Agency Flashcards
Definition of Agency relationship (exist between two legal person, two contracts)
Agency is a relationship that exists between two legal person the principal & the agent. The principal employs an agent to act on their behalf when dealing with third parties. The agent’s function is to form a contract between the principal and a third party.
There are two contracts within an agency relationship primary and secondary. The primary contract is the agency contract which is an agreement that the agent should represent the principal. The agent negotiates and enters into contractual agreements on behalf of the principal with third parties creating a secondary contract. This contract is a legally binding agreement between the principal and the third party.
Examples of agents include accountants, partners of a partnership, and company directors
Creation of an Agency Relationship
5 Ways it can be created
- Express (written, oral)
- Implied (law, actions/conducts of parties)
- Ratification (conditions!)
- Kelner v Baxter (1866)
- Keighley Maxstead & Co v Durant (1901) - Holding out
- Hayman v American Cotton Oil Co (1907) - Necessity (emergency, impossible to contact the principal, good faith)
- Couturier v Hastie (1856)
- Sachs v Miklos (1948)
Authority of an Agent
4 Authorities
Actual (real) authority
Express (written, verbal)
-Ireland v Livingston (1872)
Implied (by law, by the behaviour of the principal/agen)
-Hely-Hutchinson v Brayhead Ltd (1968)
Ostensible (apparent) authority
-Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964)
Duties of an Agent
5 Duties
- Obey the instructions of the principal
- Gilmour v Clark (1853) - Exercise skill and care (member of a profession or trade or not …)
- Act in person (exceptions)
- Black v Cornelius (1879) - Keep proper accounts
- Tyler v Logan (1904) - Act in good faith / Avoid conflict of interest and secret profits
- McPherson’s Trusties v Watt (1877)
- Attorney-General for Hong Kong v Reid (1994)
Kelner v Baxter (1866)
Creation by ratification
Goods sold to a company not yet registered
CASE: Kelner sold wine to B who claimed to be an agent for a company which was not yet registered. Wine was consumed but no payment was made.
HELD: Baxter was personally liable to K for payment since the principal did not exist at the time the contract was made meaning it can’t later be ratified.
Keighley Maxstead & Co V Durant (1901)
Creation by Ratification
Agency relationship not disclosed
CASE: Roberts is an agent (authorised to buy wheat for Keighley) and also trades with Durant. Roberts does not disclose his agency relationship with Keighley and she refuses to take delivery (as price was higher than authorised). Durant sues Keighley for damages.
HELD: Roberts never told Durant he was an agent working for Keighley. Therefore no agency existed as principal was not disclosed. Durant should sue Roberts.
Hayman V American Cotton Oil Co (1907)
Creation by holding out
Advertisements of agent implied agency relationship
ACOC advertised McNairn is an agent of the company on a letter sent to customers. FFS bought goods from McNairn and paid before delivery. McNairn becomes insolvent and creditors attempt to claim goods that FSS bought. FSS demanded that ACOC honour the contract made by McNairn. ACOC denies their agency relationship and FSS sues ACOC.
HELD: ACOC placed advertisements giving the impression to third parties that McNairn was an agent acting on behalf of the company. Therefore ACOC is liable and must compensate FSS.
Courturier v Hastie (1856)
Creation by Necessity
Rotting cargo
CASE: Cargo on a ship begins to rot. Captain lands at nearest port and sells cargo to prevent it from being completely written off. Cargo owner sues captain for full price.
HELD: Captain acted as an agent in an emergency situation to prevent further loss to the principal. Captain couldn’t contact principal and no further recovery of sales proceeds was possible.
3 conditions of necessity were met.
Sachs v Miklos (1948)
Creation by necessity
Storage of furniture sold to make space
CASE: Defendant agreed in 1941 to store claimants furniture without charge. By 1944 both lost contact and letters written to last know address of the claimant were returned. Defendant sold the furniture to make space and claimant later returned and sued. Defendant claimed an agency of necessity had arisen.
HELD: No agency of necessity in this case as no emergency had arisen when the furniture was sold. No case that the house the furniture was stored in had been destroyed or was left exposed to thieves. The house was available for storage of the furniture and the conditions of necessity were not met.
Ireland v Livingston (1872)
Express authority of agent
Principal refuses to accept delivery of sugar
CASE: Principal contracts agent to buy 500 tonnes of sugar (and up to 50 tonnes over). Agent ships 400 tonnes and fully intends to ship remaining goods in another ship. Principal refuses to accept first delivery.
HELD: Agent carried out the principals order in good faith and acted within express actual authority therefore principal was bound to accept the delivery.
Hely-Hutchison v Brayhead Ltd (1968)
Implied authored of agent
Acting as an agent but not formally appointed
CASE: Chairman of BOD and Chief executive of Brayhead Ltd acts as the company’s managing director (not officially appointed). Entered into various transactions on behalf of the company one of which the company refused to fulfill.
HELD: Although director derived not authority from his position as chairman of the board he did have authority from his chief executive position meaning the company was bound by the contract he entered into on its behalf.
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964)
Ostensible (Apparent) authority
Director acting as managing director but not formally appointed
Case: The BoD of Buckhurst allowed one of its members to act as the managing director without him being formally appointed as such. This director entered into various contracts with third parties on the company’s behalf. On one occasion, this director appointed a firm of architects. The architects asked to be paid by the company.
Held: The director did not have actual authority to act on the company’s behalf when he entered the contracts with the architects. He was acting within his ostensible authority and the architects had good reason to believe that he had the necessary authority to bind the company.
Gilmour v Clark (1853)
Obey instructions of the principal
Agent doesn’t listen to principals instructions and ship sinks
Case: Principal instructs goods to be put on a specific ship but agent does not comply and puts them on a different ship which then sinks.
Held: Agent is required to compensate principal for not carrying out his instructions.
Black v Cornelius (1876)
To Act in person
Case: Cornelius employed Deas as his architect. Deas hired Black (a surveyor) to make some measurements. The buildings were never built. Black claimed the payment for his services from Cornelius. Cornelius refused to pay on the grounds that Deas had not been given authority by him to hire Black.
Held: There was a well-established custom amongst architects and they were permitted to make use of the services of a surveyor. Cornelius was liable to pay Black.
Tyler v Logan (1904)
Keep proper accounts
Case: Logan is a manager of a shoe shop in Dundee. At a stock-take a shortfall of £62 is discovered. Logan is not suspected of dishonesty but Tyler (the owner) sues him for not keeping proper accounts.
Held: Logan is due to pay Tyler the £62.
