Biaos

Biz Law Mugger Notes (2008) Agency

Agency
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Introduction
How it arises By Agreement
How it arises Without Agreement
Ratification
Effects of Ratification
Principal-3rd Party R/s
Principal-Agent R/s
Agent-3rd Party R/s
Termination

Introduction
a) Agency is a branch of law under which one person, the agent, may directly affect the legal
relations of another person, the principal, as regards yet other persons, called third parties,
by acts which the agent is said to have the principals authority to perform on his behalf and
which when done are in some respects treated as the principals acts (FMB Reynolds,
Bowstead & Reynolds on Agency, 2001)
i) Many commonly called agents are not in the legal sense genuine agents because they
are themselves in fact acting as principals. E.g. distributor of goods for the manufacturer
2) How agency arises - By Agreement
a) There must be Consent
b) Does not have to amount to a contract
i) Yasuda Fire and Marine Insurance Co of Europe Ltd v Orion Marine Insurance
Underwriting Agency Ltd (1995)
(1) Colman J: 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.
ii) Garnac Grain Co Inc v HMF Faure & Fairclough Ltd (1968)
(1) Lord Pearson: Consent must have been given by each of them, either expressly or
by implication from their words and conduct.
(2) Applied locally in Win Line (UK) Ltd v Masterpart (Singapore) Pte Ltd (2000)
c) Express Authority
i) There is no formality required in the appointment of an agent and an oral appointment
is equally effective to confer express authority.
ii) Where there is a written agreement, ordinary principals for the construction of contracts
apply.
iii) Where the agreement is oral, it will be a matter of evidence.
(1) Lord Reid in Ashford Shire Council v Dependable Motors Pty Ltd (1961): the extent
of an agents authority, if in doubt, must be determined by inference from the whole
circumstances.
d) Implied Authority
i) Authority may arise by implication or inference from the conduct or the relationship of
the parties, or by appointment to a particular designation.
ii) Lord Denning in Hely-Hutchinson v Brayhead Ltd (1968): Actual authority is implied
when it is inferred from the conduct of the parties and the circumstances of the case.
3) How agency arises Without Agreement
a) The origin of this doctrine lies in mercantile law, particularly in shipping cases, where the
shipmaster was given authority to act as the ship owners agent in emergencies so as to
preserve the ship and its cargo.

Biaos Biz Law Mugger Notes (2008) Agency

b) It applies, in cases of pre-existing agencies, to confer on an authorised agent more extensive
authority, and also to confer authority by necessity on a person who was hitherto not in any
agency relationship with the principal.
c) Specific requirements:
i) Agent must have been unable to obtain, or it must have been practically impossible to
obtain timely instructions from the principal
ii) Agent must have acted, reasonably and in good faith, in the interests of the principal
iii) There must have been a necessity or emergency that compelled the agent to act as he
did
4) Ratification
a) An agent, who has neither actual nor ostensible authority, cannot bind the so-called
principal to third parties by his acts. However, the principal may choose to adopt the agents
acts subsequently.
b) The agency relationship arises retrospectively and the principal thereby assumes full
contractual obligations and rights with respect to the agents earlier acts.
c) May be express or implied from the principals conduct, although in the latter case, it must
unequivocally indicate an affirmation of the agents acts.
d) Requirement
i) Bowstead & Reynolds on Agency:
(1) Person must purport to act on the principals behalf
(2) It must be disclosed that he is acting on behalf
(3) The principal must exists at the time
ii) Keighley, Maxted & Co v Durant (1901)
(1) Facts: An agent was authorised to purchase, at a certain price, wheat on a joint
account for himself and the principal defendants. Acting in excess of authority, he
purchased wheat at a higher price from the plaintiffs but in his own name and
without disclosing that he was also buying on behalf of the defendants. The
defendants ratified the purchase the next day but failed subsequently to take
delivery of the wheat.
(2) Held: HL held that the action for breach of contract must fail. The purported
ratification was ineffective as the agent had contracted in his own name. The
defendants were therefore under no contractual obligation to the plaintiffs.
iii) Section 41 Companies act provides:
(1) Any contract or other transaction purporting to be entered into by a company prior
to its formation or by any person on behalf of a company prior to its formation may
be ratified by the company after its formation.
(2) Where the company does not ratify, or fails to be incorporated, s 41(2) provides for
the promoter, in the absence of any express agreement or otherwise, to be
personally liable.
iv) All contracts, even illegal ones may be ratified, with the exceptions of transactions void
at inceptions, and those prohibited by statute.
v) Ratification are also to be made in reasonable time
5) Effects of Ratification
a) The parties involved will be placed in the position they would retrospectively have been in if
the agents acts had been authorised all along
b) Although the principal is not bound until he ratifies, the third party would appear to be
effectively bound from the date of the contract
c) Bolton Partners v Lambert (1889)
i) Facts: The director of the plaintiff company was unauthorised to bind the plaintiff but
nevertheless accepted an offer made by the defendant. Prior to the plaintiffs

