Agency

Question 1

What is agency?

Answer 1

Agency is the relationship between two parties whereby one, the agent, is considered in law to represent the other, the principal, in dealings with third parties, with a view to forming a contract between the principal and the third party

Question 2

What legislation is agency regulated under in Scots Law?

Answer 2

Commercial Agents (Council Directive) Regulations 1993

Question 3

Definition: Principal

Answer 3

The principal (P) is the party which instructs the agent to carry out certain tasks or duties

Question 4

Definition: Agent

Answer 4

The agent (A) is the person who is authorised to act for another (the principal (P)) in the making of legal relations with third parties (eg to sell the principal’s goods or manage the principal’s business)

Question 5

Definition: Third Party

Answer 5

The party with whom the agent deals on behalf of the principal

Question 6

What are the 3 separate relationships in agency?

Answer 6

1. principal and agent
2. agent and third party
3. principal and third party

Question 7

What are the 2 contracts in agency?

Answer 7

1. principal and agent
2. principal and third party

Question 8

What are the 3 types of agents?

Answer 8

General agent - who is engaged to carry out any or all of the business of a principal

Special agent - is authorised to carry out one specific particular transaction or a series of identifiable transactions

Commercial agent - a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person

Question 9

What are the 5 ways that an agency relationship can be establoshed?

Answer 9

1. Express agreement
2. Implied agreement
3. Holding out
4. Necessity
5. Ratification

Question 10

What is an express agreement?

Answer 10

This is where P actually appoints A as his agent. The agreement can be made verbally or in writing, including email and text message – there is no special form or process required

Question 11

What is an implied agreement?

Answer 11

This is where P has not expressly agreed that A should be his agent. However, the agreement can be implied from the parties’ conduct or relationship.

Question 12

What is the holding out relationship?

Answer 12

This is where one party holds another out as his agent, and a third party believes that he is acting as an agent. (The third party receives the impression that someone is an agent)

The agent can be deemed to have ostensible / apparent authority

Question 13

What is the necessity relationship?

Answer 13

Agency can be created in situations of necessity where in an emergency or critical situation an agent carries out essential actions for a principal without having been instructed to do so. The following conditions must be met :

(a) the agent could not obtain the required authority from the principal because communications were impossible (less common now due to mobile phones/email etc but perhaps in cases of civil disturbance or extreme weather or in cases of ill health)

(b) that there was real and definite commercial necessity

There must be an existing contractual agreement between the parties

Question 14

Springer v Great Western Railway (1921)
Necessity Relationship

Answer 14

Facts: a cargo of tomatoes arrived at Weymouth station. The defendant railway company was contracted by the claimants to deliver the tomatoes to Covent Garden. There was a railway strike and the railway company noticing that the tomatoes were in poor condition, sold them locally.

Held: it would have been possible for the railway company to seek the instructions of the owners of the tomatoes by sending a telegram. They had been contracted to carry, not to sell, the tomatoes. To give them the right to sell, circumstances must exist which put them in the position of agents of necessity for the owners. As the railway company could have communicated with the owners, there was no agency of necessity.

Question 15

Great Northern Railway v Swaffield (1874)
Necessity Relationship

Answer 15

Facts: there was a contract between the two parties whereby GNR agreed to transport the defendant’s horse to a particular railway station from where it would be collected.
When no one arrived to pick it up, the station master, having tried unsuccessfully to contact the defendant, placed the horse in a stable overnight.

Held: GNR was entitled to recover the costs of stabling because it had become the agent of the defendant by necessity

Question 16

What is the ratification realtionship?

Answer 16

If an agency relationship does not exist, but one party acts on behalf of another, the latter may subsequently ratify the action with the effect of forming an agency relationship retrospectively.

Question 17

What conditions must be met for an agency relationship to ratify?

Answer 17

1. principal is in existence at the time the agent entered into the contract with the third party
2. principal must have legal capacity (e.g. legal ability - age/mental capacity)
3. the agent must act as an agent and disclose that there is a principal in existence (the agent must indicate that he is acting on behalf of another)
4. ratification must take place within the time fixed by the parties, or if no was fixed, within a reasonable time

Question 18

What does the Agent’s Authority determine?

Answer 18

(i) the powers that the agent has on behalf of the principal

(ii) for which acts the principal is liable

Question 19

What are the 2 categories of authority?

Answer 19

1. actual
2. ostensible

Question 20

What are the 2 parts of actual authority?

Answer 20

1. express authority
2. usual or implied authority

Question 21

What is express authority?

Answer 21

This is the authority that P has explicitly given to A

Question 22

What is usual or implied actual authority?

