops.
f. Jane gives her car to Mark and asks him to sell her car for a good price.
g. Jack, who is in England, wants to sell his products to overseas buyers. He
instructs Rani to negotiate contracts with overseas buyers. He wants Rani
to guarantee the price to be paid if the buyers default. He pays Rani extra
commission.
h. Mona is going abroad to work for one year. She appoints Tom to look after her
affairs while she is away.
38
i. Empire Co buys goods on the domestic market in the UK and sells to overseas
buyers.
j. Peter is self-employed and has continuing authority to negotiate and
conclude sales of the farm products of Lina.
Feedback: see p.82.
1. Who is a general agent?
2. Who is a special agent?
3. Who is a mercantile agent/factor?
4. Who is a broker?
5. Who is a del credere agent?
6. Who is an auctioneer?
7. What is a confirming house?
8. Who is an estate agent?
9. Who is a gratuitous agent?
10. Who is a commercial agent?
11. What is an agency of necessity?
Summary
• A general agent is authorised to act generally for the principal.
• A special agent is appointed to undertake a specific task on behalf
of the principal.
• A mercantile agent/factor is given possession of the principal’s
goods and can sell them to third parties.
• A broker negotiates contracts of sale and purchase on behalf of the
principal.
• A del credere agent, for an additional commission, guarantees
payment of the price to the principal in the event of default or
insolvency of the buyer.
• An auctioneer is authorised to sell the principal’s goods at an open
sale.
• A confirming house acts as an agent for an overseas buyer who
wishes to import goods.
• An estate agent is entrusted with describing and valuing the
principal’s property and finding buyers.
• A gratuitous agent is an agent who does not have a contract with
the principal, but nevertheless agrees to act as an agent.
• A commercial agent is a self-employed person who has continuing
authority to negotiate the sale or purchase of goods on behalf of
another.
• An agency of necessity arises where a person has to act on behalf
of another in an emergency situation.
39

should be able to:
• explain general and special agents
• explain mercantile agents/factors
• explain brokers
• explain del credere agents
• explain auctioneers
• explain a confirming house
• explain estate agents
• explain gratuitous agents
• explain commercial agents
• explain agents of necessity.

Explain the various types of agency citing examples to illustrate the role of each
agent.
Feedback: see p.83.
40
Chapter 6: Relations between a principal and an agent
Chapter 6: Relations between a

principal and an agent
Introduction
This chapter discusses the duties and rights of an agent.
Learning outcomes
• explain the duty to obey the principal’s instructions
• explain the duty to exercise due care and skill
• explain the duty to perform contractual obligations
• explain the duty not to allow any conflict of interest
• explain the duty not to make a secret profit
• explain the duty to act as a fiduciary
• explain the duty not to take a bribe
• explain the duty to account
• explain the right to commission and remuneration
• explain the right to an indemnity
• explain the right to a lien.
Essential reading
• Clarke, Chapter 7 Relations between principal and agent.
• The Hermione [1922] P 162.
• Turpin v Bilton (1843) 5 Man and G 455.
• Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384.
• Solomon v Barker (1862) 2 F & F 726.
• Chaudhry v Prabhakar [1989] 1 WLR 29.
• Ireland v Livingstone (1872) LR 5 HL 395.
• European Asian Bank AG v Punjab & Sind Bank (No. 2) [1983] 2 All ER 508.
• Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461, 471; [1843–60] All ER Rep
249, 252.
• Boardman v Phipps [1967] 2 AC 46.
• Armstrong v Jackson [1917] 2 KB 822.
• McPherson v Watt (1877) 3 App Cas 254.
• Gibson v Jeyes (1801) 6 Ves Jun 266.
• Bentley v Craven (1853) 18 Beav 75.
• North and South Trust Co v Berkley [1971] 1 WLR 470.
• Kelly v Cooper [1993] AC 205.
• Hippisley v Knee Bros [1905] 1 KB 1.
• Bristol & West Building Society v Mathew [1998] Ch 1, 18.
• Parker v McKenna (1874) LR 10 Ch App 96, 118.
• Industries and General Mortgage Corp v Lewis [1949] 2 All ER 573, 575. 41
• Anangel Atlas Compania Naviera SA v Ishikawajima-Harima Heavy Industries Co

Ltd [1990] 1 Lloyd’s Rep 167. A summary of the facts is available at: https://
swarb.co.uk/anangel-atlas-compania-naviera-sa-v-ishikawajima-harima-heavy-
industries-co-ltd-1990/
• Andrews v Ramsay [1903] 2 KB 635.
• Bulfield v Fournier (1895) 11 TLR 282. Available via HeinOnline in the Online
Library..
• Logicrose Ltd v Southend United Football Club Ltd [1988] 1 WLR 1256.
• Lupton v White (1808) 15 Ves Jun 432.
• Pearse v Green (1819) 1 Jac & W 135.
• Gray v Haig (1855) 20 Beav 219.
• Yasuda Fire and Marine Insurance Co of Europe Ltd v Orion Marine Underwriting
Agency Ltd [1995] QB 174.
• Lees v Nuttall (1829) 1 Russ & My 53.
• Gibbon v Pease [1905] 1 KB 810.
• Schmaling v Thomlinson (1815) 6 Taunt 147.
• Solly v Rathbone (1814) 2 M & S 298.
• Catlin v Bell (1815) 4 Camp 183.
• National Employers’ Mutual General Insurance Association Ltd v Elphinstone
[1929] WN 135. Available on the VLE.
• Way v Latilla [1937] 3 All ER 759.
• Kofi Sunkersette Obu v A Strauss & Co Ltd [1951] AC 243.
• Michael Elliott & Partners Ltd v UK Land plc [1991] 1 EGLR 39.
• Luxor (Eastbourne) Ltd v Cooper [1941] AC 108.
• Alpha Trading v Dunnshaw-Patten [1981] QB 290.
• Mason v Clifton (1863) 3 F & F 899.
• Josephs v Pebrer (1825) 3 B & C 639.
• Kelly v Cooper [1993] AC 205.
• Boston Deep Sea Fishing and Ice Co Ltd v Ansell (1888) 39 Ch D 339.
• Crocker Horlock Ltd v B Lang & Co Ltd [1949] 1 All ER 526.
• Turner v Goldsmith [1891] 1 QB 544.
• Barron v Fitzgerald (1840) 6 Bing NC 201.
• Lage v Siemens (1932) 42 Lloyd’s LR 252. Available on the VLE.
• Solly v Rathbone (1814) 2 M & S 298.

University Press, 2019) [ISBN 9780198825975] Chapter 6 The relations between
principal and agent.
• Ryder, Chapter 3 Relations between a principal and agent.
42
6.1 Duties of an agent

The duties of an agent arise from the contract between principal and
agent and from equity (as there is a fiduciary relationship between
principal and agent). The duties may also arise from tort, statute or the
law of restitution. Where there is a contractual relationship between
principal and agent the duties of the agent arise from the express
or implied agreement. Whether the agent owes any duties depends
on whether the agent has agreed to act. If the agent acts under a
unilateral contract they are not under any duties to the principal. A
gratuitous agent is not under a duty to act, unless their failure to act
gives rise to liability in tort.
6.1.1 To obey the principle’s instructions

The agent owes a duty to obey the principal’s instructions. An agent is
not obliged to undertake instructions which would lead to an illegal
act. The agent is not under a duty to follow instructions which are null
and void under common law or statute. The agent must obey lawful
and reasonable instructions given by the principal, even if the agent is
of the view that departing from the instructions is in the principal’s best
interests (The Hermione [1922] P 162). However, a professional agent
may be under a duty to warn the principal of any risks in following the
principal’s instructions.
The duty to obey instructions applies only to a contractual agent. If
such an agent fails to obey instructions the principal can sue the agent
for breach of contract and recover damages for any losses suffered. In
Turpin v Bilton (1843) 5 Man and G 455 the agent was liable for breach
of contract to the principal as he had not insured the principal’s ship in
accordance with the agreement.
A gratuitous agent is not under any duty to the principal, but may be
liable in tort.
Activity 6.1
Marcel, a French wine producer, appointed Tom, in England, as his agent to
advertise and market his wine throughout the United Kingdom. A year later,
Marcel discovers that Tom has only marketed the wine in England and has not
done so in the rest of the United Kingdom.
Advise Marcel.
Feedback: see p.83.
6.1.2 Duty to exercise due care and skill

