EGERTON UNIVERSITY
LLBE 213-COMMERCIAL LAW
LAW OF AGENCY
CASE LAW IN LAW OF AGENCY
WAYS OF CREATING AGENCY
Agency by ratification
-Kelner v Baxter (1866)
Agency by Estoppel or by holding out
-Freeman & Lockyer v Buckhurst Park Properties Ltd (1964)
Agency ‘by necessity’ (or operation of law)
-Great Northern Railway v Swaffield (1874)
- Couturier v Hastie (1852)
THE AUTHORITY OF AN AGENT
Actual authority
Watteau v Fenwick (1893)
Ryan v Pilkington (1959)
DUTIES OF AN AGENT
Fiduciary duty
- Boston Deep Sea Fishing & Ice Co Ltd v Ansell (1957)
Duty to perform as instructed by principal
-Turpin v Bilton (1843)
Why agency – Background
-Complexities of modern business dictates that agency be recognized
-A man can not transact all of his business personally
-This is legal and binding transactions with 3rd parties done by A on behalf of P
-He has to depend on services of other people to run his day to day business
-The people one uses are called agents
-Reasons – Skills and experience, work to be done at a different place, A lot of
work to be done, Demand by law, to conceal identity because of conflict of
interest.
Definition -Agent, Principal, 3rd party, Binding contractual relationship
-Connecting link between the P and 3rd Parties.
Essentials of Agency Relationships and Rules
-Agreement between P and A
-Consideration not necessary – BUT later either party must give consideration
-Agents accept and have intention to act from P –This is a question of fact
-What one can do personally can do through others
-Hence acts of agent are acts of the P.
-Contracts Binding on P as if he did it personally
CLASSES OF AGENTS
The agents may be classified from the point of view of:
(a). The extent of their authority
(b). The nature of work performed by them.
Various classes of agents are as follows:
1. General agent:
A general agent is one who is employed to do all acts connected with a particular business
or employment, e.g., a manager of a firm. He can bind the principal by doing anything
which falls within the ordinary scope of that business, whether he is actually authorized for
any particular act or not, is immaterial, provided the third party acts bonafide. Third
parties may assume that such an agent has power to do all that which is usual for a general
agent to do in the particular business concerned.
2. Special Agent:
A special agent is one who is employed to do some particular act or represent his principal
in some particular transaction, e.g., an agent employed to sell a motor car. As soon as the
act is preformed, the authority of such an agent comes to an end. If a special agent does
anything outside his authority, the principal is not bound by it, and third parties are not
entitled to assume that the agent has unlimited powers. They should, therefore, make
proper enquiry as to the extent of his authority before entering into any contract with him.
3. Universal agent:
A universal agent is said to be one whose authority is unlimited i.e., who is authorized to do
all the acts which the principal can lawfully do and can delegate. He enjoys extensive
powers to transact every kind of business on behalf of his principal. This type of agency is
very rare.
(b) Nature of Work:
1. Brokers:
A broker is an agent who represents a buyer or seller in negotiating a purchase or sale
without physically handling the goods involved. He is only concerned with making bargains
and contacts between other parties. A broker receives a commission or brokerage fees for
his services. Each broker tends to specialize in a particular line of goods or services. As an
intermediary, a broker has the following features:
(i). He is concerned with bargains and connecting the buyer to the seller, he does not
possess the goods and has limited power over the price and terms of sale. He does
not sell in his own name.
(ii). A broker has no authority to receive payment and discharge goods sold as they
are not in his possession, and cannot change the principal’s terms and price.
Examples of brokers are stock brokers, insurance brokers, taxi brokers whose boss
is the principal.
2. Factors:
A factor is an agent who sells goods in his possession and under his control on behalf of his
principal. He is referred to as a commission salesman. Unlike the broker, a factor possesses
the goods he sells, sells in his own name, receives payment and gives valid receipts. He may
give credit to a reasonable extent and pledge the goods. A factor has a general lien on the
goods in his possession for all charges and expenses incurred by him.
3. Commission Agents:
A commission agent is a person who is employed to buy or sell goods for the principal at
the best possible price. He gets commission as his remuneration. Mostly, commission agents
are employed by foreign merchants. Their main business is to receive orders from foreign
buyers to buy goods from the local manufacturers and traders. They act in their own
names but for the account of their foreign principals. In addition to purchasing goods for
his principal, the commission agent undertakes the work connected with the dispatch of
goods such as booking space in ships, preparation of bills of lading, undergoing customs
formalities and insuring goods against risks.
