Chapter 5 - Agency

Question 1

What’s an agent relationship?

Answer 1

One party acts as an agent for another e.g, estate agent or travel agent

Question 2

What happens when an agent makes a contract on behalf of the principal

Answer 2

*Both the principal and the third party are bound by the contract

*It’s as if the principal directly entered the contract

*Any party involved can enforce the contract be sued

Question 3

How is a partnership a type of agency relationship

Answer 3

Partners act as agents of the business

Transactions made by one partner bind all the other partners

Question 4

How is a company a type of agency relationship

Answer 4

*Directors act as agents of the company

*Contracts they make bind the company not the directors personally

Question 5

How can agency agreements be created?

Answer 5

Consent either expressed or implied

Question 6

What is implied consent to create an agency agreement?

Answer 6

Principal does not explicitly appoint the agent but the relationship is understood based on actions, behaviours or circumstances

The agent’s authority is determined by the usual practices of the business, the nature of the relationship and the principals instructions

Question 7

What is expressed consent to create an agency agreement?

Answer 7

Principal appoints the agent either in writing or verbally

Written agreements are common in business to define the agent’s responsibility

If a power of attorney is used, it must be written and grants the agent full authority to handle the principal’s property as specified.

Question 8

What’s an agency by estoppel?

Answer 8

When the principal (person in charge) gives the impression that someone is their agent even if no formal agency agreement exists.

Principal cannot deny later that this person had authority if a third party is relied on that impression to make agreements

This is also known as apparent authority or ostensible authority

Question 9

In what situation can an Estoppel happen?

Answer 9

1. Failure to notify - Principal doesn’t tell parties that the agent’s authority has ended
2. Allowing misrepresentation: If principal lets the agent appear to have more power than they actually do

Question 10

What’s does agency arising from necessity mean?

Answer 10

Type of agency happens in emergencies when an agent must act without instructions principal. Also called operations of law

Question 11

When does agency from necessity apply?

Answer 11

1. Emergency situation - Urgent situation requiring immediate action
2. No communication Possible - Agent cannot contact the principal for instructions
3. Good faith: The agent acts in the best interest of the principal and their actions are reasonable and practical under the circumstances.

Question 11

When will a court recognise the type of agency

Answer 11

If there’s already a relationship between the agent and the principal

Question 12

What is agency by ratification

Answer 12

Occurs when the agent acts on behalf of another person without having proper authority or when agent exceeds the authority given to them

Question 13

What does the agency by ratification happen?

Answer 13

When an agent exceeds their authority or someone who is not an agent acts as if they are one

Question 14

What happens if the principal ratifies the contract (approves)

Answer 14

1. Principal becomes responsible
2. The ratification applies retroactively (as if the principal agreed from the start)
3. The agent is no longer liable for exceeding their authority
4. No authority is given for future actions.

Question 15

What are the conditions that allows the principal to ratify the contract in an agency relationship

Answer 15

1. They existed at the time the agent made the contract
2. They had the legal ability to enter the contract at the time of both the agent’s actions and the ratification
3. The agent clearly identified the principal in the contract
4. The principal knows all the contract details before ratifying

Question 16

In order to ratify the principal what does the principal need to do

Answer 16

*Ratify the whole contract
*Reasonable time
*Communicate a sufficiently clear intention of ratifying such as refusing to return goods purchased by an agent who lacked authority

Question 17

What are the general duties of an agent in an agency relationship?

Answer 17

An agent must

*Act in good faith and for the benefit of the principal
*Act in accordance with principals instructions
*Execute contracts on behalf of the principal and negotiate in a fair and proper manner

Question 18

What are the general duties of a principal in an agency relationship?

