Law of Agency

Question 1

Agent

Answer 1

An agent is a person who has the authority or power to act on behalf of another person, known as the principal.

Usually, the task of the agent is to bring about a contract between their principal and a third person, referred to as a third party.

Question 2

relationship of principal and agent may come about in three main ways:

Answer 2

by agreement (or consent)- express or implied
by ratification; and
by necessity- impossible to find owner

Question 3

Appointment by express agreement

Answer 3

The agreement may be a formal one, in writing, or an informal oral agreement.

In the case of a formal agreement, the terms of the agency will usually be set out in detail

authority and powers of the agent;
duties to be performed;
commission or other remuneration; and
period of the agreement.

appointment may be in the form of a deed. If an agent is appointed by a deed, the deed is known as a power of attorney.

Question 4

Agency by ratification

Answer 4

When the relationship of principal and agent is created retrospectively (i.e. after the ‘agent’ has carried out their task) under the doctrine of ratification.

Question 5

conditions must be satisfied for agency by ratification to be possible:

Answer 5

• The ‘agent’ doing the act must purport to do it on the principal’s behalf and not on the agent’s own behalf
• The principal must be the person whom the agent had in mind at the time of the act.
• At the time of ratification, the principal must have full knowledge of the circumstances relevant to the act, or must have waived further inquiry.
• The principal must have existed and have had the contractual capacity to do the act at the time it was done.
• Ratification must take place within a reasonabletime.
• Void or illegal acts cannot be ratified.
• The whole contract must be ratified.

Question 6

Role of insurance intermediary

Answer 6

Giving general advice.
Granting cover.
Collecting premiums.
Completion of the proposal form.

Question 7

consequences of agent acting negligently e.g omitting information

Answer 7

If the agent acting for the insured, the insurers may be able to avoid the policy for breach of the pre-contractual information duty because the agent’s knowledge will be deemed to be known by the insured (subject to the exceptions under sections 4 and 6 of the Insurance Act 2015 (IA 2015). If the insurers avoid the policy, the insured may then be able to sue the agent for breach of duty.

If the agent acting for the insurer, the insurers will not be able to avoid the policy for breach of the duty of fair presentation of the risk because knowledge of the true facts will be imputed to the insurers (IA 2015, s.5). In other words, the law will assume that the insurers were aware of the true facts, even though the agent did not actually pass them on. In this case the insurers may have a right to sue theagent.

Question 8

Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA) sets out rules for determining whether an agent is acting on behalf of consumer or insurer. What applies to a) insurer b) consumer?

Answer 8

• the agent collects information from the consumer under the express authority of the insurer;
• the agent enters into the contract as the insurer’s agent if the insurer has given the agent express authority to do so; or where
• the agent does something in their capacity, as the appointed representative of the insurer, for the purposes of the Financial Services and Markets Act 2000 (section 39 of thatAct).

b)

• If the agent undertakes to give impartial advice to the consumer.
• The agent undertakes to conduct a fair analysis of the market.
• If the consumer pays the agent a fee.

Question 9

duties of an agent to the principal

Answer 9

• To obey the principal’s instructions.
• To exercise proper care and skill.
• To perform duties personally.
• To act in good faith towards the principal.
• To account for monies received on behalf of the principal.

Question 10

Where the insured suffers loss as a result of the broker’s negligence the general measure of damages is

Answer 10

that which will place the insured in the position that they would have been in were it not for the negligence.

Question 11

, if a broker fails to disclose material facts on behalf of their business insured, and the insurers discover this when investigating a claim and then seeks remedy for breach of the duty of fair presentation of the risk,

Answer 11

the broker will be liable to the insured for the amount that would have been payable had the breach not occurred

Question 12

remedies available to the principal if an agent fails in their duties

Answer 12

• sue the agent for damages for breach of contract;
• sue the agent in tort (for example, where the agent has refused to return the principal’s property);
• for a serious breach (such as the taking of a bribe), dismiss the agent without notice or compensation;
• sue the agent (or the donor) to recover a bribe paid to the agent;
• if the breach is fraudulent, rescind any contract made through the agent and refuse commission; and
• sue for an account if the agent fails to disclose full financial details of his agency dealings.

