Agency Lectures Flashcards
Define Agency:
Agency in a legal context refers to a relationship, usually created by a contract, in terms of which the principal instructs the agent to act on his behalf in order to produce legally binding effects for the principal.
What is an agency relationship called when the contract is gratuitous?
The relationship is known as a Mandate.
The parties are known as a Mandant (principal) and Mandatory (agent)
What are the requirements to create an agency contract? And how are they created?
Requirements:
- no requirement of writing needed to create a valid agency contract (ROWA s 1)
- regular contract requirements needed (Principal needs to be capax, the agent does not need to be capax as an intermediary)
How can an agency contract be created?
- Express (via contract)
- Inferred (via actions of agent and principal)
- Deemed created Via Ratification by the Principal at a later date.
What does the Companies Act say about the liability of a promoter-as-an-agent who is attempting to secure contracts on behalf of a company (principal) not yet formed?
Section 51 of the Companies Act:
- promoter (agent) may be trying to set up contracts before the company is created.
- problematic because the company does not yet have capacity , therefore, the promoter cannot bind the company before it is formed
- pre incorporation company does NOT have legal capacity, therefore, the promoter is PERSONALLY LIABLE on any contract formed.
Discuss the types of authority ascribed to an Agent:
Two categories of Authority:
1) Contractually-derived Authority
2) Authority Implied by the Operation of Law
What is OSTENSIBLE AUTHORITY
OSTENSIBLE AUTHORITY arises by operation of law:
Defined a created by the Principal’s representation to the 3P that the Agent has the authority to enter on behalf of the principal into a contract of a kind within the scope of the ‘ostensible authority’ so as to render the principal liable to perform any obligations imposed on him by such a contract.
—-> As defined in the case of **Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] ( see other slide)
Criteria for Ostensible Authority:
- misleading representation by the principal (words or conduct)
- reliance – 3P relied on representation of authority
- Resulting Loss: 3P relied on misleading representation and sustained some form of loss (loss of not having a contract)
Contractually- Derived Authority of Agents
- which includes EXPRESS authority (stipulated orally or in the contract) , and
- IMPLIED authority (where the contract is silent and the Agent is a GENERAL agent);
- —-> gives rise to a presumption that the agent has the authority to do what is necessary and incidental to the completion of the transaction. The scope of this authority is defined by trade and custom.
- —> this presumption is relied on by Third Parties ( ‘3P’ ) to assume the agent possesses the authority which agents of that type normally have.
What happened in **Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] :
If the principal acts in a manner which suggests to the 3P that the agent is authorized, the principal cannot therefore seek to deny that the agent is properly authorized.
Factors:
- Appearance – principal acts in a way that gives an appearance of authority - misleading because there is really NO authority, which gives rise to a 3P action for performance or damages, depending.
- Can give rise to Personal Bar
Why was it not a case of ostensible authority in ** Armagas Ltd v Mundogas SA [1986] HoL
Quick answer: because the agent misrepresented his own authority (not the principal) and the principal did not do anything misleading.
Ratio: 3P can only have a remedy if the principal creates the misleading representation.
Facts for knowledge’s sake:
- 2 parties trying to enter into an arrangement to sell a ship, but the ship would be leased back to the seller.
- bribery between the agents to enter into sale and leaseback arrangement
- Mundogas’ agent did not have authority
Is Armagas Ltd v Mundogas satisfactory? Are there any other cases which reach a solution contrary to Armagas?
Not very satisfactory because it seems to leave the 3P in the lurch.
Case of First Energy (UK) v Hungarian International Bank:
- it is not a supreme ct case so it cannot challenge the HoL case of Armagas.
- Judge picked up on a small distinction in Armagas and moves the law in a different direction.
Facts of First Energy:
- Jamieson is an agent of the Hungarian Bank.
- Agent was not authorized to form a contract but began negotiating with the pursuers.
- The knowledge that the agent was unauthorized was well known by all parties, but the agent says he will get authorization (dishonest).
- Loan transaction established on that basis. The Hungarian bank denies that the agent had authority, and therefore they won’t enforce the loan agreement.
- —> If the judgement followed Armagas, there should be a decision of nO OSTENSIBLE authority.
HELD: although the agent may not be entitled to represent the extent of his own authority, he may be authorized to COMMUNICATE INFORMATION on behalf of the principal. such info may include the fact that the agent is authorized to carry out task X.
—-> this reasoning would make it easier for 3P to raise an action of ostensible authority.
This approach was followed in the privy council case of Kelly v Fraser
If an agent is not authorized, is that the end of the story? is there a way for the principal to adopt the agents decisions? how does this work?