A contractual agent owes a duty to the principal to exercise reasonable
care and skill in performing their undertakings. The agent’s duty to
exercise care and skill may be both contractual and tortious (Midland
Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384). In Solomon v
Barker (1862) 2 F & F 726 a broker was liable for not obtaining the best
price for the principal. Such a duty is also contained in some statutes
such as the Supply of Goods and Services Act 1982. A greater degree of
care and skill is owed by an agent who is paid more for their special skill.
A gratuitous agent owes the same duty and standard of care as a
contractual agent (Chaudhry v Prabhakar [1989] 1 WLR 29).
43
Activity 6.2
Sirima has just passed her driving test and asked Andy to find her a second
hand car which had not been involved in an accident. Andy found her a car
which Sirima bought. A few months later Sirima took the car to a motor dealer
and offered her car as part exchange to purchase another car. The motor dealer
informed her that her car had been involved in an accident prior to her buying it
and that Andy could have discovered this by carrying out some checks.
Advise Sirima whether she could sue Andy.
Feedback: see p.83.
6.1.3 To perform contractual obligations

The agent is bound to carry out the instructions in the contractual
agreement with the principal and if the agent fails to do so they are
liable in damages for any loss incurred by the principal. If the principal’s
instructions are vague, the agent is entitled to give a reasonable
interpretation to the instructions (Ireland v Livingstone (1872) LR 5 HL
395). However, it has also been said that if the instructions are unclear,
that the agent should seek clarification from the principal (European
Asian Bank AG v Punjab & Sind Bank (No. 2) [1983] 2 All ER 508).
An agent has to perform their duties personally and is not permitted
to delegate their duties without the express authority of the principal.
However, in exceptional situations, such as emergencies, an agent may
delegate their duties without the principal’s authority.
6.1.4 Not to allow any conflict of interest

The agent should ensure that their personal interests do not conflict
with that of the principal. In Aberdeen Railway Co v Blaikie Bros (1854) 1
Macq 461, 471, Lord Cranworth stated:
It is a rule of universal application that no one, having [fiduciary]

duties to discharge, shall be allowed to enter into engagements
in which he has, or can have, a personal interest conflicting, or
which possibly may conflict, with the interest of those who he is
bound to protect.
This rule is strictly applied where there is an actual conflict of interest or

where there is ‘a real sensible possibility of conflict’ (Boardman v Phipps
[1967] 2 AC 46). The fact that the agent has acted in good faith and
produced a benefit for the principal is irrelevant.
An agent appointed to buy property for the principal must not sell
their own property to the principal (Armstrong v Jackson [1917] 2 KB
822). If the agent has been appointed to sell the principal’s property
the agent must not buy it themselves or for a close relative (McPherson
v Watt (1877) 3 App Cas 254). If the agent sells their own property to
the principal or buys the principal’s property, they must show that the
price was fair and that they did not abuse their position (Gibson v Jeyes
(1801) 6 Ves 266).
Where an agent acts in breach of duty, the principal may either rescind
the contract (if there are no bars to rescission) or affirm the contract
and claim an account of profit made by the agent (Bentley v Craven
(1853) 18 Beav 75).
44
If the agent has disclosed all material facts to the principal, and the
principal consents, the agent is not in breach of duty regarding a
conflict of interest (North and South Trust Co v Berkley [1971] 1 WLR 470).
The no conflict rule may be excluded by express or implied agreement
between principal and agent (Kelly v Cooper [1993] AC 205).
Activity 6.3
Jim was a football player from Trinidad and Tobago. He appointed Rani to
negotiate a contract for him to play in a UK Club and to apply for a work permit
for him. The club paid Rani £3,000 to apply for the work permit (which would
have cost £750). When Jim found out about the £3,000 he refused to pay any
commission to Rani. Rani seeks your advice.
Feedback: see p.83.
6.1.5 Not to make a secret profit

An agent should not make a secret profit. Where an agent makes a
secret profit they are in breach of the duty of good faith they owe the
principal and the secret profit could be recovered by the principal
(Boardman v Phipps [1967] 2 AC 46). In Hippisley v Knee Bros [1905] 1 KB
1 the agent was entitled to be paid expenses by the principal, but did
not disclose to the principal the discounts the agent had received. It
was held that the agent could not keep the discounts.
In Boardman v Phipps [1967] 2 AC 46 it was held that the agents must
account to the principals the profit they had made, as their fiduciary
position enabled them to make a profit.
If the agent discloses the relevant information to the principal who
consents to the agent keeping the profit, the agent is entitled to retain
the profit.
The reason for the not making a secret profit rule is to deter agents
from abusing their position.
6.1.6 To act as a fiduciary

This means that the agent owes equitable duties to the principal.
The distinguishing obligation of a fiduciary is the obligation of

loyalty. The principal is entitled to the single-minded loyalty of the
fiduciary. This core liability has several facets. A fiduciary must act
in good faith: he must not make a profit out of his trust; he must
not place himself in a position where his duty and his interest may
conflict; he may not act for his own benefit or for the benefit of a
third person without the informed consent of his principal. This
is not intended to be an exhaustive list…they are the defining
characteristics of the fiduciary.
(Bristol & West Building Society v Mathew [1998] Ch 1, 18)
The agent’s fiduciary duties are based on trust and not on the agency
agreement. There can be a breach of fiduciary duty even in the absence
of the agent’s dishonesty, provided the acts are deliberately intentional
and there is an element of falseness. ‘No man can in this Court, acting
as an agent, be allowed to put himself into a position in which his
interest and his duty will be in conflict’ (Parker v McKenna (1874) LR 10
Ch App 96, 118). Even a gratuitous agent owes a fiduciary duty, as the
duty arises in equity and not from contract.
45
6.1.7 Not to take a bribe

An agent who accepts a bribe is in breach of their fiduciary duty and
must account to the principal. Slade J stated that the definition of a
bribe in a civil law context has three important aspects: first, ‘that the
person making the payment makes it to the agent of the other person
with whom he is dealing’; second, ‘that he makes it to that person
knowing that that person is acting as the agent of the other person
with whom he is dealing’; third, ‘that he fails to disclose to the other
person with whom he is dealing that he has made that payment to
the person whom he knows to be the other person’s agent’ (Industries
and General Mortgage Corp v Lewis [1949] 2 All ER 573, 575). In Anangel
Atlas Compania Naviera SA v Ishikawajima-Harima Heavy Industries
Co Ltd [1990] 1 Lloyd’s Rep 167 Leggatt J said: ‘a bribe consists in a
commission or other inducement, which is given by a third party to an
agent as such, and which is secret from his principal.’ A payment can
be classified as a bribe even if the payment does not induce a contract
between the principal and the third party who offers the bribe.
If an agent accepts a bribe or a secret commission the principal can
sue the agent in tort for deceit and recover the bribe. An agent who
receives a bribe is not entitled to their commission (Andrews v Ramsay
[1903] 2 KB 635). An agent may be subject to criminal proceedings
under the Bribery Act 2010. The principal can dismiss without notice an
agent who has taken a bribe (Bulfield v Fournier (1895) 11 TLR 282).
An agent is under a duty not to exploit or take advantage of their
position for a personal gain.
The principal can rescind the contract with the third party who has
paid a bribe to the agent (Logicrose Ltd v Southend United Football Club
Ltd [1988] 1 WLR 1256).
Activity 6.4
Paula instructed her agent Tim to sell her house. There were two offers for the
house, one from Ade and the other from Ming. Both offered the same price.
However, unknown to Paula, Ming offered some money to Tim who sold Paula’s
house to Ming.
Paula has now discovered that Tim accepted a bribe.
Advise Paula.
Feedback: see p.83.
6.1.8 Duty to account

