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LAW OF AGENCY I. INTRODUCTION 1.

Definition "Agency" - a bilateral, onerous, consensual contract whereby one party, the principal, authorises another, the agent, to execute business on his behalf. Agency involves three parties: (a) Principal - person who employs agent to act for him. (b) Agent - person who acts for the principal in the transaction. (c) Third Party - person with whom agent transacts. and two contracts: (a) Contract between agent and principal, governing terms of their relationship. (b) Contract made by agent with third party, which results in a contract between the principal and the third party. 2. Capacity Same rules regarding capacity as with any other contract. The principal must have capacity to enter the contract in question - he cannot increase his own capacity to contract by employing an agent with the necessary capacity. e.g. (a) Young People - person whose contractual capacity is limited by the Age of Legal Capacity (Scotland) Act 1991 cannot make a binding contract by employing an agent of full age. (b) Enemy Aliens - an alien enemy cannot make a valid contract by employing a British national to make it on his behalf. (c) Companies - a company has no legal capacity until incorporated. A company cannot be bound by a pre-incorporation contract made by someone acting on its behalf.

Tinnevelly Sugar Refining Co Ltd v Mirrlees, Watson & Yaryan Co Ltd (Case 1) Kelner v Baxter (Case 2) II. CONSTITUTION OF AGENCY Agency relationship may arise in one of five ways: 1. Express Agreement Where a principal specifically appoints a person as an agent. No specific formalities are required. Express agreement may detail scope of agents powers or may leave some to be implied. 2. Implied Agreement (a) Implied by Conduct Where no express contract, but it is apparent from actions of parties that agency relationship has been formed. (b) Implied by Law Agency relationship is implied by law in some circumstances e.g. partners in a firm and directors of companies. 3. Holding Out Where one person has allowed another to appear to outsiders to be his agent, he will be personally barred from denying the relationship. Arises in two situations: (a) Where there is no agency relationship but it appears that there is. (b) Where there is an agency relationship, but agent is held out as having more authority than he actually has. Creation of agency by holding out requires:

(a) Representation - principal must have represented person as his agent, either by express statement or by his conduct. (b) Reliance - the third party must have relied on the representation. (c) Altered Position - the third partys position must have been altered because he relied on the representation, so that he would be adversely affected if no agency relationship existed. Freeman & Lockyer v Buckhurst Park Properties (Case 3) 4. Ratification Where person acts for a principal without having authority to act, but the principal accepts and adopts (i.e. ratifies) the agents actions. Ratification may be express or implied. Ratification makes the agents act valid from the time he did it, not just from the time of ratification. Requirements for ratification: (a) Principal in Existence - principal must have been in existence at the time the act was done by the agent, not just at the time of ratification. Kelner v Baxter (Case 2) (b) Principal with Capacity - principal must have had the necessary capacity at the time the act was done by the agent. (c) Ratification must be Timeous - if validity of act depends on it being done within a certain time, it must be ratified within that time. Goodall v Bilsland (Case 4) (d) Agent Acting as Agent - agent must have told third party he was acting on behalf of identified or identifiable principal. An undisclosed principal cannot ratify. Keighley Maxted & Co v Durant (Case 5) (e) Principal Aware of Material Facts - at the time of ratification, principal must have been made aware of all facts material to his decision to ratify. 5. Agency of Necessity

Where agent acts without authority to protect principals interests in an emergency. Requirements: (a) The actions must be necessary for the benefit of the principal must be real necessity, objectively judged. (b) It must have been impossible for the agent to communicate with the principal to get his instructions. (c) Agent must have acted bona-fide in the interests of the principal and not wholly or partly in his own interests Great Northern Co v Swaffield (Case 6) Springer v Great Western Railway Co (Case 7) III. CATEGORIES OF AGENT Traditional distinction is between general agents and special agents. 1. General Agents General agent has authority to act for principal in the ordinary course of his trade or profession - either in all matters, or in all matters of a particular nature. Third parties dealing with a general agent are entitled to assume he has authority to do anything that would be usual for an agent in the same position to be able to do. 2. Special Agents Special agent only has authority to act in a particular transaction on express instructions of principal. Will not bind principal to contract if he exceeds instructions - third party must satisfy himself as to extent of agents authority. Morrison v Statter (Case 8) Other Kinds of Agent 3. Mercantile Agents People employed to buy and sell things (usually goods).

