4 - Law of Agency

Question 1

What is an agent?

Answer 1

A person who has authority/power to act on behalf of another, known as the principal

Question 2

How may agency be created?

Answer 2

By agreement/consent, ratification, or necessity

Question 3

What is agency by agreement?

Answer 3

The principal and agent have an agreement, called a contract by agency, for the agent to act on the principal’s behalf. This could be express or implied. Note that if no consideration is given by the principal to the agent the agreement may not constitute a binding legal contract

Question 4

Is an agent party to a contract they arrange on a principal’s behalf? What is the implication of this?

Answer 4

No, they drop out of the picture. This means that they do not need full contractual capacity.

Question 5

What is agency by ratification?

Answer 5

The agent acts on behalf of the principal but without their knowledge, and the principal later retroactively accepts the agreement

Question 6

What is agency by necessity?

Answer 6

When the agent is entrusted with property of the principal and acts in an emergency to preserve them (eg moving them in a fire to avoid their destruction)

Question 7

Does an insurance broker act as an agent of the insured or the insurer?

Answer 7

Both at different times

Question 8

When does an insurance broker act as an agent of the insured?

Answer 8

When giving advice or assisting with completion of the proposal form

Question 9

When may an insurance broker act as an agent of the insurer?

Answer 9

When collecting premiums, asking questions at the instruction of the insurer, or when granting cover, if empowered to

Question 10

What are duties of an agent?

Answer 10

1. To obey the principal’s instructions
2. To act with proper skill and due care
3. Personal performance
4. Good faith
5. Account for principals money

Question 11

Can an agent delegate their duties?

Answer 11

Generally no, unless the principal allows it, it is a routine clerical/admin task, it is customary, or it is necessary

Question 12

What is meant by “imputed knowledge”?

Answer 12

It is assumed that knowledge possessed by an agent is also known to the principal

Question 13

What are the two main rights of an agent?

Answer 13

Remuneration and indemnity

Question 14

What is an agent’s remuneration?

Answer 14

Payment for acting on the principal’s behalf generally by commission. Generally this would be expressly stated in the contract, if not they are owed standard rates or a reasonable sum fixed by a court

Question 15

What is meant by an agent’s right to indemnity?

Answer 15

The principal should be pay back the agent any expenses they incur when carrying out their duties

Question 16

What is a lien?

Answer 16

The right to retain the goods or property of another as security for a debt

Question 17

What are the two main categories of authority?

Answer 17

Actual authority and apparent authority (also called ostensible authority)

Question 18

What is actual authority?

Answer 18

Express actual authority is when an agent is given instructions by the principal

Implied actual authority is to do anything that is incidental or necessary when carrying out their express instructions, or is customary for that trade (this is called usual authority)

Question 19

What is apparent authority?

Answer 19

When a third party believes that an agent has authority due to a representation by the principal. Even if the agent actually has no right to do a certain thing, the principal may still be bound by it

Question 20

What is the difference between a disclosed and undisclosed principal?

Answer 20

When a third party is making a contract with an agent, if they are aware that there is a principal then that is a disclosed principal. If they are not aware they are dealing with an agent then that is an undisclosed principal

Question 21

How can a third party enforce a contract made with a disclosed principal?

Answer 21

By suing the principal

Question 22

How can a third party enforce a contract made with an undisclosed principal?

Answer 22

By suing either the principal or the agent

They can only sue one, and having commenced proceedings cannot then sue the other

Question 23

When can a third party sue an agent?

Answer 23

If there is an undisclosed principal

For breach of warranty of authority

Under tort, if the agent knowingly deceives or acts recklessly

Question 24

Is a principal’s debt to a third party discharged by paying the money to the agent to pass on?

Answer 24

No - if the agent fails to pass it on the principal is still liable unless the third party has induced the principal to pay the agent

Question 25

Is a third party’s debt to a principal discharged by payment to the agent?

Answer 25

Generally no, unless the agent has authority to receive payment on the principal’s behalf which is often the case. If the agent dos have authority but fails to pass the money to the principal, then the principal must sue the agent

Question 26

How can agency be terminated?

Answer 26

Agreement between the parties

Withdrawal by principal

Renunciation by agent

Performance

Lapse of specified time

Death of either party

Bankruptcy of principal

Insanity of principal (i.e losing contractual capacity)

Frustration

Bankruptcy/insanity of agent may end the agency if it renders them unable to perform their duties