Answer 22

An agent has implied authority to do things which:

1. are reasonably incidental to the performance of an expressly authorised act
2. an agent occupying that position would usually have authority to do
3. have not been expressly prohibited by the principal

Question 23

Barry, Ostlere and Shepard Ltd v Edinburgh Cork Importing Co (1909)
Usual or Implied Actual Authority

Answer 23

Facts: an order was placed by Barry, Ostlere and Shepherd with Edinburgh Cork for a supply of cork shavings. The order was placed via one of Edinburgh Cork’s salesmen. The order wasn’t fulfilled and B, O and S brought an action against Edinburgh Cork for breach of contract. The defence was to the effect that the salesmen had no authority to conclude the contract.

Held: that B, O and S were entitled to assume that the salesman did have the necessary authority to accept the order

Question 24

What is Apparent/Ostensible Actual Authorty?

Answer 24

Such authority arises where the agent is held out by the principal as having authority.

The representation by the principal may arise from previous dealings (allowing the agent to make contracts in the past is a representation that the agent has authority to continue to do so in the future)

Question 25

International Sponge Importers Ltd v Andrew Watt & Sons (1911)
Apparent/Ostensible Actual Authority

Answer 25

Facts: Cohen, a commercial travelling salesman was authorised to sell sponges on behalf of International Sponge Importers Ltd. Cohen was a regular caller to Watt & Sons and he had sold them sponges on a number of occasions in the past. Normally Watt & Sons made payment directly to International Sponge Importers (“ISI”) by sending them a cheque. On a few occasions Cohen had collected cheques from Watt which were payable to ISI and that Cohen had then passed on to ISI. On four instances Cohen had also persuaded Watt & Sons to pay with cheques made out to Cohen or by means of cash. Cohen eventually absconded with money owing to ISI.

Held: both the Court of Session and the HL held that ISI could not recover the missing money from the customers who had paid Cohen. They were entitled to conclude from the earlier course of dealings that Cohen did have apparent authority to accept payment personally.

Question 26

What conditions must be met for apparent/ostensible actual authority to bind the principal?

Answer 26

(1) the principal must have created a particular impression, usually by means of some form of direct representation or allowing a set of circumstances to continue

(2) the third party has to believe that the agent was authorised to act on the basis of the principal’s behaviour or representation

(3) the third party has to have placed some form of reliance on the principal’s behaviour or representation and suffered a loss as a result

Question 27

When can a third party not rely on apparent/ostensible actual authority?

Answer 27

When the third party knows of the lack of actual authority

Question 28

What remedies are available when the agent is in breach of their fiduciary duty (i.e. the duty to act in good faith - broadly A must always act in the best interest of P)?

Answer 28

(1) the principal can repudiate the contract with the third party

(2) the agent can be dismissed without notice

(3) the principal can refuse to pay any money owed to the agent or he can recover any money already paid

(4) the principal can recover any secret profit made or any bribe

Question 29

What are the agent’s duties/principal’s duties?

Answer 29

The law implies:

1. the duty to perform instructions
2. good faith/fiduciary duty
   (a) the duty to act personally
   (b) the duty to account (ie. account for all benefits received by the agent during the period of the agency)
   (c) the duty not to disclose confidential information
   (d) the duty to avoid conflicts of interest
3. the duty to exercise skill and care
4. the duty to keep accounts

Question 30

Gilmour v Clark (1853)
Agent’s Duty to Perform Instructions

Answer 30

Facts: Gilmour, an Edinburgh merchant, gave instructions to a local carrier to take a consignment of goods to Leith docks to be loaded onto a particular ship – the Earl of Zetland. For apparently legitimate reasons the goods were loaded onto another ship, the Magnet. This ship sank en route and Gilmour’s cargo was lost.

Held that Clark was liable to Gilmour for the loss of the goods even though the change in ship was well intentioned.

Question 31

What are the agent’s rights/principal’s main rights?

Answer 31

1. to be remunerated and reimbursed
2. to be relieved of liabilities
3. to enjoy rights of lien and security

Question 32

What is the Third Party?

Answer 32

Where third parties enter into contracts with the principal through the intervention of an agent, the general rule is that the agent does not become contractually bound to the third party

Question 33

What does the extent of the agent’s liability to a third party depend on?

Answer 33

1. the agent acts as an agent
2. the agent exceeds his/her authority

Question 34

What are the 3 circumstances where an agent is acting as an agent?

Answer 34

1. Where an agent discloses that he is an agent, that there is a principal and identifies
   the principal
2. Where the agent discloses that he is an agent, that there is a principal but fails to name and identify the principal
3. Where the agent fails to disclose the existence of a principal

Question 35

What happens when an agent exceeds his/her authority?

Answer 35

Breach of Warranty of Authority

If an agent has no authority or exceeds his authority, then the principal may ratify the contract and become liable. However, if the principal does not ratify, then the agent will be liable to the third party for breach of warranty of authority because he warranted or promised that he had authority which he did not possess.

Question 36

When does an agent run the risk of incurring some form of personal liability?

Answer 36

1. When the agent acts out with the authority given by the principal

or

2. When the agent does not properly disclose the existence or identity of the principal to the third party

Question 37

What are the most common ways of ending an agency relationship?

Answer 37

1. termination by agent or principal
2. termination under the agency contract