Business Organisations Law Flashcards
1
Q
Define an ‘agent’
A
A person who has authority to act for and on behalf of another (called the principal) in contracting legal relations with third parties
2
Q
What are the purposes of an agent?
A
Can contract on behalf of the principal, sign documents, handle juridical stuff, transfer property, bring action in a court of law, appeal, make and accept payments.
3
Q
Why do companies need ‘agents’?
A
Because companies cannot act as they have no legal personality. Agents act on behalf of the company.
4
Q
How can you determine an ‘agents’ limitations?
A
With a legal contract between the agent and principal stating the boundaries or inferred from principals authority = can’t do anything he couldn’t do.
5
Q
Does the principal and agent require contractual capacity and why?
A
Principal needs it because they are the one entering a legally binding agreement.
Agent does not require contractual capacity as they aren’t entering into any contracts for themselves.
6
Q
What are the four types of agents?
A
Universal agent = unlimited authority, can perfrom all kinds of transactions.
General agent = broad authority in wide range of transactions.
Limited agent/ad hoc = only made agent for a specific task.
Del credere agent = agent is a guarantor of third party insolvency.
7
Q
What are the three types of principals?
A
Disclosed principal = third party knows they’re an agent and knows who the principal is.
Unidentified principal = third party knows they’re an agent but don’t know who principal is.
Undisclosed principal = third party don’t know they’re an agent at all.
8
Q
How are non-commercial agents regulated?
A
Common law.
9
Q
How are commercial agents regulated?
A
Commercial Agents (Council Directive) Regulations 1993.
10
Q
What are the three steps in determining whether an agent is a ‘commercial agent’.
A
s 2(1) A. must be self employed.
B. have continuing authority to negotiate the sale of purchase of GOODS on behalf of the principal.
C. not be excluded in the regulation.
11
Q
Describe Parks v Esso Petroleum Co Ltd 2000
A
Parks leased service station from Esso under agency agreement. Only buy fuels and lubricants from Esso at their prices and couldn’t sell other products. Sale of fuel was by Parks as an agent of Esso so never belonged to him. Agreement terminated for breaches, Parks issued claim for damages under Commercial Agents Act. Court held he didn’t satisfy definition of a CA because he didn’t have authority to negotiate sale or purchase. Only had limited discretion in choosing payment methods. Negotiating is core term and not satisfied. Not a CA, claim dismissed.
12
Q
Define ‘continuing authority’
A
Excludes one-off transactions/must be ongoing.
Includes agents authorised to negotiate and conclude contracts.
All of the transactions can result from one contract though.
13
Q
CA exceptions - who aren’t covered by the regulations?
A
An agent who doesn’t negotiate (no agent effort).
Officer of company, partners, insolvency practitioner, unpaid CA, gratuitous agents.
People whose agent activities are secondary (don’t participate in commercial or price discussions).
14
Q
Define a gratuitous agent
A
Someone who does it for free.
15
Q
Describe PJ Pipe and Valve Co Ltd v Audco India
A
the agent was deemed to be a commercial agent in his role to introduce contractors to its principals and did not have the authority to negotiate terms or pricing of sales. The principal ended the agreement 12 months before was set to end so the CA was entitled to compensation for the commission he would have earned in this period. Was protected by the CA Regulations.
16
Q
Describe Nigel Fryer Joinery Services Ltd v Ian Firth Hardware Ltd [2008]
A
employed as a sales representative but then became self employed and was paid salary plus commission. Agreement terminated and Fryer demands damages compensation under CA. he had no authority to negotiate or conclude sales without head office approval when finding potential customers. Held not a CA and he breached agreement so termination was valid and claim dismissed.
17
Q
Define ‘secondary agent activity’ in Scottish and English contexts.
A
England – determined by comparing non-agency activities the agent may have had with principal. Sufficient difference to make his agency actions primary?
Scotland - should be determined based on the purpose of the agency arrangement.