An agent has a duty to account to the principal for all money and
goods received from the principal or received from a third party on
the principal’s behalf. The agent should keep the money and goods
separate from their own property. If the agent does not keep their own
property separate from that of the principal, the latter is entitled to
the entire mixed fund unless the agent can establish any part of it as
their own (Lupton v White (1808) 15 Ves 432). This duty arises when the
money or property is beneficially owned by the principal, so that the
agent is treated as a trustee. However, the agent is not a trustee where
they are free to use the principal’s money or property in their business,
in which case they have to account for it as a debtor.
46
The agent has to deliver a full set of accounts to the principal. The
accounts must be accurate regarding all transactions entered into on
behalf of the principal. The agent must be ready to produce them,
when the principal requires them (Pearse v Green (1819) 1 Jac & W 135).
If the agent fails to do so, there is a presumption against the agent
(Gray v Haig (1855) 20 Beav 219).
The duty to keep accurate accounts arises from the fiduciary nature of
the relationship, so that the duty survives (unless expressly excluded
by the contract) even on the termination of the agency (Yasuda Fire and
Marine Insurance Co of Europe Ltd v Orion Marine Underwriting Agency
Ltd [1995] QB 174).
Where the agent is appointed to buy property for the principal and the
agent buys it in their own name, they hold the property in trust for the
principal (Lees v Nuttall (1829) 1 Russ & M 53).
Subject to the right of lien of the agent, the agent must hand over the
principal’s documents to the latter (Gibbon v Pease [1905] 1 KB 810).
6.1.9 Duty of non-delegation of authority

Unless the principal expressly or impliedly consents, the agent cannot
delegate their authority to another person, or appoint a sub-agent to
perform some of their duties. The rule applies where the principal has
trust and confidence in the agent and where the personal skill of the
agent is relied on.
Ministerial acts not involving confidence or discretion can be delegated.
The principal is not bound by an unauthorised delegation and need
not pay the sub-agent. The sub-agent is not entitled to commission
(Schmaling v Thomlinson (1815) 6 Taunt 147), the sub-agent has no
lien against the principal (Solly v Rathbone (1814) 2 M & S 298), the
agent will be liable to the principal for wrongful execution of duty
(Catlin v Bell (1815) 4 Camp 183), the agent may be liable for money
had and received by the sub-agent (National Employers’ Mutual General
Insurance Association Ltd v Elphinstone [1929] WN 135).
However, where the agent has apparent authority to delegate to a
sub-agent, the principal is bound by the sub-agent’s act in so far as
the third party is concerned. A principal who ratifies the delegation is
bound by the sub-agent’s acts.
If the sub-agent has been negligent the agent is liable to the principal,
whether or not the delegation has been authorised.
Activity 6.5
Ron appointed Jane, an art expert, to sell his valuable collection of paintings for
a good price. Without Ron’s consent Jane entrusted the paintings to Manuel and
asked him to sell them. Manuel, who did not know the value of the paintings, sold
them at a very cheap price. Ron has now discovered that the paintings were sold
by Manuel.
Advise Ron.
Feedback: see p.83.
47
6.2 Rights of an agent

6.2.1 The right to commission and remuneration
The agreement between principal and agent may state the
remuneration expressly. If it is not so stated, it is implied that a
reasonable amount is payable (Way v Latilla [1937] 3 All ER 759). A term
cannot be implied if it is contrary to the express terms of the contract
(Kofi Sunkersette Obu v A Strauss & Co Ltd [1951] AC 243).
If the agent was entitled to commission and they were the effective
cause of an event, then commission is payable only if the agent can
show that they were the effective cause.
An agent who performs a service outside the agency contract may be
able to make a restitutionary claim for a reasonable sum, provided the
principal has accepted the service (Michael Elliott & Partners Ltd v UK
Land plc [1991] 1 EGLR 39).
A principal is free to prevent the agent from earning a commission,
as in estate agent’s contracts, where the agent is not entitled to
commission unless the principal completes the sale with the buyer
found by the agent (Luxor (Eastbourne) Ltd v Cooper [1941] AC 108).
Once the principal enters into a contract with the third party, if the
principal wilfully breaks the contract, the agent is still entitled to their
commission (Alpha Trading v Dunnshaw-Patten [1981] QB 290).
The agent will lose their right to commission if they act outside the
scope of their actual authority (Mason v Clifton (1863) 3 F & F 899).
They will also lose their right to commission if they act in an unlawful
(Josephs v Pebrer (1825) 3 B & C 639) or dishonest (Kelly v Cooper [1993]
AC 205) manner. Commission is not payable to an agent who commits
a serious breach of duty (Boston Deep Sea Fishing and Ice Co Ltd v Ansell
(1888) 39 Ch D 339).
The agent is not entitled to commission on transactions taking place
after they have ceased to be an agent (Crocker Horlock Ltd v B Lang & Co
Ltd [1949] 1 All ER 526).
Even if the agent is not entitled to commission they may be entitled
to compensation. In Turner v Goldsmith [1891] 1 QB 544 the agent was
not entitled to commission after the principal’s factory burnt down.
However, he was entitled to compensation for the amount he would
have earned during the period of the agency.
Activity 6.6
Alan appointed Jessica as agent to sell his car. The contract states that Jessica is
entitled to £100 as expenses, the commission being payable at the discretion of
Alan. Jessica has now sold the car. Is she entitled to commission on a quantum
meruit basis, in addition to the £100?
Feedback: see p.83.
6.2.2 Right to reimbursement and an indemnity

If the agent has incurred expenses or liabilities on behalf of the
principal, the agent is entitled to be reimbursed the expenses and the
48
liabilities indemnified. The right to an indemnity is either contractual or

restitutionary (if there is no contract between principal and agent).
In a contractual agency, reimbursement and indemnity depend on
the express and implied terms of the contract (for example, a term can
be implied from the custom of a trade). Estate agents cannot claim
reimbursement for the expenses of advertising, unless agreed in the
contract. The principal has to indemnify the agent for a debt owed by the
principal paid by the agent; and for payments which the agent is legally
or morally bound to make in the course of carrying out the agency.
The agent has no right to reimbursement or indemnity if they exceed
their actual authority (Barron v Fitzgerald (1840) 6 Bing NC 201), unless
the principal ratifies the unauthorised act. The agent is also not entitled
to reimbursement/indemnity if they are in breach of duty, are negligent,
have defaulted or are insolvent (Lage v Siemens (1932) 42 Lloyd’s LR 252).
Activity 6.7
Moira asked House & Co to advertise her house for sale and find a purchaser for
the asking price of £350,000. House & Co spent a considerable amount of money
advertising and found a purchaser who offered the asking price. However, Moira
has now changed her mind about selling the house and has withdrawn the
house from the market.
Advise House & Co.
Feedback: see p.84.
6.2.3 Right to a lien

The agent is entitled to a lien over the principal’s property in the
agent’s possession, until the agent is paid the sums due by the
principal. There are two types of lien: general and particular. A general
lien permits the agent to hold on to the principal’s property in the
agent’s possession until the agent is fully paid. A particular lien is the
right to retain possession of particular property until a debt in respect
of that property is paid by the principal.
In order to acquire a lien, the agent must be in possession of the
principal’s goods; the goods should have been acquired by the agent
through lawful means; the goods should have been acquired while
acting as agent; and the agency agreement must not exclude the right
of lien either expressly or impliedly.
The right to lien will be lost once the principal pays the agent monies
due or where the agent waives their right of lien or if they part with the
property.
A sub-agent can also exercise a right of lien over the principal’s
goods against payments due to them by the agent, provided their
appointment has been authorised by the principal (Solly v Rathbone
(1814) 2 M & S 298).
49

should be able to:
• explain the duty to obey the principal’s instructions
• explain the duty to exercise due care and skill
• explain the duty to perform contractual obligations
• explain the duty not to allow any conflict of interest
• explain the duty not to make a secret profit
• explain the duty to act as a fiduciary
• explain the duty not to take a bribe
• explain the duty to account
• explain the right to commission and remuneration
• explain the right to an indemnity
• explain the right to a lien.
1. What do you understand by the duty to obey the principal’s instructions?
2. What do you understand by the duty to exercise due care and skill?
3. What do you understand by the duty to perform contractual obligations?
4. What do you understand by the duty not to have a conflict of interest?
5. What do you understand by the duty not to make a secret profit?
6. What do you understand by the duty to act as a fiduciary?
7. What do you understand by the duty not to take a bribe?
8. What do you understand by the duty to account?
9. What do you understand by the duty of non-delegation of authority?
10. What do you understand by the agent’s right to commission and
remuneration?
11. What do you understand by the agent’s right to an indemnity?
12. What do you understand by the agent’s right to a lien?
Summary
• The agent is under a duty to obey the principal’s instructions.
• Contractual and gratuitous agents owe a duty to exercise due care
and skill.
• Agents are under a duty to perform contractual obligations.
• The agent should not allow their personal interest to conflict with
their duty to the principal.
• The agent should not use their capacity as an agent to gain a
benefit, unknown to the principal.
• The duty to act as a fiduciary arises in equity.
• A bribe is a payment made by a third party to the agent in
connection with their agency duties, unknown to the principal.
50
• The agent must produce accurate accounts to the principal of all

transactions entered into on behalf of the principal.
• An agent must not delegate their authority to a sub-agent without
the principal’s consent.
• An agent has the right to be paid commission.
• An agent has a right to reimbursement of expenses.
• An agent has a right of lien.

