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Business Law > Agency > Flashcards

Agency Flashcards

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1
Q

Duties of an agent

To act in good faith/Secret profits

A

the agent must not

  • accept bribes from the third party or
  • keep the benefit of any transaction to himself

-the principal could sue the agent in order to recover the bribe or the benefit that the agent had gained

possible consequences
-bribery is a criminal offense

-the principal refuses to honour the
contract

-the agent cannot claim payment for the
particular transaction

-breach of the agency agreement → the
principal is entitled to terminate the
contract with immediate effect

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2
Q

Authority of an agent

What is Ostensible (apparent) authority?

A

This is authority which a thrid party believe the agent possesses.

  • Not a true authority, exists only in the mind of the third party.
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3
Q

Authority of an agent

What is implied, actual authority?

A

This Arises where

  • The agent holds a particular position and
  • it is implied by law or by the behaviour of the principal and the agent
  • that this kind of agent would have actual authority to bind the principal contracts with third party.

For example in Section 5 of the Partnership Act 1890/ Section 6 of the Limited Liability Partnership Act 2000.

A partner in a firm is considered to be an agent of the firm and his fellow partners. The partner will have implied (by law) actual authority.

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4
Q

What authority do agents have?

A

Agents have

Actual (real) Authority. This can either be Express or Implied.

Ostensible (apparent) authority.

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5
Q

What are the Six conditions of Agency by ratification?

A

1- The agent must disclose all material facts surrounding the contract so that the principal is fully aware of all liabilities that he is taking on.

2- The principal must ratify the contract within a reasonable time.

3- The principal must have existed at the time the contract was entered into.

4) The principal must have the power and capacity to ratify the act otherwise the contract will be void.
5) The agent must act with an identifiable principal in mind and not contracting on his own with the hope that he will find someone who will later ratify the contract + It is important that the third party knows that the agent is acting as an agent and does not believe the agent to be in business on his own account.
6) The contract is legal.

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6
Q

What is Agency by ratification?

A

This occurs when an agent does something which he has not been authorised to do by the principal. Goes beyond the limit of his authority.

However if,

The principal chooses to ratify or approve the unauthorised of the agent. However if the principal does NOT ratify the action then the agent will be personally liable to the 3rd party.

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7
Q

What is Express agency?

A

An agent can be appointed expressly by a way of a

Written contact & oral agreement.

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8
Q

What is an Agency relationship?

A

Agency is a relationship which exists between two legal person (the principal & the agent).

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9
Q

What is an agents role in an Agency relationship?

A

The agent negotiates and forms a contract between the principal and a third party.

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10
Q

Who is involved in an Agency relationship?

A
  • The principal
  • The agent
  • Third party
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11
Q

Who is the contract between in an agency relationship?

A

The principal and the third party. Agent negotiates and creates a contract between the two parties involved. The agent works on behalf of the principal.

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12
Q

Who is the Principal?

A

This is the party who employed another person (agent) to act on their behalf when dealing with third parties.

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13
Q

Who is the agent?

A

The party who agrees to act on behalf of another (the principal). they negotiate and enter contractual agreements on behalf of the principal with the third parties.

Also a legal representative of the principal.

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14
Q

Examples of Agents

A

solicitors, architects, accountants, members of limited liability partnership, company directors, managers, partners in a partnership. ECT ….

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15
Q

Why have an agent?

A
  • Delegate tasks

- Agents have special skills or experience

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16
Q

Difference between employees & agents

A

An employee has a list of duties to perform in return for a wage- carries out services for the principal under a contact of service (employment contract)

An agent represents the principal (for a fee) and can enter into contracts on their behalf which results in a legally binding agreement. The agent is free of legal obligation. Carries out services for the principal under a contract for services.

However in some cases an employee can also be an agent.

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17
Q

What is gratuitous agency?

A

This is unpaid agency under Scottish Law.

Agency- mandate
Agent- mandatory

The mandatory acts on an unpaid basis and still owes a duty of care to the principal.