Divided into: (a) Factor: has possession of principals goods and authority to buy and sell in his own name. e.g. auctioneer. (b) Broker: no possession of goods and cannot buy and sell in his own name. Employed to negotiate a contract. e.g. stockbroker, insurance broker. Glendinning v Hope & Co (Case 9) 4. Del Credere Agents Mercantile agents who undertake to indemnify the principal if the third party fails to pay the contract price. More common now are Confirming Agents who undertake liability for any failure in performance by the third party. 5. Estate Agents Find buyers for property which clients wish to sell. No authority to make binding contract of sale unless expressly instructed by client. Regulated by: Estate Agents Act 1979 Property Misdescriptions Act 1991

6. Shipmasters Captain or similar officer of ship. Very wide authority in respect of navigation, crew and cargo - even wider powers in emergency situations. 7. Solicitors Solicitors were formerly called "Law Agents". Employed to conduct legal business - extent of authority to act varies with different kinds of legal work. IV. AUTHORITY OF AN AGENT

Agent can only bind principal in contract with third party if he has the necessary authority. Authority may be: express implied ostensible or apparent presumed

Express and implied authority are called actual authority and are regarded as arising from contract between agent and principal. Ostensible and presumed authority are deemed by law to exist, regardless of terms of contract. 1. Express Authority Where contract between agent and principal specifically defines the extent of what the agent is allowed to do. 2. Implied Authority Agents authority is defined by the nature of his employment. Agent appointed for single transaction has implied authority to do what is necessary to complete the transaction. Agent appointed to particular job has implied authority normally expected of someone in same position. 3. Ostensible Authority Authority which has not been actually been given to the agent, but which he has been held out as having. Arises where: (a) Agent has had express authority which has been withdrawn, but third party has not been notified of this. (b) Agent is in position where certain authority would be implied, but principal has limited this and third party is unaware of the limitation.

See: International Sponge Importers v Watt (Case 13) Watteau v Fenwick (Case 14) British Bata Shoe Co v Double M Shah (Case 15) 4. Presumed Authority Authority which has not actually been given to the agent, but which the law presumes principal would have given if he had been consulted in advance. Arises in cases of agency of necessity.

V. DUTIES OWED BY AGENT TO PRINCIPAL These duties are implied into every contract of agency unless expressly altered by the parties. 1. Duty to Obey Instructions Agent is in breach of contract if he fails to obey express instructions or exceeds his actual authority. Gilmour v Clark (Case 16) Agent loses right to claim fees or commission for period he is in breach of contract: Graham & Co v United Turkey Red Co (Case 17) 2. Duty not to Delegate Delegatus non potest delegare - an agent must not delegate. An agent must always act personally, unless: (a) The agent is expressly allowed to delegate: De Bussche v Alt (Case 18) (b) Right to delegate is implied by what is usual in a trade or profession. 3. Duty of Care and Skill Agent who fails to exercise reasonable care and skill in carrying out his duties may be liable to his principal for negligence.

Applies even when agent is acting without payment. 4. Duty to Account Agent must keep accounts and hand over all money received on behalf of his principal. He will be liable for any shortfall even if no evidence that he was dishonest. Tyler v Logan (Case 19) 5. Duty of Relief Agent must indemnify principal against any liability principal incurs because agent acted outside his authority. Milne v Ritchie (Case 20) 6. Fiduciary Duty Agent owes principal a duty of loyalty and good faith. He must not let his own interests conflict with those of his principal. Fiduciary duty is restricted to what is done in the course of the agency. Lothian v Jenolite Ltd (Case 21) (a) Agent must not transact with the principal on his own behalf unless principal is aware of all the facts and consents. The principal could have the contract set aside. McPhersons Trustees v Watt (Case 22) (b) Agent must not receive any profit, commission or benefit from the third party, unless the principal consents. If he does: (i) He will be liable to pay any amount received over to the principal: Ronaldson v Drummond & Reid (Case 23) De Bussche v Alt (Case 24) (ii) Agent will lose his right to any commission and may be dismissed for breach of contract.

(iii) Principal may be able to claim damages from third party for bribing the agent. (iv) Principal may be able to rescind the contract with the third party. (v) Both agent and third party may be liable to criminal penalties under the Prevention of Corruption Acts 1906 and 1916. It is an offence for an agent to accept or agree to accept a bribe, and for a person to offer a bribe. (c) An agent owes a duty of confidence in respect of information relating to his principal which he has gained through the agency. He will be liable to his principal for breach of confidence if he discloses this: Liverpool Victoria Friendly Society v Houston (Case 25) VI. RIGHTS OF AGENT AGAINST PRINCIPAL 1. Right to Remuneration Agent has the right to be paid the agreed fee or commission for the work done. Where amount of payment not agreed, agent is entitled to customary rate for trade or profession. If no usual rate, payment is calculated quantum meruit ("as much as it is worth") Kennedy v Glass (Case 26) 2. Reimbursement of Expenses Agent has the right to be repaid for any expenses incurred in performing his duties as agent. Contrast: Drummond v Cairns (Case 27)