Answer 18

Act in a proper manner towards the agent

*Giving notice of termination of contract
*Providing compensation for termination
*Furnishing an agent with all relevant information

Question 19

What are the duties implied by law in an agency relationship in terms of Accountability

Answer 19

*Agent must provide full information to their principal of their transactions and money arising from them

*If they accept any comission or reward as an inducement to make the contract with them, it is considered a bribe and the contract is fraudulent

*The principal who discovers that his or her agent has accepted a bribe may dismiss the agent and recover the amount of the bribe from them

Question 20

What are the duties implied by law in an agency relationship in terms of Conflict of interest

Answer 20

The agent should not put them in a position where conflict of interest conflicts with the principal

Question 21

What are the duties implied by law in an agency relationship in terms of Performance

Answer 21

Agent should properly perform the task that they have been engaged to do

They’re justified in refusing to perform an illegal act

Question 22

What are the duties implied by law in an agency relationship in terms of Obedience

Answer 22

Agent should obey the principal’s legal and reasonable orders

Question 23

What are the duties implied by law in an agency relationship in terms of skill

Answer 23

The agent should usually do the work themselves

Question 24

What are the duties implied by law in an agency relationship in terms of Confidentiality

Answer 24

The agent should keep confidential what they know about the principal’s affairs even after it’s finished

Question 25

What happens if there’s a breach of duty by an agent

Answer 25

*Agent is liable for any loss towards the principal
*Where the breach is serious the principal may dismiss the agent and refuse to pay him or her any commission
*The principal may recover any benefit obtained or profit made by the agent
*Where a third party is fraudulently party to the breach and the principal may avoid the contract

Question 26

What are the three rights of an agent

Answer 26

Indemnity, Remuneration, Lien

Question 27

One of the three rights of an Agent is Indemnity, what does this mean

Answer 27

Agent is entitled to repaid expenses properly paid

He or she is entitled to be indemnified by his or her principal against losses and liabilities, provided his or her acts are done properly within the limits of his or her authority

Question 28

One of the three rights of an Agent is Remuneration , what does this mean

Answer 28

*Agent is also entitled to be paid any agreed remuneration for his or her services by the principal

*Entitlement to remuneration may have been expressly agreed or inferred

*If it is agreed that the agent is to be remunerated but the amount has not been fixed, the agent is entitled to a reasonable amount

Question 29

One of the three rights of an Agent is Lien, what does this mean

Answer 29

Agent has the right to exercise a lien over property owned by the principal e.g. retain goods until payment is made

Question 30

How can authority be given to an agent

Answer 30

*Actual express
*Actual implied
*Apparent or Ostensible

Question 31

What is “actual express” authority

Answer 31

Authority is stated by the prinicipal to the agent

Question 32

What is “actual implied” authority

Answer 32

Even if authority has not been expressly given it can be implied in a number of circumstances

To determine ->

Behaviour which is customary or usual in circumstance
Past conduct/authority

Question 33

What is “Apparent or ostensible” authority

Answer 33

When the principal gives the impression, through their words or actions, that an agent (someone acting on their behalf) has the power to act for them.

1. The agent might not have direct authority but the principal’s actions make it seem like they do
2. If a third party relies on this impression and enters a contract with the agent, the contract is wild.
3. Responsibility - If the principal later removes the agent’s authority they must inform third parties. Or else principal may still be liable under the contract.
4. Partnership - This is particularly important when a partner leaves a partnership to avoid misunderstandings.

Question 34

Where does the liability lie if an agent enters into a contract

Answer 34

Depends on whether the principal is disclosed or not and whether the agent has authority

Question 35

What’s the effect of liability if the principal is disclosed

Answer 35

*Principal is considered disclosed if the third party knows they exist, even if their identity isn’t revealed

*Normally the contract binds the principal and the third party so the agent isn’t liable or entitled under the contract

Question 36

In what exceptions can the agent then be liable?

Answer 36

*Agent takes personal responsibility

*Trade customs -
*Agent conceals the principal
*Fictitious principal: The agent claims to act for a principal who doesn’t exist
*Contracts under seal: The agent makes a formal sealed agreement unless acting as a trustee

Question 37

What happens if the principal isn’t made known to the third party

Answer 37

The third party can elect to treat the principal or agent as being bound by the transaction

Question 38

In what situation can it be allowed not to reveal identity of the third party?

Answer 38

Contract is inconsistent with existence of the agency
Material importance
Agent didn’t actually have any authority

Question 39

When does the agent not have any authority what happens to a contract?

Answer 39

No valid contract, principal cannot be sued nor sue under the contract

Question 40

What is tort of deceit

Answer 40

a type of legal injury that occurs when a person intentionally and knowingly deceives another person into an action that damages them.