AGENCY

Definition
A relationship that exists between one person (the
principal) and another person (the agent).
The agent undertakes to do certain acts on the
principal’s behalf.
The purpose is to bring a third party into a contractual
relationship with the principal.
An agent is a person who is empowered to represent
another legal party, called the principal, and brings the
principal into a legal relationship with a third party
CREATION OF AGENCY
EXPRESS
IMPILIED
TERMINATION OF AGENCY
OPERATION OF LAW
Who Can Initiate Agency Relationship
Any person who has the capacity to contract can
appoint an agent to act on his or her behalf.
Persons who lack contractual capacity cannot
appoint an agent.
E.g., insane persons and minors.
Court may appoint guardian who may act as agent
of such persons.
 Purpose of Agency Relationship
An agency can be created only to accomplish a lawful
purpose.
Agency contracts that are created for illegal purposes
or are against public policy are void and
unenforceable.
E.g., contract to hire agent to commit crime.
Legal effects of agency
When someone (the agent) makes a contract on behalf
of someone else (the principal) then the contract is made
with the principal, not the agent.
The agent can neither sue nor be sued on the contract
CREATION OF AGENCY
Expressly created agency (written or verbal)

Impliedly created agency:

1. Agency of necessity

2. Cohabitation

3. Agency by estoppel

4. Agency by status

5. Agency by ratification
Express appointment

The agent is specifically appointed by the principal to

carry out a particular task or to undertake some general
function.
It is formed through express consent (oral or written).
Agency of necessity
 A person must be entrusted with the property of
another person.
 An immediate expense is required to preserve the
property.
 The owner of the property is virtually impossible
to contact.
 The person entrusted with the property (agent)
must act in the best interests of the owner
(principal).
Great Northern Rly Co v Swaffield
(1874)
The railway company transported the defendant’s
horse and, when no one arrived to collect it at its
destination, it was placed in a livery stable.
It was held that the company was entitled to
recover the cost of stabling, as necessity had forced
them to act as they had done as the defendant’s
agents
 Springer v Great Western Rly Co
(1921)
A consignment of tomatoes arrived at port, after a
delayed journey due to storms. A railway strike would
have caused further delay in getting the tomatoes to
their destination, so the railway company decided to
sell the tomatoes locally.
It was held that the railway company was responsible
to the plaintiff for the difference between the price
achieved and the market price in London.
The defence of agency of necessity was not available,
as the railway company could have contacted the
plaintiff to seek his further instructions.
 Agency by ratification
May occur when:
 Ratification is the express acceptance of the contract
by the principal
 A person acts on behalf of a principal and enters a
contract with a third party, despite lacking authority
to do so, then the principal may ratify or affirm the
unauthorized action.
 An agent exceeds the authority given to them by the
principal, the principal may ratify or affirm the
excessive authority.
Conditions required for valid ratification
Agent when contracting must clearly be acting as
an agent, not for themselves, and the third party
must be aware of this.
Principal must exist at the time the agent contracts.
Principal must have the required capacity to
contract both at the time of the agent’s
unauthorised conduct and at the time of
ratification.
Principal must ratify the whole contract.
Principal must have full knowledge of the details
of the transaction
Can only be made by the principal for whom the
agent was acting or purporting to act when the
contract was made.
Ratification must take place within a reasonable
time.
InKelner v Baxter (1866), where promoters
attempted to enter into a contract on behalf of the
unformed company.
It was held that the company could not ratify the
contract after it was created and that the promoters,
as agents, were personally liable on the contract.
Estoppel
Where the principal has led other parties to believe
that a person has the authority to represent him or
her.
In such circumstances, even though no principal/
agency relationship actually exists in fact, the
principal is prevented (estopped) from denying the
existence of the agency relationship and is bound
by the action of his or her purported agent as
regards any third party who acted in the belief of
its existence
THE AUTHORITY OF AN AGENT

In order to bind a principal, any contract entered into

must be within the limits of the authority extended to
the agent. The authority of an agent can be either
1. Actual or
2. Apparent.
Actual authority is divided into

