Chapter 5 - Agency Flashcards
What’s an agent relationship?
One party acts as an agent for another e.g, estate agent or travel agent
What happens when an agent makes a contract on behalf of the principal
*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
How is a partnership a type of agency relationship
Partners act as agents of the business
Transactions made by one partner bind all the other partners
How is a company a type of agency relationship
*Directors act as agents of the company
*Contracts they make bind the company not the directors personally
How can agency agreements be created?
Consent either expressed or implied
What is implied consent to create an agency agreement?
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
What is expressed consent to create an agency agreement?
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.
What’s an agency by estoppel?
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
In what situation can an Estoppel happen?
- Failure to notify - Principal doesn’t tell parties that the agent’s authority has ended
- Allowing misrepresentation: If principal lets the agent appear to have more power than they actually do
What’s does agency arising from necessity mean?
Type of agency happens in emergencies when an agent must act without instructions principal. Also called operations of law
When does agency from necessity apply?
- Emergency situation - Urgent situation requiring immediate action
- No communication Possible - Agent cannot contact the principal for instructions
- Good faith: The agent acts in the best interest of the principal and their actions are reasonable and practical under the circumstances.
When will a court recognise the type of agency
If there’s already a relationship between the agent and the principal
What is agency by ratification
Occurs when the agent acts on behalf of another person without having proper authority or when agent exceeds the authority given to them
What does the agency by ratification happen?
When an agent exceeds their authority or someone who is not an agent acts as if they are one
What happens if the principal ratifies the contract (approves)
- Principal becomes responsible
- The ratification applies retroactively (as if the principal agreed from the start)
- The agent is no longer liable for exceeding their authority
- No authority is given for future actions.
What are the conditions that allows the principal to ratify the contract in an agency relationship
- They existed at the time the agent made the contract
- They had the legal ability to enter the contract at the time of both the agent’s actions and the ratification
- The agent clearly identified the principal in the contract
- The principal knows all the contract details before ratifying
In order to ratify the principal what does the principal need to do
*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
What are the general duties of an agent in an agency relationship?
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
What are the general duties of a principal in an agency relationship?
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
What are the duties implied by law in an agency relationship in terms of Accountability
*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
What are the duties implied by law in an agency relationship in terms of Conflict of interest
The agent should not put them in a position where conflict of interest conflicts with the principal
What are the duties implied by law in an agency relationship in terms of Performance
Agent should properly perform the task that they have been engaged to do
They’re justified in refusing to perform an illegal act
What are the duties implied by law in an agency relationship in terms of Obedience
Agent should obey the principal’s legal and reasonable orders
What are the duties implied by law in an agency relationship in terms of skill
The agent should usually do the work themselves
What are the duties implied by law in an agency relationship in terms of Confidentiality
The agent should keep confidential what they know about the principal’s affairs even after it’s finished
What happens if there’s a breach of duty by an agent
*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
What are the three rights of an agent
Indemnity, Remuneration, Lien
One of the three rights of an Agent is Indemnity, what does this mean
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
One of the three rights of an Agent is Remuneration , what does this mean
*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
One of the three rights of an Agent is Lien, what does this mean
Agent has the right to exercise a lien over property owned by the principal e.g. retain goods until payment is made
How can authority be given to an agent
*Actual express
*Actual implied
*Apparent or Ostensible
What is “actual express” authority
Authority is stated by the prinicipal to the agent
What is “actual implied” authority
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
What is “Apparent or ostensible” authority
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.
- The agent might not have direct authority but the principal’s actions make it seem like they do
- If a third party relies on this impression and enters a contract with the agent, the contract is wild.
- 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.
- Partnership - This is particularly important when a partner leaves a partnership to avoid misunderstandings.
Where does the liability lie if an agent enters into a contract
Depends on whether the principal is disclosed or not and whether the agent has authority
What’s the effect of liability if the principal is disclosed
*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
In what exceptions can the agent then be liable?
*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
What happens if the principal isn’t made known to the third party
The third party can elect to treat the principal or agent as being bound by the transaction
In what situation can it be allowed not to reveal identity of the third party?
Contract is inconsistent with existence of the agency
Material importance
Agent didn’t actually have any authority
When does the agent not have any authority what happens to a contract?
No valid contract, principal cannot be sued nor sue under the contract
What is tort of deceit
a type of legal injury that occurs when a person intentionally and knowingly deceives another person into an action that damages them.
