Chapter 6 - Agency Flashcards
What is agency?
Case: Spearmint Rhino Ventures (Uk) Ltd v Commissioners for HM Revenue and Customs (2007)
Relationship that arises when an agent has authority to act or perform on behalf of an agent, aiming to build a binding contract between principal and a 3rd party
Agent is then bound to the transaction set by the agent with the 3rd party, as long as the agent has acted within the authority scope they were given.
Contract is therefore between principal and the 3rd party, so agent has no rights or liabilities under this contract.
Case: Spearmint Rhino Ventures (Uk) Ltd v Commissioners for HM Revenue and Customs (2007)
HRMC claimed Lap dancers working in Spearmint Rhino Clubs, were agents of the club (even though not employees), therefore the club at to pay VAT from the money the dancers made from the clients directly.
Held: not an agency relationship, as dancers worked on their own behalf not the club’s, and had paid a license to use the premises.
Formation of agency
Formation by agreement
Case: Chaudry V Prabhakar (1988)
This can be by express or implied agreement.
Express agreement – formally made, either orally, in writing or by deed.
Case: Chaudry V Prabhakar (1988)
where a friend helped another in the purchase of a second hand car. Claimant couldn’t sue friend when car proved to unroadworthy, as there was no consideration, therefore, a gratuitous agreement.
Implied Actual Authority: when agent needs to do something incidental, such as putting in petrol in a car, when the actual required performance was to move a car from A to B.
Formation of agency
Formation by estoppel
Case: Hely-Hutchinson v Brayhead (1968)
Case: Freeman & Lockyer v Buckhurst Park Properties (1964)
In this case the relationship is formed and principal cannot deny later that they have given specific authority to the agent; but mainly it relies on the purpose that a person allows another, who is not their agent, to appear as their agent.
This is based on the fact that the 3rd party will see the agent as the party with the authority to make decisions, though this is apparent (or ostensible) authority.
Case: Hely-Hutchinson v Brayhead (1968)
Where a board of directors gave authority to act as managing director, even though he had no actual authority.
Held: by stating this particular director to act as MD, the board will be estopped from denying it.
Case: Freeman & Lockyer v Buckhurst Park Properties (1964)
K and H formed a private company to buy Buckhurst Park Estate. They didn’t appoint an MD, but k acted as such, so he hired architects to work for the company. Company then refuse to pay them stating K had no authority to hire them.
Held: K had apparent authority to bind them to the agreement. K was held as company’s agent, so they couldn’t deny it later. Architects were entitled to be paid,
Formation of agency
Formation by estoppel
Case: Racing UK Ltd v Doncaster Racecourse and Doncaster Metropolitan Borough (2005)
Case: Racing UK Ltd v Doncaster Racecourse and Doncaster Metropolitan Borough (2005)
Borough Council owned the Racecourse and Doncaster Racecourse Ltd managed it. The council entitled the Chief Executive of Doncaster Racecourse Limited to enter contracts. He signed a contract grating tv rights, the Council disagreed with this and later stated he had no authority to have done so.
Held: Court of Appeal stated Chief Executive had apparent authority, furthermore it was normal for Chief Executive to make such decisions. So they were bound to this contract.
Formation of agency
Formation by estoppel
Estoppel and representation
Estoppel is also when:
- A principal doesn’t notify parties that a specific agent’s authority has been terminated
- Principal allows agent to appear to have more authority than they were given
Representation must be:
- Express or implied by conduct
- By the principal
- To a 3rd party who relied on it
- Apparent authority for agent to act on behalf of the principal
Reliance
Case First Energy Ltd v Hungarian International Bank (1993)
Case: Spiro v Lintern (1973)
This means 3rd party must have relied on the fact that agent was given authority by the principal.
Case First Energy Ltd v Hungarian International Bank (1993)
where Jamison made it clear he had no authority to grant credit, but told client the credit had been granted. Jamison didn’t have apparent authority to grant the credit, but he had authority to communicate bank decisions, so credit had to be granted.