‘An agent has far more duties than rights.’
Discuss this statement.
Feedback: see p.84.
51
Notes
52
Chapter 7: Relations with third parties
Introduction
This chapter deals with disclosed and undisclosed principals. A
principal is disclosed where at the time of contracting the third party is
aware that there is a principal on whose behalf the agent is contracting.
The principal may be named or unnamed. However, if the third party is
unaware of the existence of a principal at the time of contracting, the
principal is undisclosed.
Learning outcomes
• explain disclosed principals, their rights and liabilities
• explain undisclosed principals, their rights and liabilities.
Essential reading
Legislation is available via LexisLibrary in the Online Library.
• Clarke, Chapter 6 Relations with third parties.
• Section 7(1) Powers of Attorney Act 1971, as amended by s.1, Sch.2, para.7(1)
Law of Property (Miscellaneous Provisions) Act 1989.
• Section 56(1) Law of Property Act 1925.
• Section 1(1) Contracts (Rights of Third Parties) Act 1999.
• Sections 23, 9(1) Bills of Exchange Act 1882.
• Misrepresentation Act 1967.
• Section 51(1) Companies Act 2006.
• Re International Contract Co, Pickering’s Claim (1871) 6 Ch App 525.
• Moody v Condor Insurance Ltd [2006] EWHC 100 (Ch).
• Harmer v Armstrong [1934] Ch 65.
• Montgomerie v United Mutual Steamship Association [1891] 1 QB 370.
• Butwick v Grant [1924] 2 KB 483.
• Barker v Greenwood (1837) 2 Y & C Ex 414.
• Lloyd v Grace, Smith & Co [1912] AC 716.
• Refuge Assurance Co v Kettlewell [1909] AC 243.
• Armstrong v Strain [1952] 1 KB 232.
• Gosling v Anderson Times, 8 February 1972. Summary available on the VLE.
• Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465.
• AMB General Holding AG v SEB Trygg Liv Holding AB [2005] EWCA Civ 1237.
• Lilly, Wilson & Co v Smales, Eeles & Co [1892] 1 QB 456.
• Keighley, Maxted & Co v Durant [1901] AC 240.
• Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199.
• Humble v Hunter (1848) 12 QB 310.
• Said v Butt [1920] 3 KB 497.
53

University Press, 2019) [ISBN 9780198825975] Chapters 7 Relations between
principal and third party and 8 Relations between agent and third party.
• Schiff, M. ‘The undisclosed principal: an anomaly in the laws of agency and
contract’ (1983) 88(5) Commercial Law Journal 229.
7.1 Disclosed agency

There is a disclosed agency when the principal is classified as a ‘disclosed
principal’; the principal is disclosed as an ‘unnamed principal’; or where
the principal has ratified an unofficial act of the agent.
When the agent has acted within the scope of their authority and the
principal is disclosed, there is a contract between the principal and the
third party. When the agent has acted within their express or implied
authority, the principal can sue and be sued on the contract by the third
party. The principal can also sue and be sued, where the agent exceeds
their authority, but has apparent authority, and the principal ratifies the
contract.
Where the agent executes a deed inter partes with the third party,
the principal cannot sue and be sued by the third party. However,
if the principal is named as a party to the contract in the deed and
it is executed in their name, the principal can sue and be sued (Re
International Contract Co, Pickering’s Claim (1871) 6 Ch App 525). The
principal can also sue the third party on a deed which is not inter partes,
if the principal is a covenantee (Moody v Condor Insurance Ltd [2006]
EWHC 100 (Ch)). If the agent executes a deed as trustee for the principal,
the latter can sue the third party on the deed (Harmer v Armstrong
[1934] Ch 65). Where the agent was appointed by a power of attorney,
and executes a deed while acting within the scope of their authority,
even if the deed is in the agent’s name, the principal may sue on it (s.7(1)
Powers of Attorney Act 1971, as amended by s.1, Sch.2, para.7(1) Law of
Property (Miscellaneous Provisions) Act 1989). Even though the principal
is not named as a party to the conveyance or instrument, they may
still acquire an interest in land or other property, or the benefit of any
condition, right of entry, covenant or agreement over or respecting land
or other property (s.56(1) Law of Property Act 1925). Even if a principal is
not a party to a deed and the deed is not executed in their name, if the
deed contains a term which says that the principal could sue, or the term
confers a benefit on the principal, the principal could sue the third party
(s.1(1) Contracts (Rights of Third Parties) Act 1999).
A principal cannot be made liable on a bill of exchange unless they have
signed it (s.23 Bills of Exchange Act 1882). But the principal will be liable
on a bill of exchange if their signature is written on it by an authorised
person (s.91(1)). If the agent signs a bill of exchange with the principal’s
name on it, the principal is bound.
54
Generally, where an agent makes a contract on behalf of a disclosed

