Law - 3 Agency - Summary Business Law PDF

Preview

Summary

AGENCY (pg 435 )Creation of Agency (Pg 4 39 )Actual Authority (Pg 451)Most agency relationships are created through actual authority being granted in the form of an agency contract. The rights and obligations of the principal and agent are usually specified in the contract, including the scope of au...

Description

AGENCY (pg 435) Creation of Agency (Pg 439) Most agency relationships are created through actual authority being granted in the form of an agency contract. The rights and obligations of the principal and agent are usually specified in the contract, including the scope of authority granted to the agent.

Actual Authority (Pg 451)

When Agent has no actual authority, alleged P is not bound (since he is not responsible and could not have purportedly stopped agent from acting UNLESS Third party plead apparent authority OR principal ratifies A’s act Express Actual Authority That which has been specifically expressed, either orally or in writing, in the agency contract Implied Actual Authority Agent’s power to do all acts which are within the reasonable customs and usages of the particular trade he is engaged in or which are reasonably incidental to the discharge of his duties as agent. Ostensible/Apparent authority exists when an agent appears to have actual authority when he in fact does not. rd - arises when principal held out to 3 party that agent had authority when he did not - agency by estoppel: principal estopped from denying existence of agency - any act done by agent with apparent authority will be binding on principal Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964) – To establish ostensible authority, it must be shown: (5 requirements for apparent authority) rd - representation from the principal, made to 3 party, causing them to think that that agent had authority when in fact he does not have authority - representation must be made by principal or person with actual authority rd - 3 party must be induced by the representation to enter into contract with the principal rd - 3 party must not know(not have actual knowledge) that the agent has a lack of authority - Principal had capacity to enter into contract

Ostensible Authority (Pg 452)

Jurong Shipyard Pte Ltd v BNP Paribas (2008) – If the third party knows that the agent did not have actual authority to carry out the act, any ostensible authority is negative as well. Abdul Jalil bin Ahmad bin Talib and Others v A Formation Construction Pte Ltd (2006) – In order to nullify the third party’s reliance on ostensible authority, such knowledge must be actual knowledge rather than constructive To prevent apparent authority: rd - Company disclose to 3 parties the limits of the agent’s authority - Advertise when agents cease employment - Notify customers individually If the company has expressly authorized the agent to make representations on its behalf, then any representation made by that agent he himself has authority to do an act is a good representation for the purposes of conferring apparent authority on that agent to do that act, even if he has been expressly prohibited to do it, even if it is not something that agents in his position usually have power to do. Hely-Hutchinson v Brayhead Ltd (1968) pg 442 The board by their conduct over many months had acquiesced in his acting as their chief executive and committing Brayhead to contracts without the necessity of sanction from the board.

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. The contract is then deemed to have been concluded as between the principal and the third party on the date when the agent entered into the contract and not on the date of ratification. Bolton Partners v Lambert (1889) – The ratification was held to be related back to the time of the agent’s acceptance and so prevented the third party’s subsequent revocation. Exception: Ratification will NOT have retrospective effect where: - Agent accepts the offer “subject to ratification” by principal. This constitutes conditional rd acceptance and remember that conditional acceptance is no acceptance! Hence, 3 party can withdraw his offer at any time before ratification. - Unconditional acceptance will take place at the point of ratification and offeror can withdraw his offer at any time before ratification takes place rd - 3 party knows that agent has no authority from principal For ratification to be possible, there are 4 main conditions to be fulfilled:

Ratification (Pg 455)

Principal must be identified The agent must expressly state that he is acting on behalf of his principal. The principal must either be named or ascertainable. Undisclosed principals cannot ratify. Keighley, Maxsted & Co v Durant (1901) – The House of Lords held that there was no contract with the appellant because the agent had contracted in his own name and had not disclosed he was acting for a principal. (corn merchant buying wheat as agent, but appellant undisclosed) Principal must exist Kelner v Baxter (1866) – For ratification to succeed, the principal must be in existence at the time of the agent’s action. (3 promoters) s41 Companies Act – Provides for an exception to this condition, allowing a company to ratify contracts made on its behalf prior to its incorporation, subject to certain conditions and within a reasonable period of time. Principal must have capacity The principal must have capacity to enter into and perform the contract at the time the contract was made and at the time of ratification. [principal cannot be a minor or of unsound mind] - A contract entered into by an agent may not be enforceable if the contract amounted to an act which is “beyond the power” of the company: eg. Limited company - Ashbury Railway Carriage and Iron Co v Riche (1875)pg 445 Principal must ratify within reasonable time The principal must ratify within a reasonable period of time after the contract was made by the agent, at least it must be occurring prior to the date when the contract is to be performed/carried out.