Tomlinson v Scottish Amalgamated Silks (Case 28) 3. Relief From Liability Principal must indemnify agent against any legal liability legitimately incurred in performing duties as agent. Stevenson v Duncan (Case 29) Marshall Wilson Dean & Turnbull v Feymac Properties (Case 30) But not where liability was incurred when agent was exceeding his authority. Robinson v Middleton (Case 31) 4. Lien Lien = the right to hold on to possession of goods until the owner of them has paid a debt or fulfilled an obligation. (a) General Lien Right to retain any of principals property in agents possession until any debt owed to agent is paid. e.g. A sells consignment of jeans for P. P fails to pay agreed commission for this. P then gives A consignment of shirts to sell for him. If A has right of general lien, he can retain possession of shirts until commission for sale of jeans is paid. Factors, auctioneers, solicitors and stockbrokers have general lien. (b) Special Lien Right to retain principals property only in respect of debts/obligations connected with that particular property.

VII. RIGHTS AND LIABILITIES OF THIRD PARTIES Depend on way in which agent contracts with third party. 1. Agent Transacting as Agent for Named Principal

Principal and third party are bound to the contract. Agent has no rights or liabilities under the contract. Stone & Rolfe Ltd v Kimber Coal Co (Case 32) Armour v Duff & Co (Case 33) Exceptions: (a) Agent may expressly or impliedly undertake personal liability on the contract - e.g. del credere agents. (b) Agent may incur personal liability through custom of trade e.g. solicitors. Livesey v Purdom & Sons (Case 34) (c) Agent may have a right to sue the third party on the contract if he has a personal interest in enforcing it. Mackenzie v Cormack (Case 35) (d) Agent will be personally liable to third party if principal turns out not to be a legal person. 2. Agent Transacting as Agent for Unnamed Principal Normally creates a binding contract between principal and third party on which agent has no personal rights or liabilities. Agent will be personally liable if he refuses to name his principal when asked to do so. Gibb v Cunningham & Robertson (Case 36) 3. Agent Contracts as Principal Where agent acts within his authority, but does not reveal to third party that he is only acting as an agent. Principal can disclose his existence and enforce the contract against the third party. Bennett v Inveresk Paper Co (Case 37) Third party can sue the agent on the contract. If third party has become aware that he has contracted with an agent, he can elect to sue either the agent or the principal. Election is final once made: Ferrier v Dods (Case 38)

4. Agent Contracts as Agent, but Exceeds Actual and Ostensible Authority Principal is not bound to the contract - so third party has no rights against the principal. Agent is not personally liable on the contract, because third party knows he is only an agent. Third party cannot sue agent under the contract. Third party can sue agent for damages on basis that he misrepresented his authority. (Either fraud, or breach of warranty of authority). Collen v Wright (Case 39) Yonge v Toynbee (Case 40) Anderson v Croall & Sons Ltd (Case 41) Measure of damages is the amount that the third party lost through not having a binding contract with the principal. Irving v Burns (Case 42) VIII. TERMINATION OF AGENCY 1. Completion of Transaction or Expiry of Time If agency entered into for single transaction or set time period, it terminates when this is completed. No notice of termination is needed. 2. Mutual Agreement Agency is created by mutual agreement and can be terminated the same way. 3. Revocation by Principal Principal can terminate agency by giving notice of revocation to agent - but may be liable in damages if this is a breach of contract. Agency will not be revocable by principal where agent has a "procuratory in rem suam" (authority coupled with an interest) e.g. Factor is given goods to sell for principal and advances money to principal on security of the goods. Principal cannot revoke factors

authority to sell unless he repays money first - the debt is a procuratory in rem suam. 5. Renunciation by Agent Agent can withdraw from agency by giving notice - but may be liable for breach of contract. 6. Frustration Agency is frustrated by: (a) Death of Principal or Agent Agency is a contract where delectus personae is involved - so is frustrated by death of either party. (b) Insanity of Principal or Agent Agents insanity terminates the agency. Law Reform (Miscellaneous Provisions) (Scotland) Act 1990, s.71 - insanity of principal will not terminate a power of attorney or deed of factory and commission granted after 1 January 1991. (c) Bankruptcy Agency is terminated if either party becomes bankrupt. (d) Cessation of Business Agency is frustrated if principal ceases to carry on the business in which the agent is employed. Agent will normally have no claim for breach of contract. Patmore & Co v Cannon & Co (Case 43)