Case: Spiro v Lintern (1973)
Owner of the house asked his wife to appoint agents to sell. She did so, they found a buyer and signed a contract with the agents and vendors. Though husband didn’t challenge any of the actions, he refused to go forward with the sale.
Held: by saying nothing husband represented that he agreed with the actions that were taken and the sale, he thereby confirmed the apparent authority of the wife.
Formation of agency
Formation by ratification
Agent has no authority or exceeds their authority. If principal ratifies, it becomes binding on the principal as if they had been original party all along. Becomes effective after ratification is done even if the 3rd party wants to withdraw.
Ratification validates agent’s actions, though they are not liable in case 3rd party breaches. No future authority is included.
Formation of agency
Formation by ratification
Conditions for ratification to occur
Conditions where ratification can occur:
- Agent behaves as such and names principal
- Principal is competent and bound to contract when it’s ratified
- Principal must know what was done on their behalf
- Contract can not be partially ratified
- Principal must ratify in time, either before or by deadline, or within reasonable time
- Contract must void ab initio
- Ratification can not withdraw without 3rd party’s consent
- Ratification means contract is effective, as if agent had actual authority at contract point
Formation of agency
Formation by ratification
Case Kelner v Baxter (1866)
Case: Bolton Partners v Lambert (1889)
Case Kelner v Baxter (1866)
Claimant sold wine to the defendant, who was supposed to be agent for a company that was about to be formed. Company tried to ratify the agreement made with the defendant.
Held: Could not be ratified, as company didn’t exist when contract was made. Defendant was personally liable for the wine.
Case: Bolton Partners v Lambert (1889)
In December 1886 defendant wrote to MD of a company offering to buy it. 5 days later a works committee decided to accept this offer, though they had no authority to do so. MD confirmed offer though. In January defendants revoked the offer, but board of directors said they ratified the MD’s acceptance.
Held: as board of directors ratified the offer, defendants couldn’t revoke the offer.
There is no a modified requirement that ratification must take place within reasonable time; and the rule doesn’t apply where the 3rd party knew the agent’s authority was limited.
Formation of agency
Formation by necessity
Case: GN Railway v Swaffield (1874)
When:
- It’ s impossible to obtain the principal’s instructions
- It’s absolutely necessary to take
- Bailee acts in principal’s interest
Case: GN Railway v Swaffield (1874)
Horse was sent by rail, there was no one to collect at arrival. Railway incurred the expense of stabling the horse overnight.
Held: Railway was an agent of necessity, which had implied authority to incur the expense on behalf of he horse’s owner.
If there is no existing responsibility for the other’s property, then there is no agency by necessity.
The most usual cases are when it involves perishable goods.
Agent’s Authority
Actual and apparent authority
- Actual Authority: can be express (specific authority given by principal); or implied (actual implied: the authority that allows performance of acts; usual authority: authority usually anticipated)
- Apparent (or ostensible) authority: looks like agent has authority, because principal has given that impression to others
Agent’s Authority
Actual and apparent authority
Case: Waught v HB Clifford and Sons (1982)
Case: Waught v HB Clifford and Sons (1982)
The claimant represented those who had purchased seemingly negligently built houses from a firm of builders (the principal) who appointed solicitors (the agent) to defend the legal proceeding (express authority). Claimant wanted a compromise in resolution to the builder’s solicitors, who recommended accepting the settlement to the builders. Builders told solicitors not to accept the settlement, but they did.
Held: it was binding on the builders to accept, even though solicitors had no express authority, because they were told not to accept it. But they did have implied usual authority, and apparent authority.
Despite this, builders could sue the solicitors for not following their instructions.
Points to consider in implied authority
Case: Watteau v Fenwick (1893)
- Company that appoints a company director as an MD impliedly agrees that they will have that usual authority
- an undisclosed principal is bound by a contract that the agent would have authority to make, if the authority had been withdrawn
Case: Watteau v Fenwick (1893)
H sold his hotel to Fenwick, and he employed H as employee. H’s name was still under the hotel door. H was told not to order cigars, but he did to Watteau on credit. Watteau was used to dealing with H and had never heard of Fenwick, but when he found out he sued for the price of the cigars.