Express actual authority

Implied actual authority
Express actual authority
This is explicitly granted by the principal to the agent.
The agent is instructed as to what particular tasks are
required to perform and is informed of the precise
powers given in order to fulfill those tasks
Implied actual authority
This refers to the way in which the scope of
express authority may be increased.
Third parties are entitled to assume that agents
holding a particular position have all the powers
that are usually provided to such an agent.
Without actual knowledge to the contrary, they
may safely assume that the agent has the usual
authority that goes with their position
Watteau v Fenwick (1893),
The new owners of a hotel continued to employ
the previous owner as its manager. They expressly
forbade him to buy certain articles, including
cigars. The manager, however, bought cigars from
a third party, who later sued the owners for
payment as the manager’s principal.
It was held that the purchase of cigars was within
the usual authority of a manager of such an
establishment and that, for a limitation on such
usual authority to be effective, it must be
communicated to any third party.
Apparent authority
Where a person makes a representation to third parties
that a particular person has the authority to act as their
agent without actually appointing the agent.
 In such a case, the person making the representation is
bound by the actions of the apparent agent
Where a principal has previously represented to a third
party that an agent has the authority to act on their
behalf.
Even if the principal has subsequently revoked the
agent’s authority, he or she may still be liable for the
actions of the former agent, unless he or she has
informed third parties who had previously dealt with
the agent about the new situation
The duties of the agent to the principal
are:
• To perform the undertaking according to instructions;
• To exercise due care and skill;
• To carry out instructions personally;
• To account;
• Not to permit a conflict of interest to arise;
• Not to make a secret profit or misuse confidential
information;
• Not to take a bribe.
The rights of an agent
To claim remuneration for services performed;
To claim indemnity for all expenses legitimately
incurred in the performance of services;
To exercise a lien over property owned by the
principal.
Relations with third parties
• Where the agent indicates that he or she is acting as an
agent, the general rule is that only the principal and the
third party have rights and obligations under the
contract.
• There are exceptions to this:
• at the insistence of the third party;
• by implication;
• in relation to bills of exchange;
• in relation to deeds
• Where the principal’s existence is not disclosed:
• the agent can enforce the contract against the third
party;
• the principal can enforce the contract against the third
party;
• the third party can choose to enforce the contract
against the agent or the principal;
• an undisclosed principal cannot ratify any contract
made outside of the agent’s actual authority.
At third party insistence
Where the agent has expressly accepted liability with
the principal in order to induce the third party to enter
the contract, he or she will attract liability
By implication
Where the agent has signed the contractual agreement
in his or her own name, without clearly stating that he
or she is merely acting as a representative of the
principal, he or she will most likely be liable on it.
In relation to bills of exchange
Where an agent signs a bill of exchange without
sufficiently indicating that he or she is merely acting as
the agent of a named principal, he or she will become
personally liable on it.
In relation to the execution of a deed
Where the agent signs the deed other than under a
power of attorney, he or she will be personally liable
on it.
Where the agent acts for a non-existent
principal
Where the agent acts for a non-existent principal, the
other party to the agreement can take action against the
purported agent.
Payment by means of an agent
If the agent does not pay the third party, the principal
remains liable.
If the agent absconds with money paid by the third
party, then, if the principal is undisclosed, he or she
sustains the loss. If, however, the principal is
disclosed, the agent must have had authority to accept
money, or else the third party is liable.
Termination of agency
Agreements may end:
 by mutual agreement;
by the unilateral action of one of the parties;
through frustration;
due to the death,
insanity or
 bankruptcy of either party.
Types of agents
Factors/mercantile agents—goods in agent’s
possession to sell or use for borrowing
Del Credere agent—guarantees payment for goods
sold (therefore higher commission)
Partners—principals/agents for each other
Broker—buys/sells goods without possession
Real estate agent—sells/leases vendor’s land; finds
property for sale/lease
Travel agent—sells principal’s products; receives
commission based on sales; organises principal’s
travel arrangements
Company director—agent of company