Chapter 9: Agency

Question 1

Many transactions are completed through what in the the commercial environment?

Answer 1

An agency.

Question 2

Why are agents usually employed?

Answer 2

To bring about a contractual relationship between the person they are acting for (the principal) and a third party.

Once this is accomplished, the contract is made between the principal and the thrived party (the agent drops out and is not a party to that contract)

Question 3

Principals and liability.

Answer 3

Principals may also be liable in tort for the actions of their agents.

Eg. Partners are both principles and agents for one another and a director is an agent of the corporation.

Thus, if a partner in an accounting firm or a director of a corporation were to give negligent/fraudulent advice to a third party client, the other partners or directors may be liable (as principals) in tort for the conduct of the partner or director.

Question 4

Definition of agency.

Answer 4

Agency is the relationship existing between two parties whereby one (the agent) is authorised by the other (the principal) to do, on the principal’s behalf, certain acts which affect the principal’s rights and duties in relation to third parties.

An agent is therefore a person who has authority (either express or implied) to act for a principal with the general object of bringing the principal into legal relations with a third party.

Question 5

Capacity to act as principal and agent.

Answer 5

There is a marked distinction between a person’s capacity to act as a principal and their capacity to act as an agent.

Generally speaking, only those persons with full contractual capacity may employ an agent, the rule being that anyone may appoint an agent to do any act that he or she has capacity to do themselves.

Question 6

How is an agency created?

Answer 6

There are two main ways in which fan agency can be created:

(a) expressly (that is, by agreement)
(i) by deed;
(ii) by writing;
(iii) by word of mouth;
(b) holding out or estoppel;