18
Q
Describe Gailey v Environmental Waste Controls
A
gave a wide meaning to secondary activities, was deemed not to be a CA. Requirement of goodwill not met and principal did not own goods, the manufacturer did so principal didn’t benefit from the agency goodwill.
19
Q
Many agree that where the agency is helping to build goodwill and bring business matters this is indicative of being primary. TRUE OR FALSE?
A
TRUE
20
Q
What are the 6 methods of forming agency relationships?
A
- Express
- Implied
- Holding out
- Doctrine of Negotorium Gestio/Agent of Necessity
- Ratification
- Operation of Law
21
Q
Define ‘express’ (forming agency relationship)
A
Clearly appointed - go buy this for me.
22
Q
Define ‘implied’ ((forming agency relationship))
A
By circumstances or actions “pete can you take care of this for me”.
23
Q
Define ‘holding out’ (forming agency relationship)
A
Principal gives agent appearance of being their agent and its the principal that makes them look like this to a third party.
24
Q
Define ‘doctrine of negotorium gestio/agent of necessity (forming agency relationship)
A
First term Scottish, second term English.
Property at imminent risk, necessary to take action.
25
Define 'ratification' (forming agency relationship)
Retrospective approval of an agents act by the principal.
26
Define 'operation of law' (forming agency relationship)
Law states partners as agents of each other and that directors are agents of company. No agreement, just imposed as fact by law.
27
How do you form agency relationships under the CA Regulations?
Contract - "The commercial agent and principal shall each be entitled to receive from the other, on request, a signed written document setting out the terms of the agency contract including any terms subsequently agreed"
28
Describe 'agent of necessity' (English)
- Need to safeguard property/interest of someone else.
- Can bind another person without authority to protect property/interest.
- May increase authority an agent has already or could create an agency relationship.
- Intention to have relationship is irrelevant.
29
Describe the 'agent of necessity' test (England).
- Actions must be necessary. Doesn’t matter what agent believes, necessary whether a reasonable person would regard the action as necessary.
- Not necessary for the agent to have communicated to the principal. Not reasonable in emergency situations.
- Actions must act in the principals’ interests.
- Principal must have been competent at the time of the agents act.
30
Describe 'doctrine of negotorium gestio' (Scotland)
- Borrowed from Roman Law
There are 4 elements.
1. A person (negotiorum gestor) who usefully and benevolently intervenes in the affairs of another (2. transactions)
3. Who is absent or incapable at the time of the intervention
4. With the intention to benefit the dominos (owner)
Then the gesture (agent) will be entitled to be relieved of liabilities and expenses.
31
Are secondary activities protected by the CA Regulations?
No, only primary.
32
Name the 9 things required for ratification to operate
1. agent must have acted outwith authority.
2. principal must decide to ratify - can be express or implied.
3. principal must have legal capacity when the act happen and when he decides to ratify.
4. principal needs capacity at time of act so also needs to have existed at time of act.
5. agent must have purported to act for a principal. (unidentified OR disclosed principal)
6. principal must be aware of all facts.
7. ratification must take place within any time limits/reasonable time.
8. contract principal wants to ratify must not be void or illegal.
33
What rule did the Bank Melli Iran v Barclays Bank (Dominion, Colonial and Overseas) [1951] case establish? (rati)
ratification can be implied by the principal’s inaction for a reasonable period of time in circumstances where the principal should have taken action
34
What rule did the Boston Deep Sea Fishing and Ice Co Ltd v Farnham [1957] 1 WLR 1051 case establish? (rati)
Principal must have capacity at time of act AND ratification.
35
What rule did the Tinnevelly Sugar Refining Co Ltd v Mirrlees, Watson & Yaryan Co Ltd (1894) case establish? (rati)
If the principal must have had capacity at the time of the act, the principal must have existed at the time of the act
36
What rule did the Keighley Maxsted & Co v Durrant [1901] AC 240 case establish? (rati).