4. Del Credere Agents:
A del credere agent is employed to sell the goods of his principal. He gives an undertaking
to his principal to make good the losses that may arise from the failure of parties to whom
he sells goods under the agency business. Over and above the usual commission, the
principal has to give a del credere agent an extra remuneration called del credere
commission for giving the undertaking that the principal will not have to incur any loss
arising from the failure of buyers to pay for the goods and any other costs.
5. Forwarding Agents:
Forwarding agents are persons who act as agents of either exporters or importers. They
are employed to collect and deliver goods on behalf of others. When they act as agents of
exporters, they collect the goods and attend to the packing and marking and dispatch of the
goods to the proper destination. When they act as agents of importers, they take delivery of
the goods at the port of importation, examine their quantity and quality and attend to their
proper warehousing or transportation to the place of business of the importers.
Forwarding agents possess specialized knowledge of customs and other formalities
connected with import and export traders. They render a great service to the exporter and
the importer by relieving them of the difficult task of collecting and forwarding the goods.
6. Auctioneers:
An auctioneer is an agent employed usually to sell goods at a public auction. Where the
auctioneer is appointed to sell goods “without reserve”, he has the implied authority to sell
to the highest bidder. He has a lien on the goods in his possession for his charges.
7. Non-Mercantile Agents:
They include advocates, attorneys, insurance agents etc.
Ways of Creating Agency
1. -Express agreement -Orally or in writing
-To carry out a particular task or some general duties
-This is an agreement that - A to carry out task – Then commission
-Commonest express Agreement – Power of Attorney
-Must be done by deed – in writing.
-Deed defines the powers – Not to go outside
2. Agency by Implication
-Arise from – conduct of parties
-Relationship of parties
-Circumstances of the case
-Ordinary course of dealings of the parties
Include the following
(a). Agency by Estoppel/Holding out --conduct(by words or behavior) of
a person leads another one to believe that a certain state of events
exists
-And the other party acts on the strength of that believe.
-The party is Estopped from denying later that such state of affairs
existed and he must be bound
-Example of a person telling the other that he is your Agent and you
keep quiet – if they make a contract on your behalf you will be
liable
– Example-- supply of Goods case
-This occurs in the following situations
(i). P fails to notify 3rd parties after termination of agency
(ii).P allows his A to appear to have more authority than given
case – Freeman & Lockyer v Buckhurst P. P. Limited
-Defendant Company had four directors – No Managing Director –
Left one director to act as a Managing Director – Honoured his
transactions with 3rd Party-- Later – Board of Directors refuse to
honour later contract – claiming he had no authority
Court said Director acquired authority by Estoppel
-Board honoured previous contracts – must honour others
(b). Agency by necessity (Operation of Law)
-The Law protects the Agent & TP even if there was no consent
-The following conditions must be existing
1-Pre-existing agency relationship between the parties
2-Emergency – hence agent exceeded his authority
3-A acted in Interest of the P – protect/pressure property or not to
allow him incur losses
4-It is impossible to communicate to get fresh instructions
Case: Great Northern Railway v Swaffield
-To transport horse to a particular place – to be picked
-Nobody to pick it – Station master tried to contact the defendant
but in vain
-He put it in a stable over-night
-Court – Railway to recover the costs of stabling the horse – Railway
became an agent of the Defendant by necessity.
Couturier v Hastie 1852:
The contract was for the sale of corn to be shipped from Salonika to
London. Unknown to the parties, the ship captain had sold the cargo at
Tunis because it had begun to rot. The goods had been sold before the parties
made the contract.
Ct—the ship captain became agent of the owner of the goods by necessity and
he should give ownership to the purchaser at Tunis and not the purchaser at
London.
(c)Agency by Ratification
-Agent exceeds authority or – a person without authority acts for P
-P will not be bound unless he ratifies
-Ratification can be express or implied from the conduct of the P
Effects of Ratification
- Becomes liable to 3rd parties
-To carry out his obligations
-To sue the 3rd parties
-Operates retrospectively
-Agent relieved from liable for exceeding authority
-BUT does not confer authority on agent to continue doing such things in
future and exceeding authority.
