Agency

Question 1

How can an agency be defined?

Answer 1

It can be described as the relationship between a person (agent) who is empowered to represent another legal part (principal) and brings the principal into legal relationships with third parties

Question 2

What is the agency problem?

Answer 2

The agency problems states that whenever the welfare of a party depends on the actions of others, there may be personal interests that diverge from the party’s. This implies that an agent may act, intentionally or unintentionally, in their best interest instead of the principal’s (Conflict of interest)

Question 3

What are the five actions that lead to the creation of an agency?

Answer 3

1. Express appointment - Ex ante (before the event), often through a contract
2. Ratification - Ex post (after the fact), formally approving the actions of the agent
3. Implication - The acts of the agent makes the relationship obvious (e.g sales assistant)
4. Necessity - Actions made by the agent despite not being agreed upon due to necessity (e.g emergencies)
5. Estoppel - If the actions of a principal make it reasonably seem like the agents acts are on behalf of the principal, the agency is in fact valid (Known as apparent authority)

Question 4

What is ultra vires?

Answer 4

Ultra vires refers to that actions taken by the agent that are outside their scope of powers are invalid or void

Question 5

What is the difference between actual and apparent authority?

Answer 5

Actual authority - the powers explcitly granted to an agent by the principal
Apparent authority - refers to when the actions of a principal leads to a third party reasonably believing that the agent has the authority of acting on behalf of the principal, despite the agent not having such authority

Question 6

What are the duties of an agent towards their principal?

Answer 6

1. Perform in accordance with the instructions of the principal
2. Exercise due care and skill
3. Carry out the activity personally
4. Account - finance and information reporting due to the principal having the right to information
5. Not permitting the rise of a conflict of interest
6. No secret profit or misuse of confidential information or business opportunities - the agent has a duty of loyalty towards the principal which is valid even after the contract has been breached
7. Not to take a bribe - an agent should not be disturbed by external factors such as a bribe

Question 7

What are the rights of an agent / the obligations of the principal?

Answer 7

1. Claim remuneration - the agent has the right of being paid for their performed work (payment per performed tasks vs fixed pay)
2. Indemnity for all expenses and costs incurred in the performance of the services - compensation to cover for necessary expenses such as transportation
3. Exercise a lien over the property of the principal - if the principal does not pay the agent accordingly and the agent is carrying property of the principal, the agent can keep the assets until the debt is paid
4. Be placed in the conditions to perform

Question 8

When it comes to the agencies relationship with third parties, what is the general principle?

Answer 8

That only the principal and the third party have rights and obligations under the contract (entered into through the agent)

Question 9

In which cases does the agent have rights and obligations under the contract between a third-party and a principle?

Answer 9

• When the identity or existence of the principal is not disclosed (e.g if a famous person wants to sell their assets without their name affecting)
• In tort (wrongful/harmful acts), the agent still has the right to be indemnified though

Question 10

What are the conditions when a payment is done with the help of an agent?

Answer 10

• When a payment is made from a third-party through an agent, the principal is responsible for receiving the money
• When a payment is made from a principal to a third-party through an agent, the principal is also responsible for the delivery

Question 10

What are the three ways of agency termination?

Answer 10

1. Mutual agreement
2. Unilateral action of one of the parties - e.g the principal or the agent breaches the contract
3. Termination by operation of law - frustration/force majeure, death/insanity and bankruptcy

Question 11

In agencies, what are irrevocable agreements?

Answer 11

Irrevocable agreements (authority coupled with an interest) - e.g if I appoint a creditor to sell my assets, I cannot terminate the agency