Chapter 10: Appointment & Authority of Agents-Theory

Question 1

Define Agent.

Answer 1

Agent is a person who is employed to act on behalf of other persons or to represent others in dealings with third parties.

Question 2

Define Principal.

Answer 2

The person for whom such act is done, or who is so represented is called principal.

Question 3

What is agency relationship?

Answer 3

Relationship between agent and principal is called agency.
An agent may be appointed for just one transaction, or to act on regular basis.

Question 4

Write down examples of agency relationships. (3 points)

Answer 4

1. A person engaged another person to sell (or buy) movable or immovable property on his behalf.
2. A person authorized another person to collect rent from tenants of his property.
3. A person employed another person to manage his shop.

Question 5

Who can be Agent?

Answer 5

Any person can become agent.
However, if agent is a minor or person of unsound mind, he will not be liable in case of breach of duties, i.e. in case of negligence or if he exceeds authority.

Question 6

Who can appoint agent?

Answer 6

Only a person with age of majority and who is of sound mind can appoint agent.

Question 7

What types of authorities an agent possesses?

Answer 7

1. Actual Authority (= Implied Authority + - Express Authority)
2. Authority in Emergency
3. Authority in Ostensible/Apparent Authority

Question 8

Define Implied (or Assumed) Authority (given by law). (2 Points)

Answer 8

Implied authority means authority which is necessary to complete a duty.
It is derived from circumstances of the case or ordinary course of dealings.
Example:
If an agent is appointed to sell goods, he has implied authority to negotiate price, or to make packing or repairing goods (if necessary to sell).

Question 9

Define Express Authority. (given by principal)

Answer 9

Express Authority is the authority which is expressly given by principal to the agent, either orally or in writing.
Through express agreement, Principal can enhance as well as restrict implied authority of agent.

Question 10

Define “authority in emergency”.

Answer 10

In case of emergency an agent has authority to do all necessary acts to protect his principal from loss, which a person of ordinary prudence would do in his own case under similar circumstances.

Question 11

List down three conditions which must apply to exercise authority in emergency.

Answer 11

1. There must be real emergency.
2. Agent was unable to contact principal to obtain instructions.
3. Agent must act in the best interest of the principal.

Question 12

List down circumstances under which authority is created due to Agency by Estoppel (Apparent Agency). (4 Points)

Answer 12

1. If a person (principal) makes a representation (express or implied) to third parties that another person is his agent and
2. On the basis of this representation, third parties make agreement with that person.
3. Then principal is bound by such agreements, even if he did not appoint agent actually.
4. Ostensible authority also arises if an agent is terminated, but public notice of termination is not given.

Question 13

Legal position if agent exceeds its Authority. (2(2)

Answer 13

1. Agent is not liable if this is Emergency or principal ratifies it. Transaction binding on principal.
2. Otherwise, Agent is liable.
   * To principal (if third party acted in good faith without negligence i.e. it did not know Agent’s actual authority) -> transaction with third party is binding on principal.
   * Third Party (if third party did not act in good faith i.e. it knew Agent’s actual authority) -> Transaction with third party is NOT binding on principal.