Biaos Biz Law Mugger Notes (2008) Agency

ratification, the defendant purported to withdraw his offer. The plaintiff subsequently
ratified.
ii) Held: The defendant was bound to the contract. Cotton LJ: As soon as authority was
given to the director to bind the company the authority was thrown back to the time
when the act was done, and prevented the Defendant withdrawing his offer because it
was then no longer an offer, but a binding contract
d) In response to the inequality between principal and third party,
i) Re Portuguese Consolidated Copper Mines Ltd
(1) Emphasis was placed on the fact that the third party did not repudiate or intimate
that he would like to withdraw the offer on the ground of the agents lack of
authority in concluding that a ratification that came after two to three months was
effected within a reasonable time. It would therefore be open to the third party to
require the principal to ratify quickly or not at all.
e) The doctrine of relation-back has no application when the agent contracts subject to the
principals approval or ratification and the third party may therefore withdraw his offer any
time prior to ratification.
6) Principal-3rd Party Relationship
a) A principal is entitled to the benefit of, and would be liable under, a contract made by his
agent on his behalf and which is within the scope of the agents actual authority.
b) Disclosed Agency
i) When the agent drops out of the picture, neither the third party nor the principal can
discharge their respective liability to each other by settling with the agent.
ii) Butwick v Grant (1924)
(1) Held: Payment for goods by a third party purchaser to the agent of the seller did not
discharge the third partys liability to the principal-seller. The court held that
authority to sell goods does not necessarily imply the authority to receive payment
for the goods.
iii) Irvine & Co v Watson & Sons (1880)
(1) Held: The principals payment to his own agent, of the purchase price for the oil that
the latter had contracted for on the principals behalf, did not discharge his liability
to the third party.
c) Where the principal is undisclosed, the contract can still be enforced if the agent had acted
within his authority.
d) Undisclosed Agency
i) The rule, which seems to go against the privity of contract, is justified on grounds of
commercial convenience.
(1) Lord Lindley in Keighley, Maxted & Co v Durant (1901): Middlemen, through whom
contracts are made, are common and useful in business transactions, and in the
great mass of contracts it is a matter of indifference to either party whether there is
an undisclosed principal or not.
ii) Lord Lloyd in Siu Yin Kwan v Eastern Insurance Co Ltd (1994)
(1) An undisclosed principal may sue and be sued on a contract made by an agent on his
behalf, acting within the scope of his actual authority
(2) The agent must intend to act on the principals behalf
(3) The agent of an undisclosed principal may only sue on the contract while the
principal remains undisclosed, but can be sued even after
(4) Any defence which the third party may have against the agent is available against
the principal
(5) The contract may exclude the principals right to sue and be sued, or show that the
agent is the true and only principal

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iii) Once the third party becomes aware of the principal, the law confers on the former the
right to elect whether to sue either the principal or the agent.
iv) No case of apparent authority can arise as there can be no representation from an
undisclosed principal.
e) Apparent Authority
i) If the third party had relies on the impression so created and alters his legal position,
then the person creating the impression is not allowed to deny the purported agents
authority, and would therefore be bound by the agents acts.
ii) Slade J in Rama Corporation v Proved Tin and General Investments Ltd (1952):
Ostensible or apparent authority is a form of estoppel, and you cannot call in aid an
estoppel unless you have: (1) a representation, (2) reliance on it, and (3) an alteration of
your position resulting from the reliance
iii) A representation of authority could be made when the supposed principal allows the
alleged agent, who has not in fact been properly appointed as agent, to appear as if he is
the principals agent.
iv) Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964)
(1) Facts: The articles of association of the company authorised the board of directors
to appoint a managing director, but none was in fact appointed. The board,
however, allowed one director to act as managing director, and he contracted with a
third part to do some work for the company. The company claimed that it was not
bound by the contract because the director had no authority.
(2) Held: Although the director had no actual authority to so contract, the company
had, through its board of directors, created an impression of authority by
acquiescing in the directors conduct.
v) As in Hely-Hutchinson v Brayhead Ltd (1968), the previous course of dealings constitute
the principals representation, and it is the duty of the principal to inform those third
parties with whom the agent had dealings.
vi) It should be noted that the representation must come from the principal, or someone
actually authorised by the principal.
(1) Lord Donaldson MR in United Bank of Kuwait v Hammond (1988): it is trite law
that an agent cannot ordinarily confer ostensible authority on himself. He cannot
pull himself up by his own shoe laces.
vii) First Energy (UK) Ltd v Hungarian International Bank Ltd (1993)
(1) Facts: Jamison was a senior manager of the bank. Plaintiff approached him for
finance for a project. He initially said he had no authority to sanction such a loan,
but later falsely said that he had been given such authority. A loan was arranged, but
the bank refused to advance the money.
(2) Held: Prima facie, there was a contract as the bank put Jamison in a position where
he had apparent authority to make a representation that he had been given
authority to sanction the loan. In these circumstances, the representation may come
from the agent.
viii) There can be no reliance if the third party did not deal with the agent as an agent, nor
if the third party ought to know that the agent is without authority.
ix) The third party entering into the contract may be sufficient alteration in position (Arctic
Shipping Co Ltd v Mobilia AB, The Tatra (1990)), and sometimes it appears that
detriment is required (Norfolk County Council v Secretary of State for the Environment
(1973))
x) Locally, Sigma Cable Co Pte Ltd v NEI Parsons Ltd (1992)
(1) Facts: The defendants were building a power station at Pulau Seraya for the PUB.
Engineer employed by Def was not given any responsibility to purchase any
materials, but made orders for $350k worth of electric cables. What the plaintiffs

