CONTENT:

I. Introduction:
There are a number of situations where an agent may be employed
– when buying a house an estate agent may be employed; perhaps
insurance is obtained through an insurance broker; or shares bought
through a stockbroker. An employer may choose to obtain staff through an
employment agency. In many sales of goods situations, agents may be
employed by sellers or buyers to obtain customers or to arrange transport
for international trading deals. In all these situations an agent is employed
because of their expertise in the relevant business area.
However, an agent is not necessarily a professional, engaged for
commercial purposes. An agency relationship may arise, for example,
where a person agrees to handle the affairs of a friend who is currently
unable to act personally, because of being abroad or in ill health.
An agency relationship may therefore arise in any situation where one
party (the principal) authorises another person (the agent) to act on his or
her behalf. The agent may also be liable to the principal if. The agent acted
negligently or in breach of any contract of agency.
II. The creation of Agency
An agency is created when the principal names an individual as an agent
by virtue of a contract or asks someone to make a delivery. This means
that the principal is responsible for all actions taken by the agent, while
the actions of the agent are analogous to those of the principal. This
type of agency is usually enforced by a written agreement created
through the power of attorney.
Example: Lap dancers worked on a self-employed basis in Spearmint Rhino Clubs
to dance and provide entertainment for customers. They had to do a minimum
number of shifts per week and were paid a fee per shift plus a fee for every ‘sit
down’ (a period of ‘dancing and companionship’ in a private room). In return,
Spearmint provided the necessary facilities, security, advertising and
administration.
The Revenue claimed that lap dancers were Spearmint’s agents and, therefore, it
should pay VAT on the services they provided to customers.
Held: VAT was not payable as no agency relationship existed between the club
and the dancers. Their agreement with Spearmint was a licence, from which
Spearmint derived some benefits, to allow the dancers to ply their trade on club
premises. In no way did it give a dancer any authority to act on Spearmint’s
behalf. She decided which and how many customers she would entertain
individually and kept the resulting fees and gratuities. The fact that a fee was
payable to Spearmint per ‘sit down’ did not mean that the ‘sit down’ was
organised on behalf of Spearmint. A dancer worked only on her own behalf.

Question: Spearmint Rhino Clubs pay lap dancers to work in their clubs. If they
failed to pay, could the lap dancers sue in breach of contract for their earnings?

Solution: Spearmint Rhino might try to argue that the contract with the lap
dancers is illegal and void because it promotes sexual immorality, so
it has no duty to pay. In practice, however, it is unlikely to do so as presumably
lap dancers encourage custom at the clubs and it makes some money directly for
them as well. Many potentially illegal contracts go unchallenged while both
parties are happy with the arrangement.

Agency can be created in many ways:

- Agency by agreement between the parties
- Agency by estoppel
- Agency arising from necessity
- Agency by ratification
a) Agenct by agreement between the parties:
An agency relationship is most commonly created by an agreement
between the parties under which the agent is given actual authority by the
principal. The agency agreement may be made in the following ways:

1. Formally by deed. This gives a power of attorney to the agent.

This is essential where an agent is appointed to act on behalf of a person
who has become incapable of managing his or her own affairs.
2. Informally by written or spoken agreement. No particular written
formalities are generally required: it is possible to appoint an agent by word
of mouth. The parties may choose to evidence the agreement in writing,
but this does not necessarily include all the terms binding the parties.
 3. By implication. The relationship of the parties may give rise to an
implied agency agreement. This commonly arises from the employer and
employee relationship.
Power of attorney: authority created by deed enabling agent to manage
affairs for a principal who is currently incapable of doing so, because of ill
health, for example. The agency agreement may exist without any
contractual relationship between principal and agent. An agency may be
purely gratuitous, with the agent receiving no payment for his or her
services. For example, if colleague X asks colleague Y to buy a lunchtime
sandwich for her, in law she is appointing Y as her agent, but neither of
them will anticipate that payment will be made for performance of the
service.
1 Express. The power is derived from the principal’s explicit
directions.
2 Implied. The principal is unlikely to spell out every detail of what is
required. The principal is, however, deemed to have impliedly given the
agent authority to accomplish anything necessarily incidental to the
performance of the principal’s directions.

