The Law of Agency

Question 1

What is agency?

Answer 1

One of earliest forms of arranging business affairs. The contract which exist when one person instructs or allows another person to act for them in what will be a binding legal arrangements with a third party.
(Authorisation to work on someone else’s behalf, contract between parties granting authority, sometimes related to expertise e.g. selling home)

Common law elements as build over time

Question 2

Who is an agent?

Answer 2

A person who has authority to act for and on behalf of another (called the principal) in contracting legal relations with third parties; and the agent representing the principal creates, alters or discharges legal obligations of a contractual nature between the latter and third parties. Agent only has liabilities for principles

Question 3

What does the tripartite relationship mean?

Answer 3

Any agreement made by three parties, in Agency law refers to the situation where principal nominates an agent to act on their behalf and to form an agreement with third party. Agent working on principals behalf binding him into the third party in a contractual relationship without necessarily himself (the agent) becoming legal part of that relationship.

Question 4

Tell about Agents ultimate disclaimer

Answer 4

As long as the agent conducts their business rightfully and without exceeding their liability, the principal is reliable

Question 5

Tell about the feature of two contracts in an agency

Answer 5

Not all need to meet, but you need to provide clear instructions to your agents.

Question 6

Why is it important that agents exist

Answer 6

Commerce would literally come to a standstill if businessmen and merchants could not employ the service of factors, brokers estate agents, but were to expected to do all by themselves. Sometimes it is just simpler to outsource things, this is why agents exist.

Question 7

Types of agents - General agent

Answer 7

Acts as an agent a long period of time, over multiple transactions. Carries out multiple actions, often simultaneously for one principal, or even all the actions for one particular principal.

Question 8

Types of agent - Special agent

Answer 8

Appointed to carry out one particular transaction

Question 9

Types of agent - Mercantile agent

Answer 9

Factors Act 1889 - a lot of historical curiosity, industry related.
An agent who in the ordinary course of business has the authority either to sell goods, or to consign goods for the purpose of sale, or to buy goods, or raise money on the on the security of goods.
Can pass title even where the principal has not consented (or would not have consented to particular transaction). In the UK, most factors fall within the definition of a merchant agent under the Factors Act 1889 and therefore have the powers of such.

Question 10

Define Mercantile agent

Answer 10

The agency of a factor who in the customary course of his business has authority binding on his principal to buy or sell goods, to consign goods for sale or to raise money by pledging goods.

Question 11

Types of agent - Del Credere Agents

Answer 11

Where there is a fear from both sides that the other party won’t held their end of the contract, this agent has a mediating nature. This arises where an agent provides a guarantee or indemnity to the principal. Minimises risks of any not paid goods.

Question 12

Define Del Credere Agent

Answer 12

Def. A del credere agency is a type of principal-agent relationship where in the agent acts not only as a salesperson or a broker for the principal, but also as a guarantor of credit extended to the buyer.

Question 13

List four types of agents

Answer 13

1) General agent
2) Special agent
3) Mercantile agent
4) Del credere agent

Question 14

What is a commercial agent

Answer 14

A self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the principal), or to negotiate and conclude the sale or purchase on the behalf and in the name of principal.

This is also the nature of special and general agents.

Question 15

List five ways of creation of agency

Answer 15

1) Express creation
2) Implied creation
3) Creation by ratification
4) Creations by Necessity
5) Creation by holding out

Question 16

Tell about express creation of an agent

Answer 16

Either oral or written, formal or informal agreement between the principal and the agent. E.g. in real estate, agency is normally created by either a written listing agreement with a seller or a buyer agency agreement with a buyer.

Question 17

Tell about implied creation of an agent

Answer 17

By the circumstances. Agency can also be created through an implied agreement. Meaning, the conduct of the both parties expresses an intent to create an agency relationship. This agent works on the principal’s behalf through implied authority, rather than a stated agreement.
(Arises as a result of rule of law s5 Partnership Act 1890 - every partner is deemed or implied to be an agent of the firm and the other partners.)

Question 18

Tell about creation by ratification

Answer 18

When no agency agreement, The principal comes later aware of the acts of an agent, and ratifies them either by expressly or by implication. Ratification puts the agent and the principal in the same position if they would have been in agency agreement in the first place

Question 19

Define Agency by ratification

Answer 19

Agency by ratification arises when a person (the principal) ratifies (approves and adopts) an act which has already been done in his name and on his behalf by another person (who had no actual authority, whether express or implied to act on his behalf when the act was done)

Question 20

What is concluded on Agents authority

Answer 20

If agent exceeds their liability, the agent is liable, unless the principal ratifies the agents action.