Agent must have purported to act for a principal, can't be an undisclosed principal.
37
What rule did the Forman & Co Proprietary Co v The Liddesdale [1900] case estalish? (rati)
Principal must be aware of all material facts and must make an informed choice
38
What rule did Grover and Grover Ltd v Matthews [1920] establish? (rati)
The ratification must take place within any time limits fixed by the parties, or if no time was fixed, within a reasonable time
39
What rule did Bedford Insurance Co v Instituto de Resseguros do Brasil [1985] establish? (rati)
The contract that the principal seeks to ratify must not be void or illegal
40
the principal cannot ratify if ratification would unfairly prejudice the rights of third parties.
TRUE OR FALSE
TRUE
41
What is the legal result = agent lacked authority but purported to accept (on behalf of the principal) an offer made by a third party.
No contract.
42
Name the 2 types of authority and ech of their sub-authorities.
Authorised agents = a. actual (express or implied) b. doctrine of negotorium gestio/agent of necessity.
Unauthorised agents = a. ratification
b. apparent (ostensible) authority.
43
Define 'actual authority'
“An agent is said to have actual authority when what he does is in fact authorised by his principal, whether expressly or impliedly.” Goode and McKendrick on Commercial Law, 5.18).
Legal relationship created by consensual agreement.
44
Describe 'actual express' authority.
- authority conferred expressly by principal.
- doesn't need to be in writing.
45
What is the test for apparent/ostensible authority?
1. A representation must have been made that the agent had the authority to act
2. The representation must have been made by someone who had the authority to act (the principal usually)
3. The third party must have relied on this representation in being induced into dealing/contract and it must have been reasonable to rely on this representation
4. The agent must have acted within the represented authority
46
Describe 'actual implied' authority.
Agent has authority not given expressly.
- authority necessary to carry out task of agency agreement (architect impliedly authorised to instruct surveyor to measure to complete commission)
- authority must be incidental to agency agreement (going to italy to buy dresses, implied authority to ship back).
- must be customary in the trade in question/job given
47
Define apparent/ostensible authority
Principal does something to make 3rd party believe agent has authority when they don't. principal responsible for this so principal bound by agents actions. principal must have authority to go through with act.
48
Freeman and Lockyer test for ostensible authority
1. A representation must have been made that the agent had the authority to act
2. The representation must have been made by someone who had the authority to act (the principal usually)
3. The third party must have relied on this representation in being induced into dealing/contract and it must have been reasonable to rely on this representation
4. The agent must have acted within the represented authority
49
Describe First Energy (UK) v Hungarian International Bank [1993]
A company was negotiating a loan with a bank employee. Bank employee did not have authority to grant loan. Bank employee purported to contact his superiors to get authorisation. He told the company’s representatives he had authority from supervisors to grant the loan (he didn't, he didn't contact supervisors). Loan was agreed
Court held the bank was bound by loan agreement, although the employee didn't have authority to grant the loan, he was in a position and did have authority to make representations on behalf of the bank, which led the third party to believe that the employee had the authority to grant the loan.
50
What is the term for when agents act outside of authority?
Breach of Warranty of Authority
51
Describe Breach of Warranty of Authority
The agent becomes liable to the third party
The agent is liable for the benefit the third party would have received as per Irving v Burns 1915 SC 260 at 269 (Lord Salvesen); Halifax Life Ltd v DLA Piper Scotland LLP [2009] CSOH 74. This means the agent is personally bound unless it was not reasonable to rely on the representation of authority
52
What is the principal and agent liability for 1. agent acting for a disclosed and named principal?
The rule here will be that a contract is entered into between the principal and the third party, and the agent incurs no liability for that contract.
