Law of Agency

A presentation from:
Prof. Saadat Kirmani

What is agency ?
Agency

is a relationship which exists

between two legal persons (the
principal and the agent) in which the
function of the agent is to form a
contract between his principal and a
third party.

Types of agent :

Partners
Promoters
Factors e.g. motor dealer
Brokers e.g. insurance broker, estate agent,
del credere agent (responsible for recovery of contract
price from the persons he introduces to his principal)

Banker
Auctioneer
Commercial agents e.g. continuing authority

Creation of Agency :
The relationship of principal and agent
is usually created by mutual consent.
The consent need not be formal nor
expressed in a written document.
It is usually an express agreement,
even if it is created in an informal
manner.
Example follows:

Example :
Peter

may ask Alan to take Peters

shoes to be repaired. Peter and Alan
thereby expressly agree that Alan is
to be Peters agent in making a
contract between Peter and Thomas,
the shoe repairer.

Creation of Agency :
Agency

may be created in a number

of different ways:
Consent
Operation of Law
Estoppel

Agency by consent :
Consent

could be express or implied.

An express consent could be oral, in
writing or thru a formal contract.
An implied agency is by relationship
or conduct. e.g. employee contracts
for his employer.

Agency by Operation of Law

:
This

refers to agency of necessity. It

arises where a person is faced with
an emergency in which the property
or interests of another person are in
imminent jeopardy and it becomes
necessary, in order to preserve the
property or interests, to act for that
person without his authority.
Examples follow:

Example :
No

practical way to contact the

principal.
Some pressing need for action:
perishable goods or starving animals.

Agency by Estoppel :
Agency

by estoppel arises when the

words or conduct of the principal give
to a third party the impression that the
agents authority is greater than it
really is and the third party, as a result,
acts upon this.
This introduces the concept of
ostensible, or apparent authority.
OSTENSIBLE- alleged, apparent,
presumed.

Estoppel :
Agency

by estoppel can only arise

where the conduct of the apparent
principal creates it.
Agency does not arise by estoppel if
it is the agent who holds himself out
as agent, not the principal.
Example follows:

Example :
If

Paul leads Tina to believe that

Adam is Pauls agent, and Tina deals
with Adam on that basis, Paul is
bound by the contract with Tina
which Adam has made on his behalf.
This situation may arise in the
following circumstances:

When Adam, who dealt with Tina as Pauls

authorized agent, continues to do so after
his authority as agent of Paul has been
terminated but Tina is unaware of it.
When Adam, to Pauls knowledge, enters
into transactions with Tina as if Adam were
Pauls agent and Paul fails to inform Tina
that Adam is not Pauls agent.
When Adam, who dealt with Tina as Pauls
authorized agent, acts beyond the scope
of the authority actually conferred upon
him by Paul but Tina is unaware of it.

Agency by Estoppel :
Agency

by estoppel can only arise

where the conduct of the apparent
principal creates it.
Agency does not arise by estoppel if
it is the agent who holds himself out
as agent, not the principal.

Ratification :
In certain circumstances the
relationship of principal and agent can
be created or extended with
retrospective effect.
If A makes a contract on behalf of P at
a time when A has no authority from P,
the contract may later be ratified by P
and then has retrospective effect to
the time when A made the contract.

 Ratification

only validates past acts

of the purported agent.
It gives no authority for the future.

The effects of ratification :

The

principal may sue or be sued by

the third party.
The agent no longer has any liability
to the third party.
The agent is no longer liable for
exceeding his authority.
The principal is liable to pay the
agent reasonable remuneration.

Duties of an agent :
Performance
Obedience
Skill
Personal

performance
Accountability
No conflict of interest
Confidence
Any benefit

Rights of an agent :
Indemnity

(repaid expenses)
Remuneration (pay commission)

Authority of an agent :
Express

(actual) authority
Implied authority
Ostensible (apparent) authority

Ostensible authority :
The ostensible (or apparent) authority
of an agent is that which his principal
represents to other persons (with
whom the agent deals) that he has
given to the agent.
As a result an agent with limited
express or implied authority can be
held in practice to have a more
extensive authority.

Disclosed agency :
Sign

Ltd.

as for and on behalf of XYZ

Undisclosed agency :
If

the agent acts within the scope of

his authority, it is possible to put
forward evidence which shows that
the undisclosed principal is a party to
the transactions.
As a result he may sue or be sued on
the contract made between agent
and the third party.

Termination of agency :
Mutual

agreement of the parties.

Principal or agent dies.
Principal or agent becomes insane.
Principal becomes bankrupt, or agent
becomes bankrupt.

 Termination

brings the actual

authority of the agent to an end.
However, third parties are allowed to
enforce contracts made later by the
agent until they are actively or
consrtructively informed of the
termination of the agency
relationship.