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18
Q

What is a Del credere agent?

A

The agent introduces third party to his principal.

Promises to indemnify or compensate the principal if the contract does not go as planned and the principal suffers losses as a result.

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19
Q

What is a General agent?

A

They act for the principal in connection with all of his interest in a particular line of business.

For example a solicitor

They can possess both actual and ostensible authority.

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20
Q

What is a Special agent?

A

They have limited authority and usually acts for the principal in one type of transaction only.

For example an estate agent

The possess actual authority only.

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21
Q

Who can initiate Agency Relationship?

A

Any person who has the capacity to contract can appoint an agent to act on the principals behalf.

Or any person that has the capacity to act for another ( an agent).

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22
Q

What does capacity or contractual capacity mean?

A

This means a person who has the ability to enter contracts and act as an agent on the principals behalf.

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23
Q

What does a lack of contractual capacity mean?

A

This means for example a person who is insane or minor does not have the authority of act as an agent or have the capacity to do so required by law.

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24
Q

Principal

Lack of contractual capacity

A

The principal must have contractual capacity.

This means the principal cannot use an agent to get round the problem of his lack of contractual capacity.

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25
Q

Agent

Lack of contractual capacity

A

The principal must have contractual capacity however the agent doesn’t necessarily have to.

The agent won’t undermine any agreement that they may have negotiated between the principal and the third party.

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26
Q

What is included in a written contract in Express agency?

A

Clearly states the agents powers & duties

There is no legal requirement to have a written agency agreement however in the event of a dispute the rights and duties of the parties are easier to identify.

For example a written partnership agreement.

27
Q

How can Implied agency be implied?

A

Through the law

The actions and conduct of the parties

28
Q

What is Implied agency through the law?

A

For example in Section 5 of the Partnership Act 1890. Every partner is an agent of the firm and agent of his fellow partners for the purpose of the business of the partnership.

29
Q

What is Implied agency through the actions and conduct of parties?

A

A persons occupation or job can indicate that they are entitled to be regarded as an agent.

For example a director of an incorporated company is impliedly (involved or indicated without explicitly stated) an agent for the company in all the matters usually entrusted to directors.

30
Q

What is Agency by holding out?

A

The principals actions allow or encourage third parties to believe that a person is acting as an agent on the principals behalf.

The principal may have made statement to the effect that someone is to be regarded as his agent.

If the third party can show that they relied on the principals representations, then the principal will be liable to the third party for any agreement that the agent has negotiated.

The third party believes that an agent is involved.

Can also be called Estoppel.

31
Q

What ways can an agency relationship be created (5 ways)?

A
  • Express contract/creation
  • Implied creation
  • Creation by holding out
  • Creation by ratification
  • Creation of necessity
32
Q

What does it mean is an agent acts within the limits of his authority?

A

This means that any contracts the agent makes on the principals behalf is binding on both principal and third party.

33
Q

Authority of an agent

What does actual authority mean?

A

This is the true extent of the authority that the principal gives to an agent.

Express and Actual authority are contained in a written document or verbal instructions that the principal issues to the agent.

34
Q

Authority of an agent

What happens if an agent acts out-with his actual authority?

A

Then the agent will be liable BUT …

If the principal does not discipline the agent then the third party would be entitled to assume that the agent was acting within his actual authority.

The principal appears to approve/endorse the actions of the agent (ratification).

35
Q

Authority of an agent

What must the third party show to prove the agents Ostensible (apparent) authority?

A
  • The principals statements/behaviour encouraged him to believe that the agent has the necessary authority
    AND
  • He had no reason to suspect that the agent may have had his authority limited or withdrawn by the principal.
36
Q

Authority of an agent

What is warranty of authority?

A

This is implied warranties.

  • the principal exists & has contractual capacity
  • the agent has the authority to make contracts on behalf of the principal

If any of these implied warranties prove to be untrue. The third party may sue the agent for breach of warrant of authority.

