CHPT 9 Agency - Law PDF

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C HAPT ER 9 AG EN C YPRI VI T Y OF C ON T RACTGeneral Rule Based on the doctrine of privity, the general rule is that only the parties to a contract can sue and be sued on it.P R I C E V E A S T O N ( 1 8 3 3 ) A debtor owed Price £13. The debtor agreed to perform work for Easton on the condition t...

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CHAPTER 9

AGENCY

PRIVITY OF CONTRACT 

Based on the doctrine of privity, the general rule is that only the parties to a contract can sue and be sued on it. A debtor owed Price £13. The debtor agreed to perform work for Easton on the condition that Easton would pay off the debt which the debtor owed to Price. The work was performed but Easton failed to pay off the debt. Price sued Easton on the debt. Held: Price could not succeed, as he was not a party to the contract between the debtor and the Easton.

General Rule

PRI CE V EASTO N (1833)

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Exception 1: Contracts Rights of Third Parties Act (CRTA) According to s2 of CRTA, a third party to a contract is able to enforce any term of the contract if: o The contract expressly stated so. o The contract confers a benefit on him. o But will not apply if evidence show that the parties did not intend the term to be enforceable by the third party. o The third party is expressly identified in the contract by name. Exception 2: o One exception would be that when the contracting party is an Agent.

Liability of Agent

Definition

AGENCY   

An agency is a relationship where the agent acts on behalf of the principal and has the power to affect the principal’s legal position with regard to a third party. If an agency relationship is shown, the principal adopts the benefit and suffers the liability of the contract, even though he is not a party to the contract.

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The agent is not liable to his principal or the third party as long as he acts within the scope of authority given to him. Any liability flowing from his act flows to the principal. If the agent acts outside the scope of authority given to him, the agent would be liable personally.

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If the principal clothes the agent with authority to act on his behalf, an agency relationship is created.

Express Actual Authority 

Actual Authority

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When the principal expressly empowers the agent to act either by writing or orally, there is an express actual authority. If an agency relationship can be shown, the principal can enforce the contract and the third party can enforce the liability conferred to him.

Implied Actual Authority   o

When the agent is empowered to do all acts or which are within the reasonable customs and usages of the particular trade where he is engaged, he has an implied actual authority. If an agency relationship can be shown, the principal can enforce the contract and the third party can enforce the liability conferred to him. Example: An agent employed to sell a house has an implied authority to sign a memorandum of the contract. The agent is implied to have the actual authority by his title as a property agent.

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Ratification is the process through which a principal retrospectively confirms or ratifies an agent’s act, binding the principal to the third party as if the agent had actual authority to do so in the first place. If the principal did not provide the agent with actual authority but still wants to be bound by the contract, he can ratify the contract. - Once the contract is ratified, the principal adopts all the benefits and liabilities of the contract made by the agent on his behalf.

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If any of the below conditions are not met, the principal cannot ratify the contract.

1. The Principal Must be Named Or Identifiable KE I GHL E Y , MAX STE D & CO V DURANT (1901) 

The agent must expressly state that he is acting on behalf of his principal. If the principal is not named, he must at least be ascertainable. - If there are no facts to show that the agent is acting as a principal, we can presume that the third party knows that the agent is acting on behalf of his principal. - Undisclosed principals cannot ratify.

2. The Principal Must Exist When The Contract Is Made K E L NE R V BAX TE R (1866)

Conditions

Ratification

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At the time the agent made the contract, the principal must exist. Under s41 Companies Act, a company can ratify a contract made on its behalf even though it has yet to be incorporated at the time of contracting. However it is limited to certain conditions and ratification must be done within a reasonable period.