principal, the agent cannot sue nor be sued on the contract
(Montgomerie v United Mutual Steamship Association [1891] 1 QB 370).
The reason is that it is clear to the third party that when the principal is
disclosed, the principal is the contracting party.
The agent themselves will be liable in the following situations: where
the agent is a party to the contract; where the agent is a party to a
deed; where the agent signs a bill of exchange; where a trade custom
makes the agent liable; where the agent is the real principal; and where
the agent has a collateral contract with the third party. The agent may
be liable (and entitled) on the main contract with the third party or on
a collateral contract; for breach of warranty of authority; and in tort. An
agent may be liable on a contract in writing where they have signed
the contract in their own name without anything to indicate that they
are signing as agent; or they have signed as agent but without any
qualification as to their personal liability. Where the agent signs and
states that they are signing solely as agent, they are not personally
liable. Generally, the agent or the principal is liable on the contract, but
exceptionally they may both be liable.
Where the principal has been disclosed and the principal has paid
or otherwise settled with the agent, the third party is estopped
from suing the principal. Delay by the third party in making a claim
against the principal does not estop the third party from enforcing
their rights against the principal, unless the delay is misleading to the
principal. A principal is not bound by the third party making payments
or settling with the agent, unless the agent had actual or apparent
authority to receive payments from the third party or settle on behalf
of the principal (Butwick v Grant [1924] 2 KB 483). The third party is
discharged from liability to the principal only if payment is made in
the form which the agent is authorised to accept. If the agent is not
authorised to receive payment, but the third party pays the agent,
provided the agent hands over the money to the principal, the third
party is discharged from liability, as the principal has ratified the third
party receiving the payment.
Where the principal is disclosed, the third party can set up against the
principal defences arising from the contract and defences available
against the principal. The third party cannot plead against the principal
any defences or set off available against the agent personally and
unconnected with the contract, unless set-off has been authorised by
the principal (Barker v Greenwood (1837) 2 Y & C Ex 414).
If the agent has made a misrepresentation to the third party and the
principal has instigated or ratified the misrepresentation, the third party
can sue the principal. The principal will be liable to the third party if
making the misrepresentation is within the agent’s actual or apparent
authority (Lloyd v Grace, Smith & Co [1912] AC 716). When the agent’s
misrepresentation is within their actual or apparent authority, the
principal is liable, even if they did not know of the misrepresentation
(Refuge Assurance Co v Kettlewell [1909] AC 243), and even if the agent
was acting for their own benefit rather than the principal’s benefit
(Lloyd v Grace, Smith & Co [1912] AC 716). If the agent made an innocent
misrepresentation, and the principal would have known that the
55
statement was false, the principal is not liable for deceit if they were
unaware that the agent had made the misrepresentation (Armstrong v
Strain [1952] 1 KB 232). However, in these circumstances the third party
could sue the principal under s.2(1) Misrepresentation Act 1967 if the
third party relied on the misrepresentation in entering the contract with
the principal (Gosling v Anderson Times February 8 1972). The principal
may also be liable to the third party in negligence (Hedley Byrne & Co Ltd
v Heller & Partners Ltd [1964] AC 465), or liable for a negligent statement
made by the agent acting within their authority, if the third party is owed
a duty of care by the principal/agent. The principal can raise all defences
arising out of the transaction with the agent.
In oral contracts, it is a question of fact whether the agent can sue and
be sued. An agent who contracts by deed in their own name and is a
party to the deed, is personally liable, even if they are described in the
deed as acting on behalf of a named principal.
At common law an agent may be liable if they contract for a non-
existent or fictitious principal. If a person enters into a contract on
behalf of a company which is not yet formed, the agent is personally
liable (s.51(1) Companies Act 2006). Where the agent is their own
principal, the agent is personally liable.
The agent can sue the third party in the following circumstances: where
parties intend that the agent should have rights as well as liabilities;
where the agent has a collateral contract with the third party; where the
agent has a special property in the subject matter of the contract, has a
lien over it or has a beneficial interest in completion of the contract; and
where the agent acts on behalf of a company not yet formed.
When the agent is liable for breach of warranty of authority, their
liability may be based on a collateral contract with the third party (AMB
General Holding AG v SEB Trygg Liv Holding AB [2005] EWCA Civ 1237).
An agent may be liable for breach of warranty of authority whether
they are fraudulent, negligent or innocent. However, the agent will not
be liable where the third party knew or ought to have known that the
agent was not warranting their authority (Lilly, Wilson & Co v Smales,
Eeles & Co [1892] 1 QB 456). If the donee of a power of attorney acts
without knowing their authority has been revoked, they are not liable.
Activity 7.1
Best Oil Co employed Anish, a broker, to purchase oil for them. Anish bought
the oil from Super Oil Co with payment to be by ‘cash on or before delivery’. At
the time of the purchase Anish informed Super Oil Co that he was buying for
principals, although he did not reveal the name of his principals. Super Oil Co
delivered the oil to Anish without payment. Best Oil Co, who did not know that
Super Oil Co had not been paid, in good faith paid Anish. Anish did not pay and
Super Oil Co sued Best Oil Co for the price. Discuss the legal position.
Feedback: see p.84.
7.2 Undisclosed agency

This arises where the agent does not disclose to the third party that
they are acting for a principal. The principal can sue and be sued by
the third party (Keighley, Maxted & Co v Durant [1901] AC 240). In Siu
Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 the Privy Council
56
held that for the principal to be liable, in entering into the contract the
agent must intend to act for the principal; the agent could also sue and
be sued by the third party. The Privy Council also held that the third
party can raise any defence they have against the agent against the
principal; and the terms of the contract, expressly or impliedly, may
exclude the principal’s liability to be sued and to sue.
In Humble v Hunter (1848) 12 QB 310 the mother owned the ship but
the son entered into a charterparty describing himself as owner. The
mother was not permitted to sue as an undisclosed principal as this
would be inconsistent with the son being described as ‘owner’ in the
charterparty. If the agent has given an implied undertaking that there
is no principal behind them, the principal cannot sue. If the third party
only intended to contract with the agent, the undisclosed principal
cannot sue (Said v Butt [1920] 3 KB 497).
The third party can sue either the agent or the undisclosed principal.
When an undisclosed principal sues the third party, the latter could set
up any defence available against the agent. In Cooke & Sons v Eshelby
(1887) 12 App Cas 271 it was held that an undisclosed principal would
not be bound by the third party’s rights of set-off against the agent,
unless the principal had misled the third party by allowing the agent to
appear as principal.
An undisclosed principal can avoid liability to the third party by making
a settlement with the agent. A third party who pays or settles with
the agent when unaware that there was a principal, is not liable to the
principal.
An agent who contracts with a third party on behalf of an undisclosed
principal can sue and be sued on the contract. A third party who is
sued by an agent can set up against them any defence they could
have set up against the undisclosed principal. An undisclosed principal
cannot ratify the agent’s act (Keighley, Maxsted v Durant [1901] AC 240).
For a third party to be conferred a right of action under the Contracts
(Rights of Third Parties) Act 1999 the third party must be identified
at the time of the contract, an undisclosed principal cannot take
advantage of this Act.
Activity 7.2
Camilla was selling tickets for a fashion show for a specially invited audience.
Diana, knowing that Camilla would not sell her a ticket, instructed Janet to
purchase a ticket for her. When Diana turned up at the fashion show, Camilla
prevented her entry.
Advise Diana.
Feedback: see p.84.

should be able to:
• explain disclosed principals, their rights and liabilities
• explain undisclosed principals, their rights and liabilities.
57
1. Who is a disclosed principal?
2. Can a disclosed principal sue and be sued on the contract?
3. When the agent executes a deed inter partes with the third party, can the
disclosed principal sue?
4. When can a disclosed principal be liable on a bill of exchange?
5. Generally, when the principal is disclosed, can the agent sue and be sued?
6. Where the disclosed principal has paid or settled with the agent, can the third
party sue the principal?
7. Is a third party who pays or settles the agent discharged from liability to the
disclosed principal?
8. What is an undisclosed agency?
Summary
• A disclosed principal is when an agent makes it clear to the third
party that they are acting as an agent.
• A disclosed principal can sue and be sued on the contract.
• Where an agent executes a deed inter partes the disclosed principal
cannot sue.
• A disclosed principal can be liable on a bill of exchange if they have
signed it or their signature has been written on it by an authorised
person.
• The disclosed principal who has paid or settled with the agent
cannot be sued by the third party.
• A third party who pays or settles the agent is discharged from
liability to the disclosed principal if the agent had actual or
apparent authority to receive payments on behalf of the principal.
• An undisclosed agency is when the agent does not disclose to the
third party that they are acting for a principal.

Critically examine the difference between a disclosed and an undisclosed agency,
discussing the rights and liabilities of the principal, third party and the agent.
Feedback: see p.84.
58
Chapter 8: Termination of agency
Introduction
This chapter discusses various ways in which agency can be
terminated, where agency is irrevocable, the effects of termination of
agency, the termination of the authority of commercial agents and the
rules as to termination and third parties.
Learning outcomes
• explain the various methods of termination
• explain when the agency is irrevocable
• explain the effects of termination of agency
• explain the rules relating to termination of the authority of commercial agents
• explain the rules as to termination and third parties.
Essential reading
Legislation is available via LexisLibrary in the Online Library.
• Clarke, Chapter 7 Relations between principal and agent.
• Sections 4 and 5 Powers of Attorney Act 1971.
• Commercial Agents (Council Directive) Regulations 1993 (SI 1993/3053).
• Section 14 Mental Capacity Act 2005.
• Heaton’s Transport (St Helens) Ltd v Transport and General Workers’ Union [1973]
AC 15.
• Blackburn v Scholes (1810) 2 Camp 341.
• Dickinson v Lilwal (1815) 4 Camp 279.
• Heyman v Darwins Ltd [1942] AC 356.
• Rhodes v Forwood (1876) 1 App Cas 256.
• Marshall v Glanvill [1917] 2 KB 87.
• Pacific and General Insurance Co Ltd v Hazell [1997] BCC 400.
• Campanari v Woodburn (1854) 15 CB 400.
• Drew v Nunn (1879) 4 QBD 661.
• Martin Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd [1955] 2 QB 556.
• Frith v Frith [1906] AC 254.
• Chappell v Bray (1860) 6 H & N 145.
• Rhodes v Forwood (1876) 1 App Cas 256.
• Turner v Goldsmith [1891] 1 QB 544.
• Crane v Sky In-Home Service Ltd [2007] EWHC 66 (Ch).
• Moore v Piretta PTA Ltd [1999] 1 All ER 174.
• Fryer Joinery Services v Ian Firth Hardware [2008] EWHC 767 (Ch).
• Watson v King (1815) 4 Camp 272.
• Scarf v Jardine (1882) 7 App Cas 345.
73

