Chapter 3 - Agency

Question 1

What is agency?

Answer 1

Agency is a very important feature of modern commercial life and describes the relationship that exists where one party, the agent, acts on behalf of another, the principal.

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.

Question 2

How is the agency relationship created?

Answer 2

The agency relationship is created either by mutual consent or by operation of law or by ratification.

Question 3

When is express agency created and can an agency relationship be implied by conduct?

Answer 3

Express agency is created when the principal expressly appoints someone as their agent, but an agency relationship can also be implied by the conduct of the parties.

Question 4

Can agency be created retrospectively?

Answer 4

Yes.

Agency can be created retrospectively, through ratification of the contract.

Question 5

How is consent expressed regarding creation of an agency?

Answer 5

Consent may be express or implied. An agency can be expressly created either orally or in writing.

Question 6

What is the exceptional case where agency must be created by deed instead of orally or in writing?

Answer 6

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.

Question 7

What is agency by estoppel (or ‘holding out’)?

Answer 7

Agency by estoppel arises by operation of law and is no less effective than an agency expressly created.

The principal is ‘estopped’, or prevented, from denying the existence of the agency.

Question 8

How can agency by estoppel arise?

Answer 8

1. 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
2. the third party, as a result, acts upon this.

Agency by estoppel can only arise where the conduct of the apparent principal creates it.

Agency does not arise by estoppel if it is the ‘agent’ who holds themselves out as agent, not the ‘principal’.

Question 9

How may an agency of necessity arise?

Answer 9

It may arise 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 their authority.

Question 10

What will an agent who seeks to bind a principal on the grounds of an agency of necessity need to show?

Answer 10

1. The agent had no practical way of contacting the principal in order to obtain the principal’s instructions
2. Their actions arose from some pressing need for action
3. They acted in good faith in the interests of the principal rather than in their own interests
4. Their action was reasonable and prudent in the circumstances

Question 11

In which conditions may a principal ratify?

Answer 11

1. The principal must have been in existence at the time of the agent’s act.
2. 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.
3. The agent must, at the time of making the contract, either name or sufficiently identify the `principal on whose behalf they are making the contract.

Question 12

What are the duties of an agent?

Answer 12

1. Accountability
2. No conflict of interest
3. Performance
4. Obedience
5. Skill
6. Personal performance
7. Confidence

Question 13

What are the rights of an agent?

Answer 13

1. Indemnity
2. Remuneration
3. Lien

Question 14

How may an agent’s authority be given?

Answer 14

1. Expressly given
2. Impliedly given
3. ostensible or apparent on the basis of the principal’s conduct

Question 15

What is the rule regarding liabilities of parties where the agent has authority and is know to be an agent?

Answer 15

Where the agent is known to be acting as an agent and they have authority from their principal, the principal and third party may sue and be sued on the contract and the agent has no rights and liabilities on the contract, unless it appears that the parties intended otherwise.

There are particular circumstances where the agent might incur personal liability:

1. Under rules of trade usage
2. Where they add their name as party to a negotiable instrument
3. Where they make a contract under seal,unless they do so as trustee for the principal or unless the law provides otherwise

Question 16

What is the rule regarding liabilities of parties where the agent has authority, but it is not known to be an agent?

Answer 16

1. either the agent or the principal may sue on the contract (but the agent’s rights are subordinate to the principal’s); and
2. either the agent or the principal may be sued on the contract (but the third party must choose which one).

Question 17

What is the rule regarding liabilities of parties where the agent has no authority?

Answer 17

If the agent has no authority, the principal cannot sue or be sued on the contract unless they choose to ratify it.

Question 18

When may an agent be liable for the tort of deceit?

Answer 18

If the agent, knowing that they have no authority, makes a representation to the contrary and causes loss to the third party, they may be liable for the tort of deceit.

If they genuinely believe that they have authority, but is in fact mistaken, they may nonetheless be liable for breach of warranty of authority.