37
Q

Authority of an agent

What happens if an agent acts beyond his actual authority but within his ostensible authority?

A
  • The principal will have to honour the contract with the third party
    However
  • The principal can sue the agent for breeching the agency agreement.

If there are circumstances where the third party suspects that the agent was acting outwith his authority and the third party still goes ahead with the contract then…

  • the principal will not be legally bound
  • the third party can sue the agent for the breach of warranty of authority
38
Q

Authority of an agent

Ostensible (Apparent) authority

What must the third party show to prove the (apparent) authority the agent possesses?

A

-the principal’s statements / behaviour encouraged him to believe that the agent had the necessary authority

AND

-he had no reason to suspect that the agent may have had his authority limited or withdrawn by the principal.

39
Q

Authority of an agent

Ostensible (apparent) authority

What happens when an agent acts beyond act authority but within ostensible?

A
  • the principal have to honour the contract with the third party
  • however… the principal can sue the agent for breaching the agency agreement
40
Q

Authority of an agent

Ostensible (apparent) authority

What happens when the third party suspects agent is acting outwith authority but still continue with the contract?

A
  • the principal will not be legally bound

- the third party can sue the agent for the breach of warranty of authority

41
Q

Authority of an agent

Warranty of authority

What are the implied warranties?

A
  • the principal exists & has contractual capacity
  • the agent has the authority to make contracts on behalf of the principal

IF any of these implied warranties prove to be untrue → the third party may sue the agent for breach of warrant of authority

42
Q

Liability of the agent

What is a disclosed principal?

A

This is where the third party is aware of the existence of the agent’s principal (not necessarily need to be named)

  • the agent plays no further part in proceedings when an agreement is completed between the principal & the third party
  • agent is not liable to the third party for the principal’s failure to honour the agreement
43
Q

What does the liability of an agent depend on?

A

Whether the agent is contracting for a

  • disclosed principal
  • undisclosed principal
44
Q

Liability of the agent

What is an undisclosed Principal?

A

This is where the third party is unaware that the agent is acting for a principal.

if the principal fails to honour the agreement the third party can sue the agent

if the agent at this point reveals that he was acting as an agent → it is up to the third party whether he wishes to sue the principal or the agent for breach of contract.

Precaution on the agent’s part (avoid any potential liability in the future) → indicate to third parties that he is acting as an agent; e.g. pp (per pro)

45
Q

Principal and agent relationship

What is a Fiduciary Relationship?

A

This is a relationship of trust

  • at all times, the agent is expected to act in the best interest of the principal
  • the principal’s interest comes first
  • the agent must ensure that there are no conflicts of interest
46
Q

What is an express contract?

A

An express contract usually sets out the agent’s duties & rights. If no express contract, certain basic duties & rights are implied by law.

47
Q

Principal and agent relationship

What are the agents rights?

A

To:

  • receive payment
  • reimbursement of expenses
  • lien (the right to hold assets during pending payment of a debt owed)
48
Q

Principal and agent relationship

What is the agents duty to the principal?

A
  • obey the instructions of the principal
  • exercise skill and care
  • act in person
  • keep proper accounts
  • act in good faith; avoid conflicts of interest and secret profits
49
Q

Rights of an agent

Receiving payments

A

The agent is entitled to be paid for the performance of services on behalf of the principal.

This will be

  • addressed in the contract
  • if the contract is silent on this matter

certain trades & professions may have a customary rate which determines what amount the agent will receive (e.g. solicitors)

if there is no customary rate, the agent is entitled to be paid on a quantum meruit basis (a reasonable rate)

50
Q

Rights of an agent

Receiving payments

A

As long as the agent carries out his instructions from the principal faithfully and completely he will have the right to receive his reward even if

  • the final contract causes the principal to suffer loss
  • the principal fails to take advantage of the agent’s work
  • the principal fails to go ahead and implement the contract formed with the third party
51
Q

Rights of an agent

What is right of lien?