Biaos Biz Law Mugger Notes (2008) Agency

contend is that the conduct of the defendants as a whole amounted to a
representation that the engineer had the necessary implied or apparent authority to
purchase the nine lots of cables on behalf of the defendants.
(2) Held: The mere representation by the defendants that he was their engineer did not
of itself amount to a representation that he had (per Diplock LJ in Freeman). The
duties normally associated with an engineer do not include the purchase of
materials. Neither a badge which identifies a person as an employee of a company
nor the use of the companys vehicle can conceivably be understood as a
representation that that person has authority. The fact that a company may have
allowed its employee to retain possession of documents (or the rubber stamp)
which would enable the employee to perpetrate or which would facilitate the
perpetration of a fraud on a third party does not entitle the third party to claim
against the company (see Farquharson Brothers & Co v C King & Co). For the
plaintiffs to rely on the statement he was in charge of purchase orders, they must
establish that the representation was made by a person who had actual authority to
do so.
xi) Locally, NOK of Ramu Vanniyar Ravichandran v Fongsoon Enterprises (Pte) Ltd (2008)
(1) Facts: Deceased was not employed by the Def. Foreman paid deceased for some
tasks, and during one such event, he drowned. Plaintiff sought compensation.
Question was whether the foreman had the authority to engage his services on
behalf of the Def.
(2) Held: Foreman has apparent authority to hire.
7) Principal-Agent Relationship
a) Duties of an Agent
i) Obligation to obey instructions of the principal
ii) The obligation to perform with reasonable care and diligence will, if not expressly
stipulated, be an implied term of the contract.
iii) Agents are fiduciaries, who stand in a position of trust and confidence, and are
conferred discretion to act for the benefit of the other.
iv) Duty to avoid conflict of interests
(1) An agent who has gained a benefit in breach of this duty will have to surrender that
benefit to his principal
v) Duty not to make a secret profit
(1) The agent is not allowed to use his position, without the knowledge and assent of
the principal, to make personal profits or for personal advantage. Neither is he
allowed to accept bribes from third parties with whom he is dealing on behalf of his
principal.
(2) Slade J in Industries and General Mortgage Co Ltd v Lewis (1949): (1) The person
making the payment makes it to the agent of the other person with whom he is
dealing; (2) he makes it to that person knowing that that person is acting as the
agent of the other person with whom is dealing; and (3) 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 persons agent.
(3) Both the agent and the third party may be criminally liable under the Prevention of
Corruption Act (Cap 241), in addition that the bribe may be confiscated or forfeited
under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of
Benefits) Act (Cap 65A)
vi) Duty not to delegate
(1) The general rule is that the agent cannot delegate his authority except with the
express or implied authority of the principal. However, in cases where it is allowed,

Biaos Biz Law Mugger Notes (2008) Agency

the agent does not as a rule escape liability to the principal, unless specifically
stated. (Calico Printers Association Ltd v Barclays Bank (1930))
b) Rights of an agent
i) The agent has a right to be remunerated for carrying out his mandate.
ii) He is also entitles to be reimbursed for expenses incurred and indemnified by the
principal against all liabilities which he has reasonable incurred in the execution of his
mandate
iii) The agent is entitles to a lien over his principals property in respect of all claims against
the principal that arise out of the agency.
8) Agent-3rd Party Relationship
a) General rule: The agent owes no liability to, nor does he have any rights against, the third
party.
b) Exceptions:
i) He agreed to undertake responsibility
ii) Where the principal is undisclosed
iii) Where third party chooses to bind the agent on discovery of undisclosed principal
iv) Statue may also render an agent liable. S 26 Bills of Exchange Act (Cap 23) and s 41
Companies Act are examples so such.
c) An agent who contracted in excess of authority, and whose principal does not adopt the
agents acts through the process of ratification, may be liable to the third party for breach of
the agents implied warranty of authority.
9) Termination
a) Where the agency is created by agreement that amounts to a contract, it may be
determined in a similar manner as a contract (consent, unilateral, breach). While the
relationship may be terminated, it does not necessarily mean that the apparent or
ostensible authority is terminated unless the third party has notice of this.
b) Death of the principal may render the agent liable to the third party for breach of warranty
of authority, while bankruptcy of the agent will only terminate the relationship if the agent is
unfit to perform his duties (or frustration, insanity)
c) The authority of an agent may become irrevocable in certain situations, specifically when it
was given to an agent for the purpose of protecting a pre-existing interest of the agent
d) Gaussen v Morton (1830)
i) Facts: A principal owed money to another and thus conferred authority on the latter to
sell certain property and to use the proceeds to discharge the debt.
ii) Held: The purpose of creation of the agency was therefore to secure a benefit to the
agent, and was therefore held that the agents authority could not be revoked without
the agents consent