4.) Laws of Agency Flashcards
Define an agent
A person employed by a principal to carry out certain transactions on his behalf.
Note that certain roles can be agents, through carrying out their roles - e.g. Brokers for share transfers, legal advisors, partners and directors
There are always three parties involved in contracts carried out via an agent:
The principal - who employs the agent to enter into contracts on his behalf
The agent
The third party - who’s introduced into contractual relations with the principal by the agent
Define and describe the three parties that are always involved in contracts carried out via an agent
The principal - who employs the agent to enter into contracts on his behalf
The agent
The third party - who’s introduced into contractual relations with the principal by the agent
Note that certain roles can be agents, through carrying out their roles - e.g. Brokers for share transfers, legal advisors, partners and directors
For example:
Financial service organisations frequently deal with their clients via agents, and they also employ agents to complete transactions
Partners are usually general agents of their firm
Directors act, in part, as agents of their company
Other examples include, when processing share deals via a broker, obtaining advice from legal advisors, or acting on third party mandates
Define the different types of agent
General agent
Special agent
Del credere agent
Describe a general agent, one of the three types of agent
A general agent has the authority to enter into any contract on behalf of their principal, provided that these contracts lie within their authority. It’s common practice to appoint a general agent under a power of attorney to ensure that the terms and conditions are clearly set down
Note that the authority given by the principal may, in some cases, be restricted
Describe a special agent, one of the three types of agent
A special agent has authority to contract on behalf of its principal but:
X Only for a specific purpose, or…
X Only on a particular occasion
A good example of a special agency is a third party mandate given by a customer, so that a third party may operate their account. This mandate may allow the third party to sign cheques, but not overdraw the account, nor withdraw items from safe custody
Describe del credere agent, one of the three types of agent
This agent may be special or general, though has an additional power, or obligation, as part of his contract with the principal.
This agent will guarantee the payment or performance of the contract, irrespective of whether or not they’re paid
Broker will deal on receipt of instructions from the principal, and because he’s bound by the contract ‘my word is my bond’, as part of standard custom and practice
Another example of this type of agreement can be found in everyday life, when banking organisations pay guaranteed cheques, even if they haven’t been signed by their customer (stolen), or even if their customer has insufficient money in their account to cover the cheques presented for payment. If this didn’t happen, the cheque/credit/debit card system would collapse. In this case, the bank issuing the cheque guarantee card is the del credere agent
How may a principal appoint an agent?
By deed - a power of attorney
In writing - e.g. Simple bank mandates, or the appointment of protectors and trustees
Orally - the simplest option, but the terms and conditions aren’t specified, and would be linked to usual custom and practice
Define the ways in which a relationship with an agent can be established by the operation of the law/regardless of whether or not it was the intention of the parties involved
A relationship with an agent can be established regardless of whether or not it was the intention of the parties involved
There are four ways this can happen:
X By estoppel
X By implication
X By necessity
X By ratification
Describe estoppel, one of the ways in which a relationship with an agent can be established by the operation of the law
Estoppel is a rule of evidence, which states that, where the conduct of a party is such as to establish a certain thing is true, then it cannot be denied
An example of a case in which an agency relationship was created by estoppel is greenwood vs martins (1923). This evidenced such an arrangement whereby the customer was estopped (prevented) from denying such an agreement existed
So, when mr greenwood had accepted, after the bank had queried the wife’s authority and the signature on the cheques, to continue to allow her to withdraw money from his account, he was prevented from denying that this was the case
Describe the case of greenwood vs martins (1923)
An example of a case in which an agency relationship was created by estoppel
This evidenced such an arrangement whereby the customer was estopped (prevented) from denying such an agreement existed
So, when mr greenwood had accepted, after the bank had queried the wife’s authority and the signature on the cheques, to continue to allow her to withdraw money from his account, he was prevented from denying that this was the case
Describe implication, one of the ways in which a relationship with an agent can be established by the operation of the law
Agency will arise when, although there’s no specific agreement, a contract can be implied from the conduct or relationship of the parties.
An example is a partner in a firm - they will be held to be acting as the agent of her co-partners if the contract that she made is within the usual scope of the partnership
Describe necessity, one of the ways in which a relationship with an agent can be established by the operation of the law
An agency by necessity is created when events occur which require a third party to appoint an agent to take on obligations, which would have been incurred by the principal
The leading case on this point is the great northern railway vs swaffield (1874).
A horse was delivered to a station, and the principal failed to turn up, so in order to ensure that the horse was looked after for the night, the stationmaster arranged stabling and feeding.
The principal refused to pay, and it was held that the stationmaster had acted as if he was the agent of the principal
Describe the case the great northern railway vs swaffield (1874)
An example of a case in which an agency relationship was established by necessity
A horse was delivered to a station, and the principal failed to turn up, so in order to ensure that the horse was looked after for the night, the stationmaster arranged stabling and feeding.
The principal refused to pay, and it was held that the stationmaster had acted as if he was the agent of the principal
Describe the situations in which an agency by ratification may arise, one of the ways in which a relationship with an agent can be established by the operation of the law
This can arise in two situations:
X Where a party behaves as an agent, but hasn’t been so appointed by the second party
X Where an agent has been properly appointed, but where he exceeds the authority delegated to him by the principal
In either of these cases, the principal may elect to ratify (make good) the contract, and adopt the transaction as their own
However, there are specific conditions attached to the ratification principle:
X The agent must have contracted as an agent
X The principal must have existed at the time of the contract (not a pre-incorporation contract)
X The principal must have contractual capacity as the time of the contract, e.g. not a minor
X The principal must ratify the contract in its entirety
X Within the agreed time period, if any, or within a reasonable time where no limit has been agreed
Define the ways in which an agency agreement can be terminated or cancelled
X Action of the parties concerned
X Operation of the law
X Completion of frustration of the agency
X Expiry or completion