A

It is a remedy that the agent can use when the principal is in breach of the agency agreement. E.g. the principal has failed to pay or indemnify the agent under the agreement

-the agent is entitled to retain possession of the principal’s property or money that he holds in trust for the principal

BUT …
-the agents owes the principal a duty of care (the property must be looked after)

  • the agent does not have the right to sell the principal’s goods
  • allows the agent to prevent the principal from getting access to his property
52
Q

Duties of an agent

Obey instruction of principal

A
  • where the agent fails to fulfil his principals (lawful and reasonable) instructions he will be personally liable to the principal
  • where principal fails to give the agent proper instruction → professional judgement in order to act in the best interest of the principal
  • where the principals instructions are ambiguous or vague, the agent will not be liable if he fails to interpret them properly
53
Q

Duties of an agent

Exercise skill & care

A
  • if the agent is a member of a profession or a trade, certain standards may be expected of him; where the agent fails to meet these standards → he may be liable in negligence to his principal
  • if the agent is NOT a member of a particular profession → the level of skill & care that can be expected is that which is associated with an ordinary prudent man managing his own affairs
54
Q

Duties of an agent

To act in person

A
  • general rule: the agent must act personally (delegatus non potest delegare)
  • exceptions where the agent is allowed to delegate certain tasks if
  • the principal has authorised it

-trade practice and custom permit
the principal needs to pay for the sub-
agent’s services

55
Q

Duties of an agent

To keep proper accounts

A
  • an agent must keep proper accounts &
  • to which principal is entitled to have access
  • the agent will be personally liable to the principal for any shortfall in money even if there is no dishonesty on the agent’s part
56
Q

Duties of an agent

To act in good faith

A

the agent must not allow his personal interest and those of his principal to conflict with one other

57
Q

Duties of an agent

To act in good faith

Companies act 2006 Example

A

Companies Act 2006; specific duties on company directors

  • to avoid conflict of interest
  • to declare benefits received from third parties dealing with the company
  • they must make a public declaration if they have a personal interest in any transaction which the company is proposing to enter with a third party
58
Q

Duties of an agent

To act in good faith/Conflict of interest

A

if the agent sees an opportunity to make a profit the principal should be informed of this → it is up to the principal whether or not to allow the agent to receive the benefit

it is possible for an agent to promote his own interests when he is not acting for the principal

  • if the principal wishes to prevent this there should be and express term in the agency agreement
  • such a restraint of trade might be declared illegal (if excessive or anti-competitive)

The agent must not divulge any confidential information in relation to the principal’s business

59
Q

Termination of agency relationship

At will by mutual agreement

A

The parties both agreed that the agency relationship will end

  • on a particular date or
  • after the completion of a particular transaction by the agent

The Principal withdraws the agent’s authority

  • the principal withdraw the agent’s power / authority
  • the agent can no longer carry out his tasks

The Agent withdraws from the relationship

  • any time
  • as long as it is not in the middle of a transaction
60
Q

Reasons for termination of an agency relationship

At will through…

A
  • mutual agreement
  • the Principal withdrawing the agent’s authority
  • the Agent withdrawing from the relationship
61
Q

Reasons for termination of agency relationship.

Termination by operation of law

A
  • end of Principal’s business, liquidation or bankruptcy
  • death or insanity of principal or agent
  • expiry of a fixed term contract
  • impossibility
62
Q

Termination of agency relationship

Death or insanity of principal or agent

A

-the death of either party ends the agency relationship

-if agent is not aware of the principal’s death & contracts with third parties after the principal’s death
-the contract with third party will be
enforceable against the principal’s estate
and
-the agent is not personally liable.

63
Q

Termination of agency relationship

Expiry of a fixed term contract

A
  • based on the principal’s and agent’s negotiation the agency agreement last for a fixed period of time
  • once the period of time has passed, the agency relationship comes to an end
64
Q

Termination of agency relationship

Impossibility

A

e.g.

  • loss of required qualification by agent
  • change in law making agency illegal

Business Law (31 decks)

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