Chapter 10

Question 1

How may a person who wishes to transact do so? (2)

Answer 1

(1) by himself

(2) through an agent.

Question 2

What is an agency relationship?

Answer 2

When one person (principal) appoints another person (agent) to transact business on his behalf

Question 3

Who may be an agent? (5)

Answer 3

(1) employee of principal
(2) sales assistant of shopkeeper
(3) partner of a firm of partners
(4) directors of a company
(5) independent contractor

Question 4

What is the distinctive characteristic of the agency relationship?

Answer 4

The agent has the power to make a binding contract between his principal and the third party, without becoming a party himself.

Question 5

How is an agency relationship created? (4)

Answer 5

(1) express agreement
(2) implication
(3) estoppel
(4) ratification

Question 6

How is an agency relationship created by express agreement? What if the principal wants to authorize the agent to execute a deed on his behalf?

Answer 6

The agent may be appointed verbally or in writing. The principal must appoint the agent by way of a deed.

Question 7

How is an agency relationship created by implication?

Answer 7

An agency may arise from the conduct of or relationship between the principal and agent, despite the absence of an express agreement.

Question 8

How is an agency relationship created by estoppel?

Answer 8

If A by his words or conduct, causes B to falsely believe that C is A’s agent. Upon relying on such belief, B transacts with C.

Question 9

What is the effect of B transacting with C? Why?

Answer 9

The transaction would bind A because A is responsible for the illusion created in B’s mind

Question 10

Who would be estopped, from what?

Answer 10

A would be estopped from denying an agency relationship between A and C.

Question 11

Why is A estopped?

Answer 11

It is unfair for A to deny the agency relationship after misleading B, and B had relied on A’s representation of conduct.

Question 12

How is an agency relationship created by ratification?

Answer 12

Z may enter into a contract with Y even though Z had not been authorized by X to represent X. Thereafter, X may decide to adopt Z’s earlier actions by ratification.

Question 13

What is the effect of X’s act of ratification?

Answer 13

An agency relationship is created between X and Z, after the transaction had taken place.

Question 14

What are the conditions to be fulfilled for ratification? (4)

Answer 14

(1) Agent Z must have transacted the business in his capacity as an agent for principal X.
(2) Principal X must have the contractual capacity to transact business at the time of the actual transaction and ratification.
(3) Principal X must show a clear intention whether expressly or by his conduct, to ratify the act of agent Z.
(4) Principal X must ratify everything which agent Z had transacted, and not merely the beneficial aspects while disregarding the burdensome.

Question 15

Ratification is ___ by nature.

Answer 15

retrospective

Question 16

Why ratification is retrospective?

Answer 16

It binds the principal from the time when the contract was entered into by the agent, rather than from the time when the agent’s act was ratified.

Question 17

Is it possible to ratify an illegal contract? Why?

Answer 17

No because it is void and incapable of ratification.

Question 18

What is the first duty of an agent?

Answer 18

He must carry out his principal’s lawful instructions, unless he is acting ‘gratuitously’.

Question 19

What does ‘gratuitously’ mean?

Answer 19

Without receiving consideration/payment.

Question 20

What is the second duty of an agent?

Answer 20

He must exercise reasonable care and skill in the performance of his duties. The degree of skill expected of him depends on the circumstances.

Question 21

When is more skill required from the agent? (2)

Answer 21

(1) When the agent is a professional.

(2) When payment has been made.

Question 22

When is less skill required from the agent?

Answer 22

When the agent is a layman merely advising a friend.

Question 23

What is the third duty of an agent?

Answer 23

He must act in good faith and for the benefit of his principal.

Question 24

How did the third duty arise?

Answer 24

The principal places the agent in a position of trust and the law is concerned that the agent does not abuse that trust.

Question 25

With regards to the third duty of an agent, what is the cluster of duties known as?

Answer 25

Fiduciary duties.

Question 26

Under fiduciary duties, the agent must NOT do what? (5)

Answer 26

(1) have a conflict of interest
(2) make a secret profit
(3) misuse confidential information
(4) delegate the performance of his duties
(5) mix funds

Question 27

Explain the first fiduciary duty.

Answer 27

The agent should not let his own personal interests conflict with his duty to his principal

Question 28

Explain the second fiduciary duty.

Answer 28

The agent should not make a secret profit at the expense of his principal

Question 29

Explain the third fiduciary duty.

Answer 29

The agent should not misuse confidential information regarding his principal’s affairs.

Question 30

Explain the fourth fiduciary duty.

Answer 30

The agent should not delegate the performance of his duties, unless the principal expressly or by conduct authorises the agent to appoint a sub-agent.

Question 31

Explain the fifth fiduciary duty. (2)

Answer 31

The agent should not mix his own financial affairs with his principal’s. The agent must render proper accounts to his principal, when required to do so.