53
Describe Stirling Park & Co v Digby Brown
A firm of solicitors, consulted by a client wishing to recover a judgment debt, instructed sheriff officers to serve a charge for payment and carry out a poinding. Held, that the evidence was sufficient to demonstrate that the practice of solicitors accepting personal liability for sheriff officers' fees was so certain, uniform, notorious and reasonable as to give rise to an obligation that was contractually binding upon solicitors…
54
Describe the liability of agents in the context of written contracts
There is a rebuttable presumption that the party who signs intends to accept personal liability, the agent has the onus to rebut the presumption. This is a strong presumption, difficult to rebut.
When agents sign their own name and don't qualify their position properly, they may be liable even if:
a. third party was aware they were acting as agent;
b. terms of the contract indicated the signatory acted as agent;
c. even adding ‘Director’ after signature may not be sufficient to rebut the presumption: → Brebner v Henderson, 1925 S.C. 643
55
Can unincorporated associaions with no legal capacity employ agents?
No bc they would be the principal and principal requires legal capacity
56
Describe Stewart v Shannessy (1900)
A sales manager sent a letter on company headed notepaper confirming the appointment of a sub-agent, which he signed using his personal signature. Held that he was personally liable.
57
Describe the liability of agents n the context of unnamed but disclosed principals
Here the third party knows you are acting as an agent but does not know who the principal is.
1. treated the same way an undisclosed principal would be.
OR
2. who's credit did the 3rd party rely on?
This depends on whether the agent has made clear to the third party that he will not be personally liable for the contract.
58
Describe the liability of agents in the context of undisclosed principals
third party does not know you are acting as an agent or for whom. Effectively the 3rd party thinks they are dealing with you and may not realise you are acting on behalf of someone else. where an agent has contracted on behalf of an undisclosed principal, the third party is entitled to choose whether to enforce its rights against the agent or the principal
59
Can the principal enforce a contract against a 3rd party when they are completely undisclosed?
Yes, after the contract has been concluded, the principal may disclose his or her existence and can then bring an action against the 3rd party as per Bennet v Inveresk Paper Co (1891) 18 R 975.
The law allows a principal who has not been disclosed to enforce the contract made on her behalf by an agent, even where the agent acted in his own name as per Si Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199.
Principal can do so where the agent had authority to act and intended to do so on behalf of the principal.
60
Can a 3rd party enforce the contract against an agent/principal when they are completely undisclosed?
The third party is entitled to choose whether to enforce its rights against the agent or the principal.
The agent risks that the third party will have the view that they have contracted with the agent and will hold the agent liable under the contract.
The agent would then be indemnified by the principal (or reimbursed).
The third party could alternatively choose to sue the principal rather than the agent once the principal is disclosed.
Remember the undisclosed principal can only be liable if the agent was in fact his/her agent at the time.
61
How does 3rd party decide to enforce agent or principal in undisclosed situations?
They must choose to pursue one or the other.
Once the choice is made it is final as per Said v Butt [1920].
Choice doesn't have to be expressed, can be implied through action.
62
Are principal and agent jointly and severably liable?
No, it is the alternative
63
How does an agent become liable?
- The 3rd party chooses to enforce the contract against the agent - but the agent should be indemnified if the agent has acted within their authority
- If an agent exceeds their actual authority and if the principal does not ratify the agent’s acts then the agent is personally liable
- For breach of warranty of authority: agent warrants that the agent has authority as per Anderson v Croall & Sons (1903)
64
Define indemnify
Compensating someone for a loss
65
How does the principal become liable?
- Through the agent contracting on the principal’s behalf and the 3rd party electing to hold the principal liable
- When the 3rd party holds the agent liable the principal must indemnify the agent if they acted within their authority
66
Can a third party put limitations when dealing so as not to be in the situation of dealing with an undisclosed principal?
The 3rd party can stipulate that it is only willing to conclude the relevant transaction with the agent personally.
Even without stipulation, if the contract is a ‘personal’ one, where the person to whom the performance is due is a central part of the obligation, an undisclosed principal can step in and enforce it.
