Chapter 4: Law of agency

Question 1

What is the law of agency?

Answer 1

The law of agency is an area of commercial law dealing with relationships that involve a person (the agent), that is authorized to act on behalf of another (the principal) to create legal relations with a third party.

Question 2

What are the three ways in which a principal agent relationship can come about?

Answer 2

• By agreement (or consent)
• By ratification
• By necessity

Question 3

Agency by agreement can either be…

Answer 3

• Express
• Implied

Question 4

What is set out in the terms of agency?

Answer 4

• Authority and powers of the agent
• Duties to be performed
• Commission or remuneration
• Period of the agreement

Question 5

What is it known as when an agent is appointed by deed?

Answer 5

A power of attorney

Question 6

What conditions must be satisfied for agency by ratification to be possible?

Answer 6

A number of conditions must be satisfied for agency by ratification to be possible:

• The ‘agent’ doing the act must purport to do it on the principal’s behalf and not on the agent’s own behalf (e.g. the agent must make it clear that it is the principal’s car and not the agent’s own car that is being sold, although the principal need not be named).
• The principal must be the person whom the agent had in mind at the time of the act.
• At the time of ratification, the principal must have full knowledge of the circumstances relevant to the act, or must have waived further inquiry.
• The principal must have existed and have had the contractual capacity to do the act at the time it was done.
• Ratification must take place within a reasonable time.
• Void or illegal acts cannot be ratified.
• The whole contract must be ratified.

Question 7

What is agency by necessity?

Answer 7

Agency by necessity arises where a person is entrusted with goods belonging to another and an emergency makes it necessary to do something to preserve them.

Question 8

What is a lien?

Answer 8

A lien is the right to retain goods of another as security for payment of a debt.

Question 9

What is actual authority?

Answer 9

The authority of the agent is real, in the sense that they have been given the right to act on behalf of the principal, either expressly or by implication.

Question 10

What is apparent authority?

Answer 10

The agent has no real authority to do the act in question.
However, it appears, in the eyes of the third party, that they have such authority and are, therefore, able to bind their principal.