Operation by Law (Pg 458)

Agency of Necessity In emergency situations, a person is conferred with authority to act on behalf of the other, and that circumstances require immediate action and communication with principal is not possible. Couturier v Hastie (1852) – Shipmaster empowered to dispose cargo which was unexpectedly perishing at the nearest port Exception: Ng Hock Kon v Sembawang Capital Pte Ltd (2010) – Wife is not presumed to be the agent of her husband simply because of her status as his spouse

PRINCIPAL-AGENT RELATIONSHIP Duty to Follow Instructions An agent has a general duty to follow his principal’s instructions. If a solicitor has acted outside the scope of the actual authority granted to him by his principal (i.e. he has failed to follow his client’s instructions), he will be liable to his principal for doing so. Bertram, Armstrong & Co v Godfray (1830) – The principal succeeded in claiming damages from his broker when his broker failed to sell some of his stock when the market price reached a level specified by the principal. Duty to Use Care and Skill An agent must discharge his duties with reasonable care and skill. The standard required is that which a reasonable person would expect from an agent in that field of activity. If the agent is engaged because of a particular skill he has, he is expected to use that skill in discharging his duty. Keppel v Wheeler (1927) – The English Court of Appeal held that the agents should have known that because the first offer was “subject to contract” and was not a concluded contract, they had not fully discharged their responsibilities to the vendor by communicating the higher offer. E.g.: A property agent should fulfill his role up to the standard expected of property agents generally. Duty to Avoid Conflict of Interests Since an agent is a fiduciary, he must not place himself in a position where his interests conflict with his principal’s interests. Duties of Agent (Pg 448)

Cannot accept bribe or secret commission If the agent does so, the principal can obtain the remedy called “account of profits”, meaning that the principal can claim the bribe or secret commission from the agent. Cannot make secret profit Hippisley v Knee Brothers (1905) – The court held that the defendant was accountable for the discounts to the plaintiff and could not keep the discounts to themselves, even if it was in good faith. Cannot become counterparty in transaction with principal without his knowledge and consent, since his own interest would be in conflict with that of the principal’s De Bussche v Alt (1878) pg 449 – He should not have purchased the ship himself and act as a counterparty to his principal. Hence, he is liable to account for the additional profit to the plaintiff Duty Not to Delegate The agent has a general duty to perform his principal’s instructions personally. John McCann & Co v Pow (1975) – The English Court of Appeal held that the firm of real estate agents was not entitled to the commission originally agreed upon with the vendor even though the firm had played a role in the transaction because the flat was sold by the sub-agent. 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.

1. Right to remuneration - Agent can claim fees only when his duties under his agency contract are fulfilled Luxor (Eastbourne) Ltd v Cooper [1941] pg 451 Owner of land promised agent £10k commission if he introduced him to willing purchased. Agent did so and sale agreed subject to contract. Owner decided not to proceed. Agent tried to claim fee but owner refused. Agent sued for breach of contract alleging implied undertaking that owner wouldn't do anything to prevent sale. Court held owner could revoke any time up to exchange of contract Rights of Agent

2. Right to indemnity (protection against possible damage/loss) - Right to be indemnified by principal for liability/expenses incurred legally in performing duties - However, the agent loses this right of indemnity if the liability is caused by his negligence, breach of duty, or arises because he has acted beyond his scope of duty 3. Right of lien (right to take and hold or sell the property of a debtor) - Right of lien over principal’s property which is in agent’s possession as principal is indebted to agent i.e. agent can lawfully retain custody of principal’s property until such time as the amount owing to him has been fully paid

! ! ! PRINCIPAL- THIRD PARTY RELATIONSHIP rd

GENERAL RULE: Principal bound to 3 party as long as - agent does not exceed actual (express/implied) authority - OR agent has ostensible/apparent authority - OR principal has lawfully ratified the contract with the third party

General Rule

Applicable even when agent acted fraudulently as long as he acted within authority Lee Feng Steel v First Commercial Bank (1997) pg 452 – LFS liable for action of agent even though he acted fraudulently but still within authority In certain situations, a principal may also be liable for his agent’s misrep made to a third party. This occurs when the principal knew about the misrep and acquiesced in it or ratified it Ng Buay Hock & Another v Tan Keng Huat & Another (1997) pg 452 However, principal is not bound if agent had no actual or ostensible authority to make the representation Ng Kong Teck v Sia Kok Kok & Another (1997) pg 452 Agent acting within actual authority but without disclosing he is acting for a principal, can bind principal rd - Undisclosed principal may be bound even if at time of contract, 3 party had no idea agent was agent - Allow a person not a party to contract (undisclosed principal) to be bound by contract

Undisclose d*Principal* page*453*

4 qualifications (undisclosed principal may not be bound by contract if any applies): - Agent’s authority from ostensible/apparent authority or ratification (both cases, principal has to make some representation to third party by words or conduct) (principal not bound) -

Agent contracts himself as principal (principal not bound)

-

Contract revolves around identity of agent, so agent’s identity is important (principal not bound) Collins v Associated Greyhound Racecourses Ltd (1930) pg 454 Where the contract is one to underwrite an issue of shares in a company

-

Undisclosed principal revealed, 3 party must elect to sue either agent or principal rd rd ⇒ If 3 party chooses to sue the Agent, then principal is not bound because 3 party cannot change his mind.

rd

Trigen Industries Ltd v Sinko Technologies Pte Ltd & Another (2003) pg 455 The agent will continue to be liable even after the discovery of the agency by the other party, unless unequivocal election by the other party to look to the principal alone