The extent of implied authority is indicated by all the circumstances in

which the agency arose, such as the relationship between the parties, the
usual authority of the agent in the relevant area of business and the nature
of the principal’s orders. For example, if a homeowner asks an estate agent
to find them a buyer, they give the agent actual authority to do so. They
also impliedly authorise the agent to photograph their house and use this
for advertisement purposes.

b) Agency by estoppel
In certain circumstances a third party may presume that a person has the
authority of an agent even if this is not so. If the principal’s behaviour
reasonably appears to give this impression, the third party may enforce a
resulting contract against the principal.
Provided there was nothing to alert the third party to the true facts, the
principal is estopped (prevented) from denying that the relationship exists.
The agent in such circumstances has apparent or ostensible authority.
 For example: When A makes the impression to B that C has been
appointed as A’s agent to contract with B, A cannot later deny that C is not
A’s agent or avoid liabilities created by C’s conduct.
Agency created this way is called Agency by Estoppel.

Apparent authority may exist in the following situations:

1 An agency relationship has ceased to exist but the principal has
failed to give notice of this to third parties.

2 No agency relationship has ever existed, but the ‘principal’, allows a third
party to believe the ‘agent’ was acting on the principal’s behalf.

3 An agency relationship exists and the principal allows a third party to

believe that the agent’s authority is greater than it is. As long as the agent’s
behaviour seems to comply with relevant business practice, apparent
authority generally exists unless the principal does something to rebut this
presumption.
For example: The defendant is Phat went to the claimant’s counting house
to pay a debt and handed his payment over to a rogue, his name is Khoa,
who was in the claimant creditor’s counting house and appeared to be
responsible for transacting business there.
But this was sufficient to discharge the debt. It was reasonable for the
debtor to believe that Khoa was the agent and had the creditor’s authority,
since the creditor had the right to control all transactions taking place on
the premises.
c) Agency arising from necessity
What is the agency of necessity?
Agency of necessity is an agency created by an emergency requiring the
agent to take reasonable steps to preserve the principal’s property. Such an
agent has authority to take such reasonable and prudent steps as are
necessary in the best interests of the owner.

Where one person who does not have any expressed or actual authority
acts on behalf of another person, agency by necessity can be created.
 However, this can only occur where it is impossible to get in contact with
principal in an emergency situation, so is rarely relevant today.
Agency of necessity may arise if all the following conditions are
satisfied:
1. while one party has possession of another party’s goods.
2. this forces that party to take action regarding the goods for the benefit
of their owner;
3. it is impossible to communicate with the owner first.
Agency of necessity: agency created by an emergency requiring the agent
to take reasonable steps to preserve the principal’s property. Such an agent
has authority to take such reasonable and prudent steps as are necessary in
the best interests of the owner.
For example: The defendant gratuitously stored the claimant’s furniture.
During the war he wanted the space it was occupying, but was unable to
contact the claimant. He sold the goods.

Held: no agency of necessity arose here because there was no emergency

justifying the sale and the claimant was acting for his own benefit.
Therefore, the defendant was liable to the claimant in the tort of
conversion (unlawful disposal of the claimant’s goods).
d) Agency by ratification
Even if a party had no authority or exceeded the given authority to act for
another when making the contract, authority can be given subsequently if
the other party wants to adopt the transaction. This ratification creates
antecedent authority for the agent: the law treats the agent as having had
authority from the outset.

For ratification to be valid the following requirements must be fulfilled:

1. The agent must expressly or impliedly indicate that it is acting as
someone’s agent, so the principal must be disclosed;
2. The principal must both exist and have the capacity to make the contract
when it was made
3. Ratification must be within a reasonable time;
4. Ratification must be complete:
5. Notice of ratification must be communicated:
 The consequences of ratification are as follows:
1. The agent is freed from any liability for acting without authority;
2. The agent is entitled to remuneration from the principal where
appropriate;
3. A third party obtains title to any property which has been transferred
under the contract;
4. A contract made by the agent on the principal’s behalf is retrospectively
binding on the principal.
III. The disclosed and undisclosed principal
Disclosed principal
When agents enter into contracts on behalf of principals, they usually name the
principals or at least indicate that they are acting as agents. Here the principal is
said to be disclosed even if not actually named.
In general, the disclosed principal is liable on any resulting contract and the agent
is not. Exceptions may arise where words, conduct or surrounding circumstances
indicate that the agent and principal are jointly liable, or that the agent is to
remain solely liable. Thus, if an agent signs a deed without indicating that he or
she is signing as an agent, he or she will be personally liable.

Undisclosed principal
Sometimes the agent behaves as if no principal is involved, although in fact one is;
here the principal is undisclosed. The contract will be binding by and against the
principal if:
1. The agent was acting under the principal’s actual authority at the time the
contract was made;
2. The terms of the contract do not preclude the existence of the principal.