• Baskind, E., G. Osborne and L. Roach Commercial law. (Oxford: Oxford University
Press, 2019) [ISBN 9780198825975] Chapter 9 Termination of agency.
8.1 Methods of termination of an agency

An agency could be terminated by the following methods:
1. Revocation by the principal before the agent has fulfilled their
agency obligations. The revocation must be communicated to the
agent. In Heaton’s Transport (St Helens) Ltd v Transport and General
Workers’ Union [1973] AC 15 Lord Wilberforce said:
To be effective in law a withdrawal or curtailment

of an existing actual authority of an agent must be
communicated by the principal to the agent in terms which
the agent would reasonably understand as forbidding him
to do that which he had previously been authorised to do
on the principal’s behalf.
2. The agent fulfilling their performance under the agency (Blackburn
v Scholes (1810) 2 Camp 341).
3. The expiry of a fixed period of agency (Dickinson v Lilwal (1815) 4
Camp 279).
4. Mutual agreement between principal and agent. In Heyman v
Darwins Ltd [1942] AC 356: ‘repudiation by one party standing
alone does not terminate the contract. It takes two to end it, by
repudiation, on the one side and acceptance of the repudiation, on
the other’.
5. The subject matter of the agency being destroyed (Rhodes v
Forwood (1876) 1 App Cas 256).
6. Through the operation of the doctrine of frustration where
performance of the agency becomes illegal, impossible or radically
different from that originally envisaged (Marshall v Glanvill [1917] 2
KB 87).
7. The death, insanity or bankruptcy of the principal or the agent
or where the principal or agent is a company its winding up or
dissolution (Pacific and General Insurance Co Ltd v Hazell [1997]
BCC 400). In Campanari v Woodburn (1854) 15 CB 400 the agent
performed his contractual obligations after becoming aware
that the principal had died and then claimed commission. He
was not awarded commission although some compensation was
given on a quantum meruit basis. In Drew v Nunn (1879) 4 QBD
661 the husband became insane and his wife, who was his agent,
purchased goods from a third party who was unaware that the
husband was insane. After the husband recovered sanity he refused
to pay for the goods purchased by his wife. It was held that the
husband was liable.
74
8. When a notice of renunciation is given by an agent and is accepted

by the principal.
9. In a unilateral termination by one party, reasonable notice must
be given to the other (Martin Baker Aircraft Co Ltd v Canadian Flight
Equipment Ltd [1955] 2 QB 556).
Activity 8.1
Manoj entrusted a painting to Adam and told the latter that if he sold the
painting he would pay him £200. Before Adam sold the painting Manoj died.
Adam sold the painting in ignorance of Manoj’s death. Adam has now become
aware of Manoj’s death and claims the £200 from Manoj’s estate.
Is Manoj’s estate liable to pay £200 to Adam?
Feedback: see p.85.
8.2 Irrevocable agency

The agency cannot be terminated by the principal without the agent’s
consent, or determined by the death, insanity or bankruptcy of the
principal in the following circumstances:
• where the agent’s authority has been granted by deed or for
valuable consideration to secure or protect any interest of the
agent (Frith v Frith [1906] AC 254)
• where the agent’s authority is given under a power of attorney
which is irrevocable and is given to secure a proprietary interest of,
or the performance of an obligation owed to, the agent (s.4 Powers
of Attorney Act 1971)
• where the agent is entitled to an indemnity from the principal for
performance of their agency duties (Chappell v Bray (1860) 6 H & N
145).
Activity 8.2
Kusum asked Jamal to get an electrician to rewire Kusum’s house (in Kusum’s
absence abroad). Jamal got the work done and paid the electrician. Kusum then
terminated the agency agreement between her and Jamal.
Advise Jamal.
Feedback: see p.85.
8.3 Effect of termination

The principal and agent can sue each other on rights accrued before
the termination. The act of termination may be a breach of contract
which entitles the agent to sue the principal for damages.
In Rhodes v Forwood (1876) 1 App Cas 256 the agent was appointed to
sell coal at a colliery for a fixed period of seven years. After four years,
the principal went out of business and sold the colliery. The agent did
not succeed in his action for breach of contract, as the agency contract
was subject to the risk that the principal might sell the business.
However, in Turner v Goldsmith [1891] 1 QB 544 an agent was appointed
for five years to sell ‘the various goods manufactured or sold’ by the
principal (a shirt manufacturer). After two years, the shirt factory was
75
burnt down and the principal closed his business. The agent sued for
breach of contract and succeeded as the court held that the principal
could have given the agent shirts manufactured by someone else or
given some other goods to sell.
Activity 8.3
Jane appointed Brad as her agent for five years to sell dresses made by her. After
five years, when the agency had ceased to exist, Jane discovered that Brad had
been negligent in carrying out his duties and that the fall in profits since Brad
took over as agent was owing to his negligence.
Advise Jane.
Feedback: see p.85.
8.4 Commercial agents

The Commercial Agents (Council Directive) Regulations 1993 contains
the following rules regarding termination of agency:
1. Minimum periods of notice of termination – where parties to a
fixed-term agency contract continue their business relationship
after the fixed term, the agency is converted into an agency
contract for an indefinite period (reg.14). Either party may give
notice to terminate an agency contract for a fixed period (reg.15).
The Regulation sets out minimum periods of notice. Failure to give
proper notice terminates the agency contract but the termination
is wrongful. Immediate termination is possible if the contract is
discharged by breach or frustration (reg.16). For the contract to be
discharged, the breach should be a repudiatory breach (Crane v Sky
In-Home Service Ltd [2007] EWHC 66 (Ch)).
2. Indemnity and compensation – after the termination of the
agency, the agent is entitled to be indemnified or compensated
for the damage (reg.17(1)). The entitlement to indemnity and
compensation is not based on fault. Compensation is the default
position. According to reg.17(3), the agent is entitled to an
indemnity if and to the extent that:
(a) he has brought the principal new customers or has

significantly increased the volume of business with existing
customers and the principal continues to derive substantial
benefits from the business with such customers; and
(b) the payment of this indemnity is equitable having regard
to all the circumstances and, in particular, the commission lost
by the commercial agent on the business transacted with such
customers.
An indemnity is payable when, after the termination of the agency,
the principal continues to do business with customers found by
the agent. Claiming compensation is more advantageous to the
agent as they can claim compensation even when the principal
has ceased to carry on business. Unlike compensation, there is a
limit to the amount of indemnity an agent can claim. But claiming
an indemnity does not prevent the agent from claiming damages.
In Moore v Piretta PTA Ltd [1999] 1 All ER 174 the court awarded an
indemnity to the agent. It was said in this case that the indemnity is
76
to grant the agent a share in the goodwill built up by their efforts.

