l Flashcards
What is an “Agency” in Scots Commercial Law?
Agency is a legal relationship where one person, called the agent, is authorized to act on behalf of another person, the principal, to create legal relations with third parties. This is crucial in business as it allows principals to conduct transactions without being physically present. For example, a real estate agent acts on behalf of a homeowner to sell a property.
Who are the three main parties involved in an agency relationship, and what are their roles?
Principal: The person who authorizes the agent to act on their behalf.
Agent: The person who acts on behalf of the principal.
Third Party: The party with whom the agent interacts while conducting the principal’s business. Example: A company (principal) hires a marketing agency (agent) to negotiate a deal with a supplier (third party).
What are the main types of authority an agent may have?
Express Authority: Explicitly given by the principal, often in writing or verbally.
Implied Authority: Not directly stated but inferred from the agent’s role (e.g., a manager may have authority to make decisions about staffing).
Ostensible/Apprent Authority: When a third party reasonably believes the agent has authority due to the principal’s conduct (e.g., if a company allows an employee to negotiate deals publicly, it implies the employee has authority).
Presumed Authority: Authority assumed in emergencies (e.g., an agent takes necessary actions to prevent loss when the principal is unreachable).
What are the primary duties of an agent to the principal?
Duty to Obey Instructions: The agent must follow the principal’s instructions.
Duty Not to Delegate: The agent cannot delegate their authority without permission (e.g., an agent hired to paint a portrait cannot hire another painter without consent).
Duty of Care and Skill: The agent must perform with reasonable skill and diligence, especially if they are paid professionals.
Duty to Account: The agent must provide accurate records of transactions conducted on behalf of the principal.
Duty of Relief: The agent is entitled to be reimbursed for expenses incurred while acting on behalf of the principal.
What is “Ratification” in the context of agency law, and why is it significant?
Ratification occurs when the principal approves an act performed by the agent that was initially unauthorized, making it legally binding as if the act had been authorized from the start. This is significant because it can validate a transaction that the agent had no authority to make at the time.
Example: If an agent buys goods on behalf of the principal without prior permission but the principal later approves the purchase, the contract is ratified.
What is Ostensible (or Apparent) Authority, and how does it differ from actual authority?
Ostensible Authority exists when a third party reasonably believes that the agent has the authority to act on behalf of the principal, based on the principal’s actions or representations.
Example: If a company publicly allows an employee to negotiate contracts, third parties may assume the employee has authority, even if it wasn’t explicitly granted. This differs from actual authority, which is directly granted by the principal to the agen
Brief Summary: International Sponge Importers v Watt & Sons (1911 SC (HL) 57)
An agent for International Sponge Importers Ltd collected payments directly from customers, despite company policy requiring cheques to be made payable directly to the company. The agent accepted cheques in his own name and even took cash payments, later absconding with the money. The company then tried to claim payment from the customers who had paid the agent.
Issue:
Did the agent have apparent (ostensible) authority to accept payments on behalf of the company?
Decision:
The House of Lords ruled that the agent had apparent authority because the company’s conduct (allowing the agent to handle cheques) misled customers into reasonably believing he was authorized to accept payments. The company’s failure to object reinforced this belief.
What are the legal consequences for an agent who acts beyond their authority?
If an agent acts outside their given authority, the principal is not bound by the agent’s actions, and the agent may be liable for breach of warranty of authority, meaning they misrepresented their authority to the third party.
Example: If an agent signs a contract without proper authority, the third party may sue the agent for any losses incurred.
: How can an agency relationship be terminated?
An agency relationship can end through:
Completion of the Transaction: The agent completes the task assigned.
Expiration of Time: The agreed period of the agency ends.
Mutual Agreement: Both the principal and agent agree to end the relationship.
Revocation by the Principal: The principal withdraws the agent’s authority.
Renunciation by the Agent: The agent decides to stop acting for the principal.
Frustration: Events like death, insanity, or bankruptcy make the agency relationship impossible to continue.
What is a “Commercial Agent,” and how are they protected under the Commercial Agents Regulations 1993?
A Commercial Agent is a self-employed person who can negotiate or make sales for the principal. Under the 1993 Regulations, they have the right to:
Payment (Remuneration): Earn commission or payment for their services.
Notice of Termination: Minimum notice period based on how long they’ve worked as an agent.
Indemnity or Compensation: Payment for the business or goodwill they helped create for the principal after the agency ends.
What are the fiduciary duties of an agent, and why are they important?
Fiduciary duties are obligations of loyalty and good faith, requiring the agent to prioritize the principal’s interests over their own. They include:
Avoiding Conflicts of Interest: The agent must not engage in self-dealing or represent competing principals without consent.
Duty to Communicate Benefits: The agent must pass any benefits or profits obtained from the agency relationship to the principal unless agreed otherwise. These duties are crucial because they ensure the agent acts in the principal’s best interests, preventing misuse of power.
What is the rule “Delegatus non potest delegare,” and what are its exceptions?
The rule “Delegatus non potest delegare” means an agent cannot delegate their authority to another person without the principal’s consent.
Exceptions include:
When delegation is customary in the industry (e.g., a solicitor delegating tasks to a legal assistant).
When the principal consents to delegation explicitly.
What is the significance of “Disclosure” in agency law?
Disclosure refers to the agent informing the third party whether they are acting on behalf of a principal. It affects the third party’s rights:
Disclosed Principal: The third party knows the principal’s identity and can hold the principal liable.
Undisclosed Principal: The third party is unaware of the principal’s existence and may choose to hold the agent liable.
Partially Disclosed Principal: The third party knows the agent is acting for a principal but does not know their identity.