Conditions for Ratification
1. P to be identified – and in contemplation of parties
2. P to be in existence – Kelner v Baxter where promoter made contracts for
a company not in existence the Court said not rectifiable – Company not
in existence
3. P to have contractual capacity
4. A to reveal all facts/give all information to the P
5. To be done within reasonable time
6. Act to be lawful and not void and not ultravires in cases of a company
7. P to ratify the whole contract – not part
8. Not to be done at the disadvantages of the 3rd party
9. To be communicated to the 3rd party
10.Acts rectifiable only if the P had powers to do them
11.To ratify from the first date – retrospective
Duties of an Agent to the P
1. Fiduciary Duty
-Not to allow personal interest to conflict with the P’s
-Act in best interest of P
-Not to make secret profits – Boston Deep sea fishing v Ansell
Employee dismissed because of receiving commission/bribes
2 -Duty not to compete with P
3. Duty of care and skills – reasonable – Also to be diligent
4. Duty to perform what he has been instructed to do—carry out
instructions as given by the p.
Turpin v Bilton – Did not take out insurance policy as directed by P –
Must be liable to compensate the P
5. Duty to perform his duties in person – BUT can delegate where it is
administrative, it has been agreed, usage/custom and where there is
emergency
6. Duty to account to the P for all money and property received – keep
proper accounts
7. Duty to preserve P’s property if he dies or declared Bankrupt
8. Duty to communicate and give progress or otherwise
9. Duty not to divulge business information and secrets to the competitors
of the p.
Effects of breach – Generally
-A to be liable to P for any losses – caused by breach of warranty of
authority
-P can dismiss the Agent and refuse to pay any remuneration
-P to recover any benefit illegally obtained by A
-If TP involved to defraud the P –P to repudiate the contract and refuse to
be bound by the contract and claim any benefit passed to the TP.
Rights of Agent against the P
-Remuneration/commission – stated in Agreement e.g. salary – if not --
reasonable amount to be paid
-Retainer – over money received on behalf of P
-Lien –over P’s property – to keep it until paid e.g. arrears of
Remuneration
-Indemnification – for expenses incurred from pocket
-Compensation – in Injury at the place of work – Negligence of the P
-Stoppage of Goods in transit – especially when he used his money to
purchase them or he has promised to be liable to the TP e.g. owner of
goods.
Where Agent is personally liable to the 3rd parties
- Contract expressly provide so.
-Acting foreign P
- Acting for Undisclosed principal/concealed P
-P who can not be sued
-Contract in his own name
-P who is not in existence
-When he breaches warranty of authority – No authority/excess
-Crime – fraud
-Where he has interest in the transaction – authority compined with
interest – But to the extent of his interest
-Trade usage/custom makes him personally liable
Doctrine of undisclosed Principal
-No disclosure that he is the Agent
-Give impression that he is contracting in his capacity
-If discovered –TP to sue both or any of them
-P will require the performance of 3rd party if he intervenes
-Also P to allow 3rd party all payments made to 3rd party by Agent
-A has got all the rights of an agent against the P
-BUT if the P is not known or does not intervene – the A is personally
liable to 3rd party and the P can not be sued or sue as he is not known
AUTHORITY OF AGENT
1.Express actual authority—expressly given by the p—agreement sets out the
precise powers and how he should exercise those powers –authority as given.
2.Implied actual authority—A is given discretion—hence the law will imply
authority which is necessary to enable him to carry out his duties.eg to find
insurance/purchase goods.
Watteau v Fenwick—hotel manager told not to purchase cigars—he bought
them—ct—this was within the usual authority of a manager of an hotel—to do
purchases—limitation not known to the TP.
Ryan v Pilkington (1959) A accepted deposit for the property he was
authorized to sell – owner said had not given him authority to receive
deposit.
Ct—A had implied authority to receive deposit—this was necessary for
completion of the transaction –authority was necessary.
3.Approach Authority/Ostensible Authority of an Agent—authority as seen
This is the authority as it appears to the TP—because of the representations
made by the principal to TP.—AGENCY by estoppel is the one which gives
ostensible authority—Freeman v Buckhurst
-Hence scope of an agents authority determined by his implied actual
authority and ostensible authority but not express actual authority.
AUTHORITY AS IS NECCESARY AND AUTHORITY AS IS SEEN BUT NOT
AUTHORITY AS GIVEN.
-If act is in excess of authority expressly given but within the scope of his
implied actual authority and ostensible authority then the P will be
bound.
Termination of Agency
-Agreement
-Revocation
-Renunciation/Rejection
- Performance
-Expiry of time
-Death/insanity
-Insolvency/Bankruptcy
-Destruction of subject matter
-P becoming an alien enemy
-Dissolution of a company
Tort and Criminal Liability
-In Tort P liable – if he directed the conduct and intended that those
things occurred
-P directing the A to act in such a manner.
-e.g. Negligence and recklessness of Agent
-e.g. not giving clear instructions, No appropriate regulation for the
agent’s conduct, hiring unsuitable agent, No proper tools/instruments
supplied No proper supervision
