M05 Agency lists Chapter 4

Question 1

Three ways agency can be created

Answer 1

1. By agreement (implied or express)
2. By ratification
3. By necessity

Question 2

Seven conditions which must be satisfied for agency by ratification

Answer 2

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

Question 3

Six areas where agent is agent of proposer in insurance

Answer 3

1. when an agent gives general advice to the proposer as to the cover they require and the market in which they should place their business;
2. if no authority is given by the insurers and the only recognition they receive from the insurers is the payment of commission;
3. when they fill in, alter, or add to the answers in a proposal form, and the proposer knew or ought to have known of this;
4. when they complete a form on the proposer’s behalf and the form incorporates a wording to the effect that if the form is completed by someone other than the proposer, that person is deemed to be the agent of the proposer;
5. when they and the proposer are in collusion to defraud the insurers; or
6. when the agent gives the insured advice about how to formulate their claim.

Question 4

Six areas where agent will be agent of insurers

Answer 4

1. when they have express authority from the insurer to receive and handle proposal forms;
2. when they handle the forms according to a previous course of business with the insurers and within an implied authority that has arisen;
3. when they are instructed by the insurers to ask questions and fill in the answers on a proposal form – they are then the insurers’ agent even when the proposal contains a declaration to the contrary;
4. when they survey and describes the property on the insurers’ behalf;
5. when they act without express authority, and the company either ratifies their action or has ratified such action in the past; or
6. when they have express or implied authority to collect premiums.

Question 5

5 duties of an agent

Answer 5

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

Question 6

Six remedies of principal for breach of duty by agent

Answer 6

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

Question 7

Two rights of an agent

Answer 7

1. the right to remuneration; and
2. the right to indemnity.

Question 8

Two types of authority of an agent

Answer 8

1. Actual authority
2. Apparent authority

Question 9

Three ways apparent authority can arise

Answer 9

1. the principal has restricted the authority of a validly appointed agent;
2. the apparent agent has never been appointed at all; and
3. unknown to the third party, the authority of the agent has been terminated.

Question 10

9 ways agency can be terminated

Answer 10

1. by agreement
2. by Performance
3. by lapse of time
4. by withdrawal of authority
5. by renunciation by agent
6. by death of principal or agent
7. by bankruptcy
8. by insanity
9. by frustration

Question 11

Four things an undisclosed principal can not do

Answer 11

1. sue if they did not exist or lacked capacity when the contract was made;
2. ratify a contract;
3. sue if the contract expressly provides that the person making it is the sole principal; and
4. 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 12

Four areas where an agent is allowed to delegate their duties

Answer 12

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