3. The Principal Must Have The Capacity To Contract At The Time Of Contract And Ratification 

The principal must have the capacity to contract at the time of contract and ratification. - A minor cannot ratify a contract made by his agent as he lacks the capacity to contract. - A contract entered into by an agent on behalf of a company may not be enforceable if the contract amounted to an act which is ultra vires (beyond the powers) on the part of the company. ASHBURY RAI L WAY CARR IAGE AND I RO N CO V R IC HE (1875) – Under s25 Companies Act, it states that such a contract will not be rendered invalid just because ‘the company was without capacity or power to do such act’.

4. The Principal Must Accept The Contract Unconditionally 

The principal must accept the contract unconditionally. - If the principal makes a conditional acceptance, the doctrine of relating back would not apply and the acceptance will take place at the point of ratification: WARE HO USI NG & F O RWARDI NG CO O F E AST AF RI CA V JAF F E RAL I & SO N S L TD ( 1964)

5. Ratification Must Be Given Within A Reasonable Period 

Legal Effect

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If the ratification is made after the contract was to be performed, generally the principal will not be able to ratify at all. It must be at the very least occur prior to the date when contract performed. If the contract involves dealing with perishables, the reasonable time would be short. - Example: The principal would not be able to ratify a contract of purchasing stocks past a short reasonable time of 1 day. Under the doctrine of “relation back”, the legal effect of ratification is to grant retrospectively to the agent authority to act on behalf of the principal and the ratification is effected at the time of contract. An agent of a company, purporting to act on the company’s behalf but without its authority, accepted an offer by a TP. The TP then withdrew his offer but the company ratified the agent’s acceptance. Held: The ratification related back to the time of the agent’s acceptance and prevents TP’s subsequent revocation. Hence TP was bound to the company. BOLT ON P A RT N E RS V LA MBE RT ( 1888)

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Ostensible Authority

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If the principal did not provide the agent with actual authority and does not want to be bound by the contract, the third party can argue ostensible authority to bind the principal to the contract. - If the principal, by words or conduct, create an inference to the third party that an agent has authority to act on the principal’s behalf, there is ostensible authority even though no authority exists in fact.

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To show that there is ostensible authority, all 4 conditions must be present: a) A representation that the agent had authority to enter, on behalf of the company, into any contract of the kind sought to be enforced, was made to the third party (contractor). b) That such representation was made by a person or persons who had ‘actual’ authority to manage the business of the company, either generally or in respect of those matters to which the contract relates. c) That the third party was induced by such representation to enter into the contract and relied on it and altered his position (by contracting with agent) resulting from the reliance. d) That under its memorandum or articles of association, the company was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent. Example: The agent makes a name card that has a title which is misleading to his authority, and the principal came to know about it. If the principal pointed out the error in the title, he has by words cancelled the representation. If the principal was aware of the error yet did not do anything, he has by conduct affirmed the representation.

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Exception 1: If the third party knows of the agent’s lack of authority, the third party cannot argue ostensible authority. J URONG SHI PY ARD PTE L TD V BNP PARI BAS (2008) Exception 2: If the contract was procured under a bribe, it is against public policy and the law would not argue ostensible authority in favor of the third party Company officers often are found to have ostensible authority. (e.g. Secretary/GM of Finance) In HO NGK O NG AND SHANGHA I BANK ING CO RP LT D V J URO NG ENGI NE E RI NG L TD & O THE R S (2000) the Singapore High Court went so far as to state that “…if the company has expressly authorised the agent to make representations on its behalf, then any representation made by that agent that he himself has authority to do an act is a good representation for the purposes of conferring apparent authority on the agent to do that act, even if he has been expressly prohibited to do it, and even if it is not something that agents in his position usually has power to do.” They cited THE RAF F AE LL A; SO PL E X WHO LE SAL E SUPPL I E S LTD AND PS RE F SO N & CO LTD V EGY PTI AN I NTE RNATI ONAL F ORE I G N TRA DI NG CO (1985) & FI RST E NE RGY (UK ) L TD V HUNGARI AN I NTE RN ATI O NAL BANK

Operation of Law

Breach of Warranty of Authority

LTD (1993 )

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In some cases, an agent may have both ostensible authority and implied authority. HE L Y -HUTCHI NSO N V BRAY HE A D L TD (1968) which was cited with approval by the Singapore Court of Appeal in SPP L TD V CHE W BE NG GI M & ANO THE R (1993) & BANQUE NATI O NAL E DE PARI S V TAN NANCY & ANO THE R (2002)

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If the agent did not have any actual authority, the principal refused to ratify the contract and the third party cannot argue ostensible authority, the third party can instead sue the agent for breach of warranty of authority.