67
What is the legal effect of an agent being used to deceive a third party?
If an agent is used for deceit of the 3rd party then the principal may not enforce the contract. E.g. Said v Butt [1920] 3 KB 497 P not welcomed in theatre so hires A to buy tickets. Held that theatre owners could refuse P entry
68
Describe Said v Butt 1920
P not welcomed in theatre so hires A to buy tickets. Held that theatre owners could refuse P entry
69
Why is it difficult to bring an action of apparent authority for undisclosed principals?
Representation must be made by principal that agent had authority. Impossible if you don't know principal exists.
70
Which of the following could successfully argue apparent authority?
a. You arrive at MooDairy driving a Bubble Pink van, wearing a Bubble Pink branded t-shirt. Your name tag says buying manager and your name.
b. You arrive at Mood Dairy, you let the owner know that you are an agent purchasing the cream for your principal. You are not driving or wearing and Bubble Pink branded items and do not let MooDairy known who you are buying the cream for.
c. You come and make a contract for the 800 litres of cream and do not say you are an agent.
a. Here yes because you can satisfy all four steps of apparent authority.
b. Here it will be difficult to claim apparent authority because they will have to show that a principal represented you as having authority and they do not even know who the principal is.
c. Here they don’t even know there is a principal so it is very difficult for MooDairy to be able to argue that the principal represented that you had the authority to make this transaction.
71
Describe Milne v Ritchie and Others | [1882]
-the agent had instructed builders to build a house for the principal
-price in excess of that authorised
-principal was bound to pay to the builders
-could recover difference from agent
72
What are the core factors of a principal-agency relationship?
Fiduciary duties, trust, loyalty.
73
Name a commercial agents fiduciary duties
- duty to look after the interests of the principal and act dutifully and in good faith - reg.3(1)
- three particular aspects of the duty to act in good faith are detailed in the Regulations, but this is a non exhaustive list:
- make proper efforts to negotiate and, where appropriate, conclude the transactions he is instructed to take care of -reg.3(2)(a).
- communicate to his principal all the necessary information available to him - reg.3(2)(b)
- comply with all reasonable instructions given by his principal - reg.3(2)(c).
74
If instructions lack clarity the agent will not become liable for resulting losses - true or false
true
75
How does an agents liability work if there are no principal instructions to follow
The agent may still have to comply with duties which are usual in the particular trade but that depends on the industry the agent is employed in
76
Duty to avoid conflicts of interest and put principals interests first - true or false
true
77
Describe the duty not to make a secret profit (agents)
under a duty not to enter into any transactions which would allow the agent to make a profit at the principal’s expense
- The agent must account to the principal for all benefits receive (duty to account)
- This applies to money received in the course of the agency business
- Money received by the agent in the course of their own dealings or other dealings do not need to be accounted for
- Examples: secret commission, bribes, undisclosed self dealing, other money exceeding the agent’s agreed remuneration from the principal -Trans Barvil Agencies (UK) Ltd v John S Baird & Co Ltd, 1988 S.C. 222, per Lord McCluskey at 231.
78
How do you prevent an agent from working for two principals?
An express non-competition clause in the contract is necessary - cannot be implied into the contract and the duty to avoid conflict of interest and duty not to make a secret profit are not strong enough to prevent working for two principals.