Ratification operates on 2 levels:
1) to Validate the aCtions of the agent carried out in excess of his authority
2) to Create the agency relationship itself: where the agent purports to act for a specific principal even where there is no valid agency relationship.
Conditions before the principal can ratify:
1) Principal must be in existence at the time of the contract by the agent on the principal’s behalf (and must have capax)
2) agent enters into contract with 3P on behalf of the principal, rather than on his own behalf
3) Relevance of time limits and retrospective nature:
- –binds the principal from the moment the agent purported to enter into the contract.
- – where an act must be done within a certain time limit and the agent carries it out within this time limit but unauthorized, subsequent ratification by the principal outwith that time limit will not be effective (from the case of Goodall v Bilsand)
4) Principal must make an informed choice (the Liddensdale ship case where acceptance of ship repairs was not enough to constitute a fully informed choice)
5) Ratification will NOT be possible if it would cause unfair prejudice to a 3P (general equitable test derived from english case law and would be highly persuasive in scotland)
What does the agent grant to the Third Party vis-a-vis his authorization to bind the principal?
Agent grants a “Warranty of his Authority”. This is implied if he is a general agent (rather than a specific agent who doesnt benefit from this).
If this warranty is breached?
- remedy of 3P against nonperforming agent: 3P can sue agent who acts without authority.
- Thus, where an agent acts without authority, and it transpires that the third party does not have the contract he thought he had, that third party has an action against the agent under the head of Breach of Warranty of Authority. Damages are available.
Scottish caselaw:
- Joined case of Cheshire Mortgage v Blemain Finance (HELD solicitor only warrants that he/she is authorized by the client; warranty does not extend that the client is who they say they are or that the client owns the assets they claim. Significantly narrows liability for solicitors)
- – Discussed in Edin Law REview Sep 2013 issue by Laura Macgregor (who says unilaterial promise in scotland could be more effective than breach of warranty for third parties seeking to recover)
External Agency Relationship: The contract between the P and the 3P ; What happens to the liabilties of the agent when contracting for a disclosed/undisclosed principal?
Agent acts for disclosed and named principal:
- – SP: Agent does not incur personal liability as he is acting as a medium for 3P and Principal.
- in practice, the agent stipulates in the contract they are acting “For and on behalf of “ principal.
Agent acts for disclosed and unnamed principal:
- – SP: Agent does not incur personal liability (little scots auth on this point)
- – Ferrier v Dodds 1865 ( it was fine for the 3P to return the horse to the principal even when not named at the outset.
- — Lamont, Nisbet & Co v Hamilton 1907: ( may depend on whose credit (ie financial reputation) the 3P relied on when entering into the contract. (here, he looked to the agent’s credit and so there was no contract)
Agent acts for undisclosed principal:
- – SP: Agent may act on behalf of a principal, but this fact may be entirely concealed from the 3P. The advantages to this arrangement are commercial convenience.
- —Creates a presumption: The 3P considers the contracting party to be the agent, rather than the principal, and, due to “ordinary commercial contracts” the 3P shouldnt care who the contracting party is.
- — However, if 3P wants to contract with the Agent and not the Principal, the presumption can be rebutted. (Delectus Persona)
- — If the Principal later discloses his existence, the P can choose to sue the 3P under the contract formed by the agent. the 3P can ELECT to sue either the P or the Agent (under the principal of election)
Are the agent and the principal both liable under contract to 3P?
No. The Third party may elect who to pursue in an action. That choice is final.
What duties does the Agent have toward the Principal?
Defined in York Buildings co v Mackenzie 1795 per lord chancellor loughborough @ 398:
- duty in which confidence is reposed … may be employed as an agent for more than one principal … bound to act against their own advantage and for the advantage of the principal.
Recap of the law in the case of Imageview Management Ltd v Jack 2009: “law imposes on agents high standards … you must act 100% body and soul for the principal”
General duties:
- fiduciary relationship (any transaction in B/ can be reduced - McPhearson’s Trs v Watt 1877)
- High fidelity but not exclusive to one principal. (CF lady Dorrian and p’s ability to consent to breaches of FidDuty if consent is fully informed in case of Parks of Hamilton Holdings)
- Account to P to any benefits received / not taking a secret profit (again, Imageview v Jack)
- Not to disclose confidential info
- to follow instructions (both at common law and in 3(2)(c) regulation)
- of skill and care reasonably expected from a reasonably competent and careful member of the particular profession.
- Right of Relief (where Agent acts ultra vires)
Specific duty:
- Good faith at common law
- Good faith imposed by Commerical Agents (Council Directive) Regulations 1993 Reg 2(1) imposes on both agent and principal good faith duties. not exhaustive, but listed in regulations.