Question 13

Imputed knowledge

Answer 13

Under the law of agency, any knowledge which an agent possesses is imputed to the principal. This is of particular importance in relation to the duty of disclosure in non-consumer (business) insurance.
The Insurance Act 2015 introduced a detailed section clarifying ‘knowledge of insured’.

Question 14

Rights of an agent

Answer 14

• the right to remuneration for work done
• the right to indemnity- If agents reasonably incur expenses in the performance of their duties, they have a right to be paid back by the principal,

Question 15

Cases agents lose the right to indemnity

Answer 15

• their act was not authorised (or ratified) by the principal;
• they are in breach of their duties as the agent (for example, by failing to obey instructions); and
• the act for which they claim indemnity is illegal or void by statute.

Question 16

Lien on principal property

Answer 16

an agent may have the right to retain property belonging to the principal as security for commission or other moneys owed to them.

a lienor has the right to retain goods but, not the right to sell them.

a lien comes to an end when the principal pays or offers to pay the sum due.

Question 17

Actual Vs Apparent authority

Answer 17

• Actual: The authority of the agent is real, in the sense that they have been given the right to act on behalf of the principal, either expressly or by implication.
• Apparent/ostensible: agent has no real authority .However, it appears, in the eyes of the third party, that they have such authority and are, therefore, able to bind their principal.

Question 18

Cases apparent authority arises

Answer 18

• the principal has restricted the authority of a validly appointed agent
• the apparent agent has never been appointed at all -agency ‘by estoppel’.
• unknown to the third party, the authority of the agent has been terminated

Question 19

Disclosed principal

Answer 19

A disclosed principal is one whose existence is known to the third party at the time the contract ismade.

The agent simply ‘drops out’ once the contract is made.

The principal and third party can enforce the contract against each other but the agent can neither sue nor be sued on it (except where they sign a deed, sign name on negotiable instruments, trade custom)

Question 20

Undisclosed principal

Answer 20

the third party is unaware that they are dealing with an agent.

• the undisclosed principal can enforce the contract against the thirdparty.
• the third party can enforce the contract and has the option of doing so either against the agent or against the principal: this is known as a right of election.

Question 21

Limitations on undisclosed principal when enforcing contract against a third party

Answer 21

An undisclosed principal cannot:

• sue if they did not exist or lacked capacity when the contract was made;
• ratify a contract;
• sue if the contract expressly provides that the person making it is the sole principal; and
• sue if the third party can prove that they had some good reason for dealing with the agent personally (e.g. because of their reputation or special skills).

Question 22

Third party can sue agent in

Answer 22

• contract
• breach of warranty of authority
• tort (principal will be liable if agent commits a tort)

Question 23

Payment by the principal

Answer 23

When the principal owes money to a third party, the debt cannot be discharged simply by paying money to the agent. If the agent fails to pass it on, the principal will still be liable to the third party.

The principal may not be liable, however, if the third party has induced the principal to pay the agent by suggesting, for example, that the agent has already paid over the money tothem.

Question 24

Payment by the third party

Answer 24

If the third party owes a debt to the principal, this will not generally be discharged by payment to the agent. However, if the agent has authority to receive payment on their principal’s behalf (which is often the case), the debt of the third party is discharged and the principal must sue the agent if the agent fails to hand over the money

Question 25

Ways to terminate an agency

Answer 25

1. Agreement between the parties
2. performance - ends after agent does their part
3. Lapse of time
4. Withdrawal of authority by principal
5. Renunciation by the agent
6. Death of either principal or agent
7. Bankruptcy
8. Insanity
9. Frustration e.g subject matter is destroyed, task of the agent might become impossible to fulfil, illegal or futile, the agent becomes an enemy alien, Illness

Question 26

When does an agent delegate

Answer 26

where the principal expressly authorises the agent to delegate all or some of their duties;
where the authority to delegate can be implied from the circumstances – such as the delegation of routine clerical and administrative tasks to employees;
where the delegation is in accordance with trade custom; and
in cases of necessity.