In awarding an indemnity the court is awarding the value of the
goodwill. As the court is not assessing loss, mitigation of loss is
irrelevant.
The agent is entitled to compensation for the damage they have
suffered as a result of the ending of the agency (reg.17(6)). Damage
is said to occur in one or both of the following circumstances which:
(a) deprive the commercial agent of the commission

which proper performance of the agency contract would
have procured for him whilst providing his principal
with substantial benefits linked to the activities of the
commercial agent; or
(b) have not enabled the commercial agent to amortize
the costs and expenses that he had incurred in the
performance of the agency contract on the advice of his
principal.
The reason for the payment of indemnity to the agent after the
termination is to take account of the work done by the agent to
establish goodwill. The idea behind granting compensation is to
compensate the agent for the loss.
The indemnity or compensation scheme can be utilised in a wide
variety of circumstances, including the death of the agent or the
agency ending owing to the end of a fixed period. However, the
right to compensation or indemnity is lost
a. where the principal terminates the agency for the agent’s
repudiatory breach or
b. the commercial agent terminates the agreement (unless the
termination is justified by circumstances attributable to the
principal or the age, infirmity or illness of the agent) or
c. the agent, with the principal’s consent, assigns the agency to
another (reg.18).
In Fryer Joinery Services v Ian Firth Hardware [2008] EWHC 767 (Ch) the
agent failed to produce the weekly reports despite numerous requests
and warnings from the principal. It was held that the principal could
terminate the agency.
The commercial agent loses the right to compensation or indemnity if
they do not inform the principal of their claim within one year of the
termination of the agency (reg.17(9)).
If the agency agreement specifies that the agent is entitled to
indemnity, this is calculated as one year’s commission (reg.17). If
the agency agreement does not state that the agent is entitled to
indemnity, the agent is entitled to compensation.
The parties cannot contract out of regs 17 and 18 to the detriment of
the commercial agent before the agency agreement expires (reg.19).
Activity 8.4
What are the main differences between indemnity and compensation?
Feedback: see p.85.
77
8.5 Termination and third parties

Both agent and third party may be protected from the principal’s
supervening mental incapacity by s.5 Powers of Attorney Act 1971 and
s.14 Mental Capacity Act 2005.
Where the principal dies, there can be no apparent authority (Watson v
King (1815) 4 Camp 272). The personal representatives of a principal who
has died cannot ratify the agent’s acts done on behalf of the deceased
after their death.
After the principal is bankrupt, a third party cannot rely on apparent
authority. The reason for this rule is that on being made bankrupt, the
principal’s estate vests in their trustee in bankruptcy, so that the principal
no longer has capacity to perform acts giving rise to an apparent agency.
A principal who revokes the agent’s actual authority, but does not notify
third parties of the withdrawal of authority, is bound to third parties by
the agent’s apparent authority (Scarf v Jardine (1882) 7 App Cas 345). The
principal giving notice of revocation to the agent is insufficient to affect
the apparent authority; notice must also be given to third parties.
Activity 8.5
Charlie appointed Suraj as his agent to buy wine from Manus on credit and
informed Manus that Suraj was his agent. However, after a few months Charlie
terminated the agency agreement with Suraj, but did not inform Manus. Suraj
continued to buy wine on credit from Manus who sent the invoices to Charlie
who has refused to pay.
Advise Manus.
Feedback: see p.86.
1. What are the various methods of termination?
2. When is an agency irrevocable?
3. What are the effects of termination of agency?
4. What are the rules relating to the termination of a commercial agency?
5. What are the rules relating to termination and third parties?
Summary
• Revocation by the principal before the agent has fulfilled their
contractual obligations terminates the agency.
• The agent fulfilling their duties under the agency terminates the
agency.
• Fixed-term agency ends at the end of the period.
• Mutual agreement between principal and agent ends the agency.
• The agency ends where the subject matter of the agency is destroyed.
• Frustration terminates the agency.
• Death, insanity or bankruptcy of the principal or agent terminates the
agency.
• When the agent gives notice of renunciation of their agency to the
principal and the principal accepts the renunciation, the agency
78
terminates.
• If the termination by one party is unilateral, reasonable notice must

be given to the other.
• Where the agent’s authority has been granted by deed or for
valuable consideration to secure or protect any interest of the
agent, the agency cannot be terminated.
• Where the agent’s authority is given under a power of attorney
which is irrevocable and is given to secure a proprietary interest of,
or the performance of an obligation owed to, the agent, the agency
is irrevocable.
• Where the agent is entitled to an indemnity from the principal for
performance of the agency duties, the agency is irrevocable.
• The principal and agent can sue each other on rights accrued
before the termination.
• The act of termination may be a breach of contract which entitles
the agent to sue the principal for damages.
• There are minimum notice periods for the termination of a
commercial agency.
• In the case of a commercial agent, immediate termination is
possible if the contract is discharged by breach or frustration.
• After the termination of the commercial agency, the agent is
entitled to be indemnified or compensated for the damage.
• In a commercial agency, an indemnity is payable when after the
termination of the agency the principal continues to do business
with customers found by the agent.
• Claiming compensation is more advantageous to a commercial
agent as they can claim compensation even when the principal has
ceased to carry on business.
• Unlike compensation, there is a limit to the amount of indemnity a
commercial agent can claim.
• Claiming an indemnity does not prevent a commercial agent from
claiming damages.
• The commercial agent is entitled to compensation for the damage
they have suffered as a result of the ending of the agency.
• The right to compensation or indemnity of a commercial agent
is lost where the principal terminates the agency for the agent’s
repudiatory breach.
• The right to compensation or indemnity is lost where the
commercial agent terminates the agreement (unless the
termination is justified by circumstances attributable to the
principal or the age, infirmity or illness of the principal).
• The right to compensation or indemnity of a commercial agent
is lost where the agent, with the principal’s consent, assigns the
agency to another.
• Both agent and third party may be protected from the principal’s
supervening mental incapacity by s.5 Powers of Attorney Act 1971
and s.14 Mental Capacity Act 2005.
79
• Where the principal dies, there can be no apparent authority.

• The personal representatives of a principal who has died cannot
ratify the agent’s acts done on behalf of the deceased after their
death.
• After the principal is bankrupt, a third party cannot rely on
apparent authority.
• A principal who revokes the agent’s actual authority, but does not
notify third parties of the withdrawal of authority, is bound to third
parties by the agent’s apparent authority.
• The principal giving notice of revocation to the agent is insufficient
to affect the apparent authority; as notice must also be given to
third parties.

Having completed this section, and the Essential readings and activities, you
should be able to:
• explain the various methods of termination
• explain when the agency is irrevocable
• explain the effects of termination of agency
• explain the rules relating to termination of the authority of commercial agents
• explain the rules as to termination and third parties.

What are the various methods of termination of agency?
Feedback: see p.86.
80
Feedback
Feedback
Chapter 2
Activity 2.1
While consent is a requirement to create most agency relationships,
exceptionally there is no need for consent (e.g. agency created by
apparent authority and agency of necessity).
Back
Activity 2.2
a. When the principal and agent do certain acts, the agent has the
power to alter the principal’s relations with a third party. The power
to act on the part of the agent is conferred on the agent by a rule of
law and not by the principal.
b. No – estate agents do not have the power to bind the principal to
third parties.
Back
Activity 2.3
This is the relationship between principal and agent, such as the
duty to pay commission on the principal’s part and the duty to take
reasonable care on the part of the agent.
Back
Activity 2.4
This is the authority of the agent as it appears to the third party.
Back
Advice on answering the Sample examination question

The three theories are power-liability theory, consent theory and
qualified consent theory. Each theory on its own cannot adequately
explain the agency relationship.
Back
Chapter 3
Activity 3.1
Yes – a valid agency agreement is created, as generally no formalities
are necessary to create an agency.
Back
Activity 3.2
a. Tim can sue Jane for breach of warranty of authority.
b. Jane cannot be sued by Tim.
c. Paul cannot ratify Jane’s act.
Back
81

Agency can be formed by express or implied authority.
Agency can be formed by ratification.
Back
Chapter 4
Activity 4.1
Robin is liable for Mandy’s fraud even though he himself was not
fraudulent.
Back
Activity 4.2
Amy (in consultation with Rajan) can accept or reject the offer or
negotiate a more advantageous settlement to her client.
Back
Activity 4.3
Although Liz had no actual authority to sell the table below £2,000,
as Jay is unaware of the price restriction, Jay is entitled to the table at
£1,900.
Back

In express or implied actual authority the principal has authorised the
agent to act on his behalf. In apparent (ostensible) authority the agent
has no authority to act but the principal represents to the third party
that the agent has authority.
An example of actual express authority is given by Lord Denning
as when a board of directors authorises two of the directors to sign
cheques – Hely-Hutchinson v Brayhead Ltd. An example of implied
authority given in this case is when a board of directors appoints a
managing director.
An example of apparent authority is when a power of attorney limits
what the agent can do on behalf of the principal, but the third party is
unaware of the restrictions. The agent has apparent authority for the
acts, including the prohibited acts.
Back
Chapter 5
Activity 5.1
a. Estate agent.
b. Auctioneer.
c. Gratuitous agent.
d. Agent of necessity.
e. Broker.
82
Feedback
f. Mercantile agent/factor.
g. Del credere agent.
h. General agent.
i. Confirming house.
j. Commercial agent.
Back