Question 21

What are the conditions (6) for agency creation by ratification

Answer 21

1) Agent must be acting in the capacity of an agent and disclose this to a third party
2) Principal must be in existence at the time of the transaction
3) Principal must have capacity to take the action in question
4) The principal must be informed of all the facts behind the action
5) The ratification must be within relevant timescale
6) Action being ratified must be legal

Question 22

Tell about creation by necessity

Answer 22

Arises when person A acts in an emergency in which person B’s property is in imminent jeopardy and it becomes necessary in order to preserve B’s property, fir A to act on B’s behalf. Agency of necessity arises only when it is practically impossible for the agent to communicate with the principal before the act. Acts on the goodness of their heart.

Question 23

Tell about creation by necessity case Fernie v Robertson (1871)

Answer 23

A house is owned by a senile old woman who later dies. When she was ill her daughter had cared for her and had instructed essential repairs on the house. It was held that this was an instance of negotiorum gestio. When the mother died her heir was liable to repay the daughter for these expenses. The reason for this was it was judged that the mother would have authorised the repairs had she been competent enough to do so.

Question 24

Tell about creation by holding out

Answer 24

The principal is bound by the act of an agent if on an earlier occasion he has made others believe that other person doing some act on his behalf is doing with his authority. A has bit restricted B from making such statement. This arises due either positive encouragement of that impression by principal, or the fact that principal has taken no action to contradict the impression that agency exists.

There has been agency, but the withdrawal has not been communicated to a third party. (let everyone know that this agent is no longer authorised to work on your behalf. If they don’t know, agent can still form a legally binding contract.

Question 25

What are the agents duties to the principle? (8)

Answer 25

1) Duty to perform instructions
2) Duty to exercise skill and care
3) Duty to keep accounts (receipts)
4) Good faith/fiduciary duty
5) The duty to act personally
6) The duty to account
7) The duty to not disclose confidential information
8) The duty to avoid conflict of interest

Question 26

Tell about the duty to perform instructions

Answer 26

An agent must abide by instructions under the agency agreement. Agent must act in way using best judgement or by custom of his profession where only general instructions are given. (Where instructions are unclear, principal cannot hold agent responsible/accountable for any loss due bad instructions). The agent is personally liable if they fail to follow clear instructions.

Question 27

Tell about instructions case Gilmour v Clark (1853)

Answer 27

Obey P’s Instructions - Principal instructed the Agent to put the goods on one ship/vessel; then the Agent’s servant put the goods on another which sank. The Agent was liable for these actions and the loss.

Question 28

Tell about instructions case Ireland v Livingston 1872

Answer 28

Livingston (principal) asked Ireland (agent) to procure 500 (+/- 50 tons) of sugar and have it shipped to any of a number of possible destinations in the UK. In Ireland’s market (Mauritius), procuring 500 tons was next to impossible. Ireland shipped 400 tons to Livingston, and Livingston rejected them. Decision: Livingston was bound to accept the sugar. Ireland within his actual authority was authorised to apply a reasonable interpretation to his agency agreement. As 500 tons was unavailable, it was reasonable to assume that 400 tons would be acceptable.

Question 29

Tell about the Duty to exercise skill and care

Answer 29

Must perform agency agreement with skill and care of varying nature and extent. A member of profession must exhibit skills of a competent member of that trade or profession. If not a member of trade or profession - must exhibit skill and care which can be extended for an ordinary prudent man managing his own affairs. An agent will not be liable for errors occurring where he showed reasonable knowledge, skill and care.

Question 30

Tell about the duty to keep accounts

Answer 30

Agent must keep accounts, in writing where possible. Any discrepancy which agent is unable to explain will be made good even where there is no dishonesty.

Question 31

Tell about Keep accounts case Tyler v Logan 1904

Answer 31

The manager of a shop was liable to make up a deficiency which came to light as a result of a stock take even though there was no evidence of dishonesty.

Question 32

Tell about duty of good faith /fiduciary duty

Answer 32

A fiduciary duty which is owed by agent to the principal as the base for the whole relationship, tied and shaped by on good faith. Need to act in the best interest of the principal shapes all the duties owed by an agent.