Held: Fenwick, as principal, was liable for H’s acts, even though he had no actual authority.
Apparent or no authority
Apparent means authority may be greater than the actual authority, specially of principal didn’t inform 3rd parties of restrictions imposed on agent.
When agent contacts a third party who was unaware they are an agent, or agent gave the impression they are the ultimate contractor, or where it was obvious the third party would have not contracted if they were aware agent was not the principal. Then agent is bound to the contract as principal.
When agent acts without any authority whatsoever: principal will never be bound by contract; agent will not be liable, because the third party intended to contract with the principal; but agent will be liable to third party for breach of implied warranty of authority for holding they were acting as agent when they were not.
Rights and liabilities of principal and agent
‘Gratuitous’ agent
‘Gratuitous’ agent is one that is not paid.
Duties of agent to principal
- Follow principal instructions
- Exercise necessary due diligence; use their skills
- Show reasonable care and skill (section 13 of Supply of Goods and Services Act 1982)
- Render an account when needed
- Act personally without delegating
Gratuitous agents: will not be liable for not acting according to principal’s instructions, but they are bound to show care and skill
Duties of agent to principal
Case: Arenson v Casson Beckman (1977)
Case: Chaudhry v Prabhakar (1988)
Case: Arenson v Casson Beckman (1977)
A professional share valuer placed too low valuation on his principal’s shares.
Held: he was liable for breach of duty to act with due diligence, care and special skill. seeing that he was a professional.
Case: Chaudhry v Prabhakar (1988)
Claimant had recently passed her driving test and asked a friend to find her a suitable second hand car. She stipulated she didn’t want a car that had been in an accident. The defendant found a car that had had the bonnet crumpled and straightened, but the car was in good condition. Claimant bought the car, and later discovered the car was unsuitable and unroadworthy,
Held: defendant was liable for breach of duty to take reasonable care, even though he was a gratuitous agent.
Paid and gratuitous agents
Case: Turpin v Bilton (1843)
Paid agent is liable for damages, if they fail to carry out principal’s instructions.
Gratuitous agents will not be liable for not acting upon principal’s instructions, but if they do, they are bound to do so with reasonable care and skill.
No agent will be liable for not performing an illegal or void act.
Case: Turpin v Bilton (1843)
Insurance broker agreed to arrange insurance for principal’s ship, but failed to do so. The ship was lost at sea.
Held: principal was liable for loss.
Duties of agent to principal
Exceptions to the obligations not to delegate
Agent can delegate authority when:
- necessity (for instance when there is no skill to perform a specific task, and someone else needs to do so for them)
- acting in good faith
- authorised by the principal (that is, not to make a secret profit, not to allow a conflict of interest and duty)
- ministerial matters (clerk in a firm of solicitors for instance)
Duties of agent to principal
Conflict of interests
Case: Armstrong v Jackson (1917)
Case: Kelly v Cooper (1993)
Agent must disclose anything that is likely to influence the principal’s in the making of the contract.
Case: Armstrong v Jackson (1917)
Principal instructed agent to buy shares in a particular company, Agent owned some shares in that company and sold those to the principal instead.
Held: agent failed to avoid conflict of interest and must pay the principal the profit he made in the sale.
Case: Kelly v Cooper (1993)
Estate agent was instructed to sell claimant’s ocean-fronted property in Bermuda. Adjacent house owner asked him the same. Third party agreed to buy both, but estate agent didn’t inform claimant buyer was also buying the neighbour’s property, and then they argued that he would have negotiated harder, as it was to become a family compound, thus claiming this was a breach of contract.
Held: agent owed duty to both his principals. There was no breach, as agent didn’t have the authority to disclose the price of each of his principals to the other,