State and explain general and special agents, mercantile agents/
factors, brokers, del credere agents, auctioneers, a confirming house,
estate agents, gratuitous agents, commercial agents and agents of
necessity.
Back
Chapter 6
Activity 6.1
Marcel can sue Tom for breach of contract and recover his loss as Tom
has not obeyed his principal’s instructions.
Back
Activity 6.2
Sirima can sue Andy in tort for negligence as Andy has not taken due
care in carrying out the undertaking.
Back
Activity 6.3
Rani has acted in conflict of interest and has made a secret profit. She is
not entitled to the commission and will have to pay Jim the £3,000.
Back
Activity 6.4
Paula can sue Tim to recover the bribe. She could also dismiss Tim
without notice. She need not pay any commission to Tim.
Back
Activity 6.5
Jane has delegated her authority to Manuel without obtaining consent
from Ron. Ron does not have to pay a commission to Manuel. He can
sue Jane for negligence in entrusting the paintings to Manuel who did
not know the value of the paintings.
Back
Activity 6.6
Jessica is not entitled to commission on a quantum meruit basis, as the
commission is payable at the discretion of Alan.
Back
83
Activity 6.7
According to trade custom estate agents are not entitled to recover
expenses and are not entitled to commission if the vendor decides to
withdraw the house from the market.
Back

The agent’s only rights are to be paid commission, a right to
reimbursement or expenses and a right of lien.
The duties are to obey the principal’s instructions; to exercise due care
and skill; to perform contractual obligations; not to allow their personal
interest to conflict with their duty to the principal; not to use their
capacity as an agent to gain a benefit, unknown to the principal; to act
as a fiduciary; not to accept a bribe or secret profit; to account and not
to delegate.
Back
Chapter 7
Activity 7.1
As Anish has informed Super Oil Co that he is buying for principals, it is
a disclosed agency.
Where the principal has been disclosed and the principal has paid
or otherwise settled with the agent, the third party is estopped from
suing the principal.
Back
Activity 7.2
Diana cannot sue Camilla for breach of contract, as she knew that
Camilla would not sell her a ticket – see Said v Butt.
Back

A principal is disclosed where at the time of contracting the third
party is aware that there is a principal on whose behalf the agent is
contracting. The principal may be named or unnamed. However, if
the third party is unaware of the existence of a principal at the time of
contracting, the principal is undisclosed.
When the agent has acted within the scope of their authority and the
principal is disclosed, there is a contract between the principal and the
third party. When the agent has acted within their express or implied
authority, the principal can sue and be sued on the contract by the
third party. The principal can also sue and be sued, where the agent
exceeds their authority, but has apparent authority and the principal
ratifies the contract.
Generally, where an agent makes a contract on behalf of a disclosed
principal, the agent cannot sue nor be sued on the contract. However,
the agent themselves will be liable in the following situations: where
the agent is a party to the contract; where the agent is a party to a
84
Feedback
deed; where the agent signs a bill of exchange; where a trade custom
makes the agent liable; where the agent is the real principal; where the
agent has a collateral contract with the third party.
Undisclosed principal – in Siu Yin Kwan v Eastern Insurance Co Ltd
[1994] 2 AC 199 the Privy Council held that for the principal to be
liable, in entering into the contract the agent must intend to act for the
principal; the agent could also sue and be sued by the third party; the
third party can raise any defence they have against the agent against
the principal; the terms of the contract, expressly or impliedly, may
exclude the principal’s liability to be sued and to sue.
If the agent has given an implied undertaking that there is no principal
behind them, the principal cannot sue. If the third party only intended
to contract with the agent, the undisclosed principal cannot sue (Said v
Butt [1920] 3 KB 497).
The third party can sue either the agent or the undisclosed principal.
When an undisclosed principal sues the third party, the latter could set
up any defence available against the agent.
Back
Chapter 8
Activity 8.1
The estate is not liable as Manoj’s death terminated the agent’s
authority to sell the painting – see Campanari v Woodburn.
Back
Activity 8.2
Jamal’s agency cannot be revoked as he has a right of indemnity for the
money he paid the electrician.
Back
Activity 8.3
Jane’s right to sue Brad for negligence accrued before the agency was
terminated. So Jane could sue Brad for negligence.
Back
Activity 8.4
The right to indemnity arises where the agent has introduced new
customers to the principal and the agent has been deprived of the
opportunity to earn commission on business transacted with these
customers. An indemnity is payable when after the termination of the
agency the principal continues to do business with customers found by
the agent.
Claiming compensation is more advantageous to the agent as they can
claim compensation even when the principal has ceased to carry on
business.
Unlike compensation, there is a limit to the amount of indemnity an
agent can claim. But claiming an indemnity does not prevent the agent
from claiming damages.
85
Indemnity – mitigation of loss is irrelevant.

The agent is entitled to compensation for the damage they have
suffered as a result of the ending of the agency.
The reason for the payment of indemnity to the agent after the
termination is to take account of the work done by the agent to
establish goodwill. The idea behind granting compensation is to
compensate the agent for the loss.
Back
Activity 8.5
Manus is entitled to sue Charlie for the wine, as he was not informed of
the termination of the agency agreement with Suraj.
Back

Revocation by the principal before the agent has fulfilled their
contractual obligations terminates the agency.
The agent fulfilling their duties under the agency terminates the
agency.
Fixed-term agency ends at the end of the period.
Mutual agreement between principal and agent ends the agency.
The agency ends where the subject matter of the agency is destroyed.
Frustration terminates the agency.
Death, insanity or bankruptcy of the principal or agent terminates the
agency.
When the agent gives notice of renunciation of their agency to the
principal and the principal accepts the renunciation the agency
terminates.
If the termination by one party is unilateral, reasonable notice must be
given to the other.
Back
86

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Advanced Contract Law: Module B: Law of Agency

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Master of Laws (LLM)

Postgraduate Diploma in Laws

Module B: Law of agency

̆ Suriyakumari Lane, Teaching and Scholarship Lecturer, Queen Mary University of

Published by: University of London

Chapter 6: Relations between a principal and an agent.................................41

1.1 Advanced contract law

1.1.1 Structure of the course

remedy of rescission, the rights of insurers, various types of insurance

1.1.2 Study sequence

Learning outcomes for the course

1.2 The law of agency

Learning outcomes for Module B

1.3 How to use this Study Guide

Useful further reading

1.3.2 A suggested study method

At first, this can be daunting, but with practice it becomes easier. In

1.4 Keeping up to date

1.5 Allocating your time

1.6 Online resources

1.7 The examination

1.7.1 Preparing for the examination

Study actively – take notes

Practise your examination technique

1.7.2 Taking the examination

• what you think the question is asking of you

Feedback to Activity 1.1

Chapter 2: What is agency?

Useful further reading

2.1 General considerations

No word is more commonly and constantly abused than the

Sir John Donaldson in Potter v Customs and Excise Commissioners [1985]

The use of the word ‘agent’ in any mercantile transaction is, of

Agency consists of three legal relationships: between principal and

2.1.2 Theories of agency

The essential characteristic of an agent is that he is invested

…the term power…is a legal relation, one which exists by

The relationship of principal and agent can only be established

For Lord Wilberforce in Branwhite v Worcester Works Finance Ltd [1969] 1

A criticism of this theory is that agency can arise without consent, by

Qualified consent theory

2.2 Internal aspects of agency

2.3 External aspects of agency

2.4 The boundaries of agency

3. Use of representative terminology

4. Companies: agent and organ

5. Agent and trustee/agent and bailee

6. Lack of significance of types of agents

Reminder of learning outcomes

Sample examination question

Chapter 3: Formation of agency

Useful further reading

3.1 Conferring express or implied authority

there will be consideration. But if the agency is non-contractual,

Although in modern commercial transactions agencies are

3.2 Agency by ratification

so where there has been a holding out of authority – which

In this type of agency, when the agent initially acts, there is no