Chapter 3 - Agency Flashcards
What is agency?
Agency describes the relationship that exists where one party, the agent, acts on behalf of another, the principal with a third party
The contract is thus enforceable both by and against the principal and third party.
The agent effectively drops out of the picture and has no rights or liabilities in respect of it, provided they have acted within their authority.
How can agency relationship be created? (4)
An agency relationship can be created:
* by consent
* by estoppel
* through necessity
* by ratification
Describe agency by consent
Where agency is created through expressed or implied consent orally or in writing
What is meant by implied consent for agency creation?
It can be implied from somebodys role in an organisation that they have consent to do something even if it is not expressely said
What is the exceptional case where agency must be created by deed instead of orally or in writing?
If the agent is to execute a deed on the principal’s behalf (for example a conveyance of land or a lease exceeding three years) then the agency must be created by deed.
Describe agency by estoppel
Where agency is created when the words or conduct of the principal give to a third party the impression that the person who purports to contract with the third party is the agent of the principal, and the third party, as a result, acts upon this.
Estoppel can also be created where authority is withdrawn but the third party is not told.
In the case of agency by estoppel, can the principal refuse to honour the contract with the third party if it does not acknowledge the agencies existence?
No, if an agency by estoppel has been created, even if the agency is not actually their agent, the principal is ‘estopped’, or prevented, from denying the existence of the agency and must honour the contract
Describe agency through necessity
Where agency is created where a person is faced with an emergency in which the property or interests of another person are in imminent jeopardy and, in order to preserve that property or those interests, it becomes necessary to act for that person without his authority
What will an agent who seeks to bind a principal on the grounds of an agency of necessity need to show?
- The agent had no practical way of contacting the principal in order to obtain the principal’s instructions
- Their actions arose from some pressing need for action
- They acted in good faith in the interests of the principal rather than in their own interests
- Their action was reasonable and prudent in the circumstances
- There should be some prior contractual arrangement between the parties.
Describe agency by ratification
Where agency is when the principal validates past acts of the agent to create an agency relationship retrospectively, as if the agent were authorised to act from the beginning.
In which conditions may a principal ratify?
- The principal must have been in existence at the time of the agent’s act
- The principal must have the legal capacity to make the contract themselves, both at the time the act was carried out and at the time of the purported ratification.
- The agent, at the time of making the contract, either names or sufficiently identifies the principal on whose behalf he is making the contract.
- Ratification occurs within a reasonable time
What are the duties of an agent? Define each (7)
- Accountability - An agent must provide full information to his principal of his agency transactions and account to him for all monies arising from them e.g. bribes, inducements to enter the contract.
- No conflict of interest - The agent owes to his principal a duty not to put himself in a situation where his own interests conflict with those of the principal.
- Performance - The agent who agrees to act as agent for reward has a contractual obligation to perform his agreed task (unless it is illegal)
- Obedience - The agent must act strictly in accordance with his principal’s instructions insofar as these are lawful and reasonable. Even if he believes disobedience to be in his principal’s best interests, he may not disobey instructions
- Skill - An agent undertakes to maintain the standard of skill and care to be expected of a person in his profession.
- Personal performance - The agent is usually selected because of his personal qualities and owes a duty to perform his task himself and not to delegate it to another (except in specific situations, i.e. delegate buying of shares to a stockbroker)
- Confidence - The agent must keep in confidence what he knows of his principal’s affairs even after the agency relationship has ceased.
What are the rights of an agent? Define each (3)
- Indemnity - The agent is entitled to be repaid his expenses and to be indemnified by his principal against losses and liabilities, provided his acts are done properly within the limits of his authority
- Remuneration - The agent is also entitled to be paid any agreed remuneration for his services by his principal (i.e. either amount expressly agreed or implied - a reasonable sum).
- Lien The agent has the right to exercise a lien over property owned by the principal, (i.e. a right to retain and hold goods pending payment of sums owed to him).
How may an agent’s authority be given? Define each (3)
What is the rule regarding liabilities of parties where the agent has authority and is know to be an agent?
Where the agent is known to be acting as an agent and they have authority from their principal:
- The third party: may sue the principal and be sued on the contract by the principal
- The principal: may sue the third party and be sued on the contract by the third party
- The agent: has no rights and liabilities on the contract (may be regarded as a contracting party if the principal was not named)