AGENT-THIRD PARTY RELATIONSHIP (Pg 456) rd

Agent not bound to 3 party as long as: - agent has actual or ostensible/apparent authority - principal ratified agent’s act (ratification) Circumstances where agent personally liable: 1. Undisclosed principal - Depends on the factual circumstances of the case. 2. Agent agrees to be liable – if the agent signs the contract in his own name without any reference to his principal, the presumption is that he is the principal and the agent is rd liable to the 3 party. 3. Non-existent principal (In Kelner v Baxter, company was not incorporated and treated as non-existent) General Rule

EXCEPTION: depends upon construction of contract; if contract shows that intention was for the third part to contract only with the principal who is nonexistent, the third party actually contracts no one. It follows that no one is liable to the third party – Blackwood v Smallwood (1966)

4. Breach of warranty of authority – agent maybe sued for breach of warranty of authority rd rd by 3 party, where the agent acts without authority but represented himself to 3 party that he has the necessary authority (refer below for more) -

Initiated only if principal is not bound to the third part through ostensible authority If intentional, may also bring action in tort of deceit on top of breach If done carelessly, may be tort of negligent misstatement

5. Custom & trade usage in some business sectors – establishes that an agent’s contract entails personal liability on the part of the agent eg. Stockbrokers 6. Negotiable instrument, such as bill of exchange, needs to sign with reference to principal -

Breach*of* warranty*of* authority*

Bill of Exchange Act: To avoid being liable, the agent should sign off as ‘For and on behalf of [Principal], [Agent] as Agent’ rather than simply describing himself as one. rd When agent represents to 3 party that he has authority when he does not: rd - 3 party can sue for breach of warranty of authority - Tends to be initiated only when the principal is not bound to third party through ostensible authority rd - Agent’s representation = promise & 3 party’s attempt to enter contract = consideration Ku Yu Sang v Tay Joo Sing (1993)pg 458 – agent personally liable when: - Fraudulently represented he had authority when he had not: liable in tort of deceit - Innocently represented he had authority when he never had authority or his authority had ceased (whether he knew or not): liable in tort of negligent misstatement - By professing to act as agent he impliedly contracts that he has authority, and it is immaterial whether he knew of the defect of his authority or not

Termination of Agency (Pg 459) Termination ends actual authority but apparent authority can still continue if third party is unaware of the termination. P may be bound by A after the termination of the agency. Acts of

-

express termination/revocation clause in contract

parties

Operation of Law

-

full performance of agency contract repudiatory breach of agency contract, e.g.: agent discovered to have accepted a bribe principal revoking agent’s authority principal/agent = bankrupt/dissolved/dies/mentally incompetent destruction of subject matter (frustration of agency contract) the agent or principal becomes mentally incompetent

Additional If A enters into a contract with a third party without P’s authority, A is NOT bound by the contract If Y did not give authority to X who acted in the contract, Y is not bound by the contract P&T are able to assert that the agent’s unauthorized act has been ratified: Ø T can claim apparent authority of A by P Ø P did something which suggested ratification Third party is the only person who is able to plead apparent authority If A does not have actual authority but there was an implied representation since P appointed A to carry out a duty Ø T has a case against A with representation by way of conduct Disclosed and unnamed P: T knows the existence of P but do not know who Disclosed by named P: T knows the intention of P and who P is Undisclosed P: T does not know the existence of P at all

Summary

RELATIONSHIPS CREATED BY AGENCY Agent’s(Duties(

Rights between Agent and Principal Agent’s(Rights(

• •

Duty!to!account,!follow!instructions! Duty!to!use!reasonable!care!and!skill!

• •

Right!to!remuneration!(expenses!if!reasonable)! Right!to!indemnity!

• •

Duty!to!not!make!secret!profits!or!take!a!bribe! Duty!to!avoid!conflict!of!interests!

•

Right!to!lien!

•

Duty!not!to!delegate!his!job!to!another!

Principal – Third Party Relationship General(Rule( Exceptions( Principal!bound!to!third!party!as!long!as!agent!had!AA,!OA,!or! Principal!not!bound!to!third!party!if!principal!was!undisclosed! principal!chooses!to!ratify!agent’s!act.! and:! Rule!may!apply!even!if:! • Agent!had!OA!or!agent’s!act!was!ratified! • Agent!commits!fraud!on!principal;! • Agent!contracts!as!principal! or! • Agent’s!identity!is!critical!to!the!contract! • Principal!is!undisclosed!(for!cases!of!AA!only)! • Upon!principal!being!disclosed,!third!party!elects!to!

General(Rule( Agent!not!liable!to!third!as!long!as:! • Agent!had!AA! • •

Agent!had!OA! Principal!ratified!the!agent’s!act!

bind!agent! Agent – Third Party Relationship Exceptions( Agent!may!be!liable!to!third!if:! • Agent!agrees!to!be!bound! • •

Custom!or!trade!usage!says!so! Agent!signs!a!negotiable!instrument!

•

Principal!was!non-existent!

• •

There!is!BOWA! Principal!was!undisclosed!...