Law of Agency

Question 1

What is an agency?

Answer 1

A legal relationship where an agent is authorised to act on behalf of a principle in dealing with a third party, therefore causing the principle and the third party to be legally bound.

Question 2

What are the elements in the creation of agency?

Answer 2

1. Actual authority
2. Apparent authority
3. Ratification
4. Operation of Law

Question 3

What is actual authority?

Answer 3

Authority which is either expressly or impliedly given to an agent.
Express Actual Authority:
Written/spoken words in the contract/agreement
Implied Actual Authority:
Reasonable customs-usage of a particular trade
Reasonably incidental to discharge of duties of the agent

Question 4

What is apparent authority?

Answer 4

When an agent seems to have actual authority, but in fact does not
To establish apparent authority, four conditions must be fulfilled (Freeman Lockyer)
1. Representation of agent’s authority must be made to third party
2. Representation must be made by the principal/someone with the actual authority of the principal
3. The third party, who does not know of agent’s lack of authority, is induced by the representation to enter the contract
4. The principal has the capacity to enter the contract

Question 5

What is ratification?

Answer 5

The act of the principal retrospectively affirms the agent’s acceptance when the agent does not have any actual or apparent authority.
It brings the date of contract back to the time of acceptance, not the time of ratification. (Bolton Partners v Lambert)
Conditions:
1. Principal is named and identified. If not named, at least ascertained
2. Principle exists at the time of the contract
3. Ratification is done after a reasonable lapse of time (minimum is prior to performance of contract)
4. Principle has the capacity to enter the contract

Question 6

What are the duties and rights of an agent?

Answer 6

Duties:
1. Duty to follow instructions
2. Duty to use reasonable care and skill: standard is of a reasonably competent person in the particular field
3. Duty to not delegate
4. Duty to avoid conflict of interest:
i. Must not act in the interest of one principal at the expense of the other
ii. Must not accept bribes/secret commissions
iii. Must not earn secret profits
iv. Cannot be a counter-party in a transaction with the principal
5. Duty to keep separate accounts
Rights:
1. Right to remuneration: After agent fulfils all contractual obligations
2. Right to indemnity: Agent is protected by principal; from liabilities and losses, unless these liabilities and losses resulted from negligence, breach of contract, or from acts where the agent exceeds his authority
3. Right to lien: Agent has the rights over the principal’s properties if principal fails to pay agent fees

Question 7

Explain the doctrine of undisclosed principal

Answer 7

1. An undisclosed principal can sue and be sued, if agent acted within his actual authority
2. Agent of an undisclosed principal can sue and be sued
3. Agent must enter the contract with the intention to act on behalf of the principal
4. Any defences the third party has against the undisclosed principal can also be used against the agent
5. The terms of the contract may expressly or impliedly show that the agent is the real and only principal

Limitations:
1. Undisclosed principal has the capacity to enter the contract
2. Agent refers to himself as the owner and is not acting on behalf of anyone
3. Agent’s identity is critical to the contract
4. Upon disclosure of principal, third party elects to sue the agent

Question 8

What are some exceptions to an agent-third party relation?

Answer 8

An agent is not liable and has no legal relations with third party, unless
1. Agent agrees to be bound to the contract
2. Trade usage
3. Presence of negotiable instruments e.g., Bill of Exchange
4. Non-existent principal (Kelner v Baxter)
5. Breach of warranty of authority (BOWA)

Question 9

How to terminate an agency?

Answer 9

By act of parties:
1. Express stipulation of time of agency termination
2. Full performance by agent
3. Repudiatory breach of agent contract
4. Principal revokes agent’s authority

By operation of law:
1. Agent or principal becomes bankrupt, dissolved, or die
2. Destruction of subject matter of agency contract, agency contract will be terminated/discharged by frustration
3. Agent or principal becomes mentally incompetent