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The last method by which agency may be created is through operation of law. This means that the law deems an agency to exist even if there is no agreement to that effect by the principal or agent. Two instances may be cited where such agencies can arise by Operation by Law: Agency of Necessity - The law recognizes that a person, in an emergency situation, should be conferred with authority to act on behalf of another. - Such circumstances require immediate action and communication with the principal is impossible. With modern communication facilities, however, the likelihood of situations occurring where agencies of necessity may arise is probably greatly reduced.

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Cohabitation - Premise of implied authority in households (Wife/Husband)

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DUTIES OF AGENT TO PRINCIPAL 

The legal effect of the breach of duty: - Principal has the option to affirm or discharge the agency contract. - Principal is entitled to damages.

Duty To Follow Instructions 

If the agent fails to follow his principal’s instructions, it constitutes a breach of their agency contract.

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The legal effect of the breach of duty: - Principal has the option to affirm or discharge the agency contract. - Principal is entitled to damages. Exception: If the agent acts within his ostensible authority and within legal proceedings, it would not lead to a breach of their agency contract in the eyes of the law: ABDUL J ALI L BI N AHM AD BI N TAL I B AND O THE RS V A

Duties of Agent

BE RTRAM, ARMSTRO NG & CO V GO DF RAY (1830)

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F ORMATI O N CO NSTRUCTI ON PTE L TD (2007)

Duty To Use Care And Skill   

The standard of care required is that which a reasonable person would expect from an agent in that field of activity. If the agent fails to discharge his duties with the reasonable care and skill, it constitutes a breach of their agency contract. K E PPE L V WHE E L E R (1927) The legal effect of the breach of duty: - Principal has the option to affirm or discharge the agency contract. - Principal is entitled to damages.

Duty To Avoid Conflicts Of Interests  

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If the agent puts himself in a position where his interests conflict with the principal’s interests, it constitutes a breach of their agency contract. The legal effect of the breach of duty: - Principal has the option to affirm or discharge the agency contract. - Principal is entitled to damages. Exception: If the agent has fully disclosed the conflict of interests to his principal and obtained the principal’s consent, he would be entitled to do so.

Must Not Accept A Bribe Or Make Secret Profits 

If the agent makes any form of secret profits or accepts any bribes, the principal can claim them from the agent, obtaining the remedy called “account of profits”, even if the principal suffered no damage. HI PPI SL E Y V K NE E BRO THE RS (1905)

Duty Not To Delegate 

If the agent delegates his responsibility to others, it constitutes a breach of their agency contract.

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The legal effect of the breach of duty: - Principal has the option to affirm or discharge the agency contract. - Principal is entitled to damages.

JO HN M CCANN & CO V P OW (1975)

Duty To Keep Separate Accounts  

An agent has a general duty to keep proper separate accounts for the principal, showing all property belonging to and all transactions undertaken on behalf of his principal. The legal effect of the breach of duty: - Principal has the option to affirm or discharge the agency contract. - Principal is entitled to damages.

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New Estate Agents Bill 2010

New Estate Agents Bill 2010 

Highlights of this new Bill include: - The Council for Estate Agencies, a new statutory board is set up. - New rules to regulate the real estate agency industry. - An estate agent cannot act for both the buyer and seller in the same transaction.

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The agent has the right to claim his pay after he has fulfilled his duties under the agency agreement.

