Agency - Seminar Part 1 PDF

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Various tutors gave these lessons....

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SEMINAR 15 THE LAW OF AGENCY (1)

Type of authority

How created

Effect

Actual

The agent and his principal have agreed

The

(Express or implied)

that the agent should have the requisite

against the third party. The third party can

It is based on consensual

authority to act on behalf of his principal.

enforce the contract against the principal.

authority

v

can enforce the contract

The agent has no liability.

Hely-

Hutchinson/Ireland

principal

Actual authority can be either express or

Livingston

implied

Apparent/Ostensible

These two terms refer to the authority of

The third party can enforce the contract

A form of estoppel

an agent as it appears to third parties.

against the principal.



Freeman

Ostensible



Rama

representation



British Bank

words or by conduct) to a third party that



First Energy

the agent has authority. Where the third



Rafaela

party has relied on the representation

The principal can sue the agent for acting

(e.g.

without actual authority, if the agent had

authority

entered

is

from

based

the

into

on

principal

contract/

a (in

changed

The principal cannot enforce the contract against the third party.

position), the principal is prevented from

no actual authority.

Ratification

denying the agent’s authority (estopped). This can be created when an agent (who

The same as if the agent had prior actual

(A form of

has purported to act for another) does not

authority.

Actual authority)

have the requisite authority at the time of his

actions,

retrospectively

but

his

approves

principal or

adopts

(ratifies) the agent's actions. Note that an undisclosed principal cannot ratify his agent's actions, because the agent must Watteau v Fenwick

Necessity

have purported to act for another (1) When contract made, the third party

The third party can enforce the contract

thought it was made with the agent

against the principal (in which case the

personally;

principal can sue the agent for acting

(2) The agent had no actual authority to

without authority).

make the contract;

The principal cannot enforce the contract

(3) The contract was a type, which an

against the third party and cannot ratify it

agent such as that agent could usually

since the agent does not appear to be

have made. (1) A real emergency;

acting for the principal. The same as if the agent had prior actual

(2)

Impossible

to

get

the

principals

instruction (3) The agent acts in good faith and on the principal’s interests

authority.

Agency in common law: basic principles This note sets out in broad terms only some of the general common law principles of agency in English law. In the UK, before the Regulations, there had been very little, if any, regulation of agency agreements. Parties were free to contract subject only to limited rights and obligations implied by law. Disclosed principal A principal is said to be a "disclosed principal" where the third party is aware that the agent is acting on behalf of another person. This situation is sometimes referred to as a disclosed agency. A disclosed principal may either be: 

An identified principal. This means a third party knows the identity of the person with whom he is contracting (via the agent) at the time the contract is made.



An unidentified principal. This means the third party knows the agent is acting on behalf of another person but he does not know the identity of the other person. However identification could, if necessary, take place at the time the contract is made. If a third party is aware that an agent is acting as agent on behalf of an identified principal and the agent acts within the scope of his authority (actual or ostensible):



Direct contractual relations will be established between the principal and the third party.



The agent is not generally liable on the transaction to the third party unless he agrees to be so (expressly or through trade custom).



Only the principal can sue or be sued on the contract. However, if the agent has acted outside the scope of his authority (actual or ostensible) and the principal has not ratified his acts, the principal will incur no liability to the third party. It is therefore important to identify clearly the scope of an agent's authority. Undisclosed principal A principal is referred to as an "undisclosed principal" where a third party does not know that an agent is acting on behalf of another person because that fact has not been disclosed. The situation is sometimes referred to as an undisclosed agency. The third party believes he is contracting directly with the "agent". Where the fact that the agent is acting as agent is not disclosed to a third party that contracts with the agent thinking he is dealing with a principal, the third party has a choice (a right of election):



The general rule is that, provided the agent acted within the scope of his authority, both the real principal and the agent may sue or be sued on the contract.



If the principal reveals the agency relationship to the third party, the third party may either treat the agent with whom he contracted as the principal or accept the true principal, in which case the agent is relieved of his obligation to the third party.

2.

Basil is the owner of a restaurant. He is shortly to go away on holiday for three months and therefore appoints Manuel as restaurant manager to run things in his absence. However, Basil expressly prohibits Manuel from placing orders for goods with anyone other than Basil’s regular suppliers . Basil has informed his regular suppliers of Manuel’s appointment. Manuel is aware that Basil has a cash flow problem due to several account customers being slow payers. Basil has had to refuse to accept any further bookings from such account customers until their accounts are cleared. Shortly after Basil departed, the restaurant runs out of stock of paper napkins. Basil’s usual supplier cannot supply the napkins for two weeks and so Manuel contacts Napco Ltd, a new company. Slick, a representative of Napco, visits the restaurant and Manuel agrees to purchase napkins to the value of £200 on Basil’s behalf. Slick, who also works as a double-glazing representative, further persuades Manuel to purchase double-glazing for the front of the restaurant. Colin, who entertains a great many people at the restaurant, is an account customer. He makes an account booking for 100 people, which Manuel gladly accepts. It subsequently transpires that there is a large amount of money outstanding on Colin’s account. When Basil discovers what Manuel has been doing they have an argument and Manuel resigns. The next day Manuel goes to Goodelf Ltd, Basil’s regular supplier of wine, and purchases two-dozen bottles of wine on credit in Basil’s name. Manuel has a party at which all of the wine is consumed.

Advise Basil as to his rights and liabilities. PROBLEM QUESTION   

Basil- principle Manuel – Agency (express prohibition by the principle to place order for goods with new supplier Vapco- 3rd party

Agency- knows the cash flow problem Principle- refusing to accept booking from customers and had told the regular suppliers of agency appointment until the account is cleared. Usual supplier has no napkins Agent+ Principle – Fiduciary relationship –(which is to act in good faith)

Basil, Manuel, Colin – large sum of money outstanding on the account – Colin not acting in the best interest by booking 100 tables. No authority Can sue agent for warranty of authority Basil, Manuel, Goodelf Ltd No authority as Manuel doesn’t work got him anymore. Is there apparent authority? Yes, because he gave the suppliers that Manuel was to act on behalf of him, therefore all requirements of apparent authority is met. Basil should have informed his suppliers Will still be bound (Summers v Soloman)

Reading: Baskind Osborne & Roach: chapters 4 and 5



Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 Q.B. 480



Hely-Hutchinson v Brayhead Ltd [1968] 1 Q.B. 549



Watteau v Fenwick [1893] 1 Q.B. 346



British Bank of the Middle East v Sun Life Assurance Co of Canada [1983] 2 Lloyd's Rep.



Summers v Solomon (1857) 7 Ellis & Blackburn 879 particularly the judgment of Crompton...