Ch 5 - Agency Law

Question 1

Identify the various parties involved in a contract of agency and explain their respective roles.

Answer 1

An agent is a person who creates a contract on behalf of another person.
The person the agent is representing is called the principal, and the person they create the contract with is
called the third party - once the contract is created - the remaining contract that exists is between the
principal and third party.

Question 2

In the context of the creation of agency, explain the following terms:

(i) agency by estoppel;
(ii) agency by necessity.

Answer 2

(i) Agency by Estoppel:
This is where the principal allows a third party to believe that the person is his agent – or where the actions of
the principal have postulated this fact.
This situation may arise where a person acted as agent in the past and continues to act as such after the
agency relationship has been terminated.
It may also arise by a course of dealing such as in the case of employees.

(ii) Agency by necessity
This is where a contract of agency is implied to exist in the event of extraordinary circumstances – in effect,
where an emergency situation arises relating to the transportation of goods or where one person has
possession of another’s goods they may become an agent of necessity.
For this to occur, the following factors must exist:
1. the agent must be entrusted with the goods of the principal;
2. an emergency must arise;
3. the agent must attempt to contract the principal;
4. the agent must be acting in good faith and in the best interest of the principal and to protect the principal’s
interest.

Question 3

State the various duties owed by an agent to a principal.

Answer 3

An agent owes a series of duties towards the principal:
(i) Duty to act with due care and skill:
(ii) Duty to obey instructions and duty not to exceed authority:
(iii) Duty to avoid conflicts of interests and make full disclosure:
(iv) Duty not to delegate:
(v) Duty to Account: an agent is under a duty to take proper accounts of all dealings and provide accounts for all
the money he has received under the transactions;
(vi) Duty to communicate and maintain the principal’s confidentiality:
(vii) Duty not to make a secret profit:

Question 4

Outline the methods by which a contract of agency can be terminated.

Answer 4

An agency agreement may be terminated in the following ways:
(i) by the actions of the parties through either:
1. mutual consent – provided that there is payment in full;
2. through renunciation by the agent;
3. by revocation by the principal;
4. through notice (as per the agency agreement or if there is no express agreement – one month if the agency
is less than one year, two months if the agency is less than two years or three months if the agency existed
for more than three years);
5. completion of the transaction.
(ii) by operation of law:
1. through the death, insanity, bankruptcy of the parties;
2. through the expiration of an agreed time;
3. by the doctrine of frustration – an unforeseen event which means that the agency agreement cannot be
completed as agreed;
4. an intervening illegality.