79
Describe Cleland v Morrison (1878)
Where a solicitor arranges the sale of property belonging to his client but fails to disclose that the solicitor himself is the buyer, then this would constitute a breach of the duty. Unknown to the trustees, the solicitor proposed to buy two of the houses himself and arranged for the remaining two to be sold to his brother
80
Even when the agent obtains the principal’s agreement, the agent may still be in breach of his/her duty
True or false
True
81
Describe the conflict of interest duty/rule
The agent is under a duty not to disclose or make use of any confidential information concerning the principal which has been obtained during the course of agency or dealing as an agent
82
Describe Liverpool Victoria Legal Friendly Society v Houston (1900)
Agent of society not able to give list of names and addresses of members to rival society for pecuniary gain
83
Describe the duty to communicate benefits to the principal
the agent is obliged to pass on any benefits which he receives to the principal
unless these form part of the remuneration which was agreed between agent and principal
84
Describe the agents duty to account during transactions
(i.e. inform) the principal of all benefits received in the course of agency activities - Trans Barwil Agencies (UK) Ltd v John S Braid & Co Ltd 1988 SC 222
85
Describe Russell v Cleland (1885)
the agent must keep accounts
need not be written. the relationship between the agent and the principal may indicate that a verbal accounting only is required
86
Boardman v Phipps is the duty not to misuse...
Duty not to misuse the property or information which the agent has because he is an agent
87
Why would the Principal ratifies the agent’s act, but still wants compensation for breach of authority?
Maintaining professional reputation.
Principal is making the best of the situation but still wants recovery from the agent.
Principal can ratify without waiving the right to seek compensation from the agent for breaching their authority.
In order to maintain this right, the principal must make this clear at the time of ratification.
88
What is the agents duty to us reasonable care and skill?
Expected to use same standard as a prudent man managing his own affairs.
89
What us the main exception for the duty not to delegate?
When delegation is common in the trade.
- where agent has to undertake a task outside their expertise
- implied power to delegate so agency contract can be performed
solicitor in a different area – Robertson v Foulds (1860) 22 D. 714
90
Name 6 agent duties
Keep property of principal as would do with own property
To keep the principal’s money separate from own
To keep all accounts for dealings on behalf of the principal separate from own accounts
To have accounts ready for inspection by the principal
To hand over all money/documents relating to the principal’s affairs (subject to the agent’s right of lien)
To preserve confidentiality in all matters
91
Duties of the principal under the CA regs (4)
- a principal must act dutifully and in good faith
- must provide his commercial agent with the necessary documentation
- must obtain the information necessary for the performance of the agency contract and notify the agent if the volume of transactions will be significantly lower than expected
- the principal must inform the agent within a reasonable time of acceptance or refusal of commercial transactions that the agent has procured
92
What is the common law right to renumeration (agent)
amount will depend on the contract.
express right.
common law agent who brought about contract of sale entitled to commission but can be hard to determine agents actions as the main factor and tht it wouldn't have happened between third party and
93
What is reg right to renumeration (agent
default rule – renumeration is paid to the agent according to what is customary or to reasonable renumeration where there is no custom
94
Describe the CA reg right to commission
*The commercial agent is entitled to commission for transactions concluded while an agent, or for third parties the agent has previously acquired and now concluded a transaction with for the principal
*The agent is entitled to commission for transaction concluded after termination if the order was placed before termination or the transaction is mainly attributable to the agent’s work and within a reasonable amount of time – reg 8
95
Are agents under CA reg entitled to commission even when the agreement is terminated?
Yes, only if contrat was concluded by agent before termination.
96
Describe the right to indemnity andright to reimbursement
Agent has the right to be:
* indemnified for losses incurred
* indemnified against liabilities incurred
* reimbursed for expenses incurred
While carrying out of the principal’s instructions
97
What is it called when an agent agrees to work without payment?
Gratuitous agency. The principal (mandant) is still entitled to relief and reimbursement if agent violates terms.
98
Describe the agents right of lien
- The Agent can have a lien over the principal’s property until expenses/remuneration have been paid. Must be incurred lawfully and with instruction.
- General lien - the agent can retain any goods
- Special lien - the lien must be over the property which the agent is seeking reimbursement/remuneration for dealing with
99
Is the agent liable when the Agent has not followed the principal’s instructions, if the agent discloses confidential information or knowledge, if the agent is negligent in their duties. The Agent will be liable for losses suffered by the principal.
Yes.
100