Question 33

Tell about the duty to act personally

Answer 33

Delegatus non potest delegare - agent cannot delegate. There may be exceptions - e.g. architects or other special skills required for specific tasks. Delegation can be implied by facts and circumstances of the agency or particular practice in the industry

Question 34

Tell about delegation case De Bussche v Alt 1878

Answer 34

Sub-agent will owe duties to the principal. An agent undertook to sell the principal’s ship, the agent’s partner purchased the ship himself and then sold it on for an immense profit ($160,000 compared to his $90,000 purchase price, in the 1870s), court ruled partner was liable, as sub-agents cannot be sued. The partner was to be treated as a co-agent, so could be sued for the missing 70000 which the principal was deprived off.

Question 35

Tell about duty to account

Answer 35

Different from duty to keep accounts, which refers to transactions during agency. Account for all benefits received by the agent during the period of agency. (All potential secret profits or benefits earner or retained.) Agent is not supposed to take bribes.

Question 36

Tell about duty to account case Neilson v Skinner & Co 1890

Answer 36

account to the principal for any benefits received from third parties, in whatever form they are received

Question 37

Tell about duty not to disclose any confidential information

Answer 37

Must maintain confidentiality and protect sensitive information during and after. Under a duty not to disclose or to make use of that information.

Question 38

Tell about confidentiality case Liverpool Victoria Friendly Society v Houston (1900)

Answer 38

Information remains confidential - 4 years after Houston worked for LV he disclosed their customer list. Tried to argue he was no longer an agent but this was not allowed.

Question 39

Tell about the duty to avoid conflict of interest

Answer 39

Must not put himself in a position where his interests will conflict with the principals interests. Failure is a risk which may lead to allegations of making secret profits and liability to account to the principle for that profit.

Question 40

Tell what happens if secret profits are not disclosed appropriately

Answer 40

Principal is entitled to terminate the contract and the agent will lose any entitlement to be paid for the period of the contract during which the breach continues. You need to mention in the agency agreement if you want that they only work for you, clauses cannot be added later.

Question 41

Tell about conflict of interest case Lothian v Jenolite Ltd 1969

Answer 41

The court decided that it was not necessarily the case that every agency contract has an implied condition that the agent is not entitled to act for a competitor. Not employed as full time nor exclusive agents

Question 42

Tell about conflict of interest case McPherson’s Trustees v Watt 1877

Answer 42

Solicitor buying by proxy of some of the houses in his care. Let personal interest conflict with the business - Watt sold 4 properties on behalf of the trustees. Selling to his brother for a discounted price. This case highlights you must be honest in your transactions

Question 43

Tell what are the rights of an agent (3)

Answer 43

• Remuneration
• Indemnity for services performed
• Lien over property

Question 44

What does a lien mean?

Answer 44

A legal claim - charge upon real or personal property for the satisfaction of some debt or duty

Question 45

Tell ways to terminate an agency agreement(3)

Answer 45

1) Termination by the agent or principal
2) Termination under the agency contract
3) Termination by frustration

Question 46

Tell about factors of termination by the agent of principal (2)

Answer 46

1) Parties agree to terminate agency (mutuality)
2) Principal may terminate without agent’s consent (clause; notice to third party, either party can be liable when the agency is not properly terminated)

Question 47

Tell about termination under the agency contract (3)

Answer 47

• Provision in the contract for termination (e.g. one off)
• Fixed time period
• Purpose of the agency has been fulfilled or come to an end

Question 48

Tell about termination by frustration (6)

Answer 48

• Occurrence of unexpected events which are out of the control of both parties
• Death
• Personal bankruptcy (sequestration)
• Insanity
• Discontinuance of principal’s business

Question 49

What happens when agency is terminated by frustration?

Answer 49

Either parties have no further or ongoing obligations.

Question 50

AQ: What is meant by tripartite relationship?

Answer 50

Know for the exam p. 17

Question 51

AQ: What is the difference between general and special agent?

Answer 51

Know for the exam p.17

Question 52

AQ: Briefly list and describe 5 ways in which an agency can be created.

Answer 52

• Express creation
• Implied creation
• Creation by ratification
• Creation by necessity
• Creation by holding out

Question 53

AQ: What are the conditions needed to establish agency by ratification?

Answer 53

• Agent must be action in the capacity of an agent and disclose this to a 3rd party
• Principal must be in existence at the time of the transactions, reachable
• Principal must have capacity to take the action in question
• The principal must be within relevant timescale
• Action being ratified must be legal
Principal needs to be fully aware of the agents actions

Question 54

AQ: Briefly list the duties and rights of an agent

Answer 54

p. 18 table

Question 55

AQ: With regard to the third party, what happens when an agent exceeds their authority?

Answer 55

p. 19 unclear answer