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Important to ensure that the agency contract states the specific events which trigger the agent’s right to claim his fee. LUX O R (E ASTBOURNE ) L TD V CO OPE R (1941)

Right to Indemnity

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The agent has the right to claim from his principal all liabilities and disbursements lawfully incurred from performing his duty. - However, the agent loses this right if the disbursement arises from activities beyond the scope of his authority.

Right of Lien

Right to Remuneration

DUTIES OF PRINCIPAL TO AGENT

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In certain types of agencies, as long as a principal is indebted to his agent, the agent has a right of lien over the principal’s property, which is in the agent’s possession. This means that the agent can lawfully retain custody of the principal’s property until such time as the amount owing to him has been fully paid.

CAI N SAL E S & CO NSULTANCY PTE L TD V BE YO NI CS T E CHNO L O GY L I MITE D (2 003)

General Rule

PRINCI PAL TO THIRD-PART Y RELATIONSHIP 

A principal is bound to a third party for all acts performed by the agents as long as: 1) The agent does not exceed his authority. 2) The agent has ostensible authority. 3) The principal has lawfully ratified the contract with the third party.

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This applies even if the agent acts fraudulently to the detriment or benefit of the principal as long as the act is not beyond the scope of his agency. A principal can also be liable for his agent’s misrepresentation to a third party if the principal knew and acquiesced in it or ratified it. According to the rule, the agent acted within the agent actual authority but did not disclose to the third party that he was acting for a principal, may sue and be sued under the contract. Hence, an undisclosed principal may be bound to the contract even if, at the time when the agent made the contract, the third party had no inkling that the agent was in fact an agent acting on behalf of a principal. This doctrine imposes a higher potential liability on the agent, thus in practice, an agent will usually seek to avoid personal liability by at least disclosing, if not naming, his principal.

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Doctrine of Undisclosed Principal

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Four Main Qualifications which effectively limit the application of this rule. The effect is that, if any of these qualifications apply, then the undisclosed principal will not be bound to the third party. (1) Agent authority must not be ostensible authority or one, which arose by virtue of ratification. (2) If the agent entered into the contract in circumstances, which implies he is, in fact, the principal, the undisclosed principal may lose his rights under the contract. E.g. The agent executes the contract as “owner” of ship in HUMBL E V HUNTE R (184 8) (3) If the contract revolves around matters, which are unique to the agent, or the agent’s identity is critical to the contract, then the undisclosed principal may not intervene in the contract subsequently. CO L L I NS V ASSO CI ATE D GRE Y HO UND RACE CO URSE S L TD (193O )

(4) When an undisclosed principal is revealed to the third party, the third part can elect to sue the agent or principal. However, he can only bring one legal action.

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AGENT TO THIRD-PARTY RELATIONSHIP 

As long as the agent had actual or ostensible authority or the principal ratified the agent’s act, the agent owes no liability to the third party.

Exceptions: (1) Agent agrees to be liable. If the agent signs on the contract in his own name without any reference to his principal, the general presumption is that he is the principal and he will be held liable.

General Rule

(2) Trade Usage. In certain business sectors, custom and trade usage have established that an agent’s contract entails personal liability on the part of the agent. (e.g. Stockbroker, Freight Agents) (3) Negotiable Instruments. An agent who signs a negotiable instrument, such as a bill of exchange, may be liable even if he describes himself on the instrument as ‘an agent’. This is because the s26(1) Bills of Exchange Act provides that the addition of words describing him as an agent does not exempt the agent from personal liability. To avoid personal liability, the agent should sign his name on the negotiable instrument as such: “For and on behalf of [Principal], [Agent] as Agent” or “ per pro [Principal], [Agent]” (4) Non-existent Principal. An agent may be liable personally to a third party if he contracts on behalf of a nonexistent principal. However, this principle does not apply automatically and depends upon the construction of the contract. (e.g. Company not yet incorporated) (5) Breach of Warranty of Authority where an agent represents to the third party that he has his principal’s authority to contract when in fact he does not, the third party may sue the agent....