The law of Agency Revision PDF

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The Law of Agency...

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The law of Agency Revision From the Stokes Text book: Definition: - Agency is a relationship between one person, the principal, and another, the agent, under which the agent will fulfil the intentions of the principal and act on his behalf generally through the creation, modification or termination of contracts with a third party - This relationship is, as a general rule, created through the consent of both agent and principal relationship may, however, be created through express or implied agreement. - The law of agency involves three relations 1. Internal relationships between the principal and the agent 2. There is the external relationship between the agent and the third party 3. There is the relationship between the principal and the third party Authority: - The concept of authority, refers to the scope of the agent’s ability to affect the legal position of the principal. In many situations, the agent’s ability to affect the legal position of the principal. In many situations, the agent’s authority maybe defined in very narrow terms. - This instruction is the express actual authority granted by the principal to the agent. - Implied actual authority gives the agent the ability to do whatever associated tasks are necessary to ensure that the instructions of his principal are met. There are two concepts of authority, usual authority - this means that an agent will be deemed to have the authority that an agent in his position would normally have. Apparent authority: - by virtue of this concept an agent who acts outside his actual authority, will still be able to bind his principal where the principal has made a representation to the third part y that the agent is acting within his authority. - In such situations, the court is able to use estoppel to bind the principal to the actions of the agent even where the agent knew that he was acting outside his authority Consent: - The crucial element of the relationship of the principal and the agent is the voluntary grant of authority from the principal to agent and the volunatary acceptance of such authority by the agent - There are two methods of creating an agency relationship to exist: those with consent and those without - The consent model describes those agency relationships created by agreement and explains the naturel of actual authority

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The consent model fails, when it comes to non-consensual methods of creating an agency relationship and the nature of the agent’s authority in such relationships. Apparent authority ‘where a principal makes a representation to the third party that the agent has authority to do a particular act, the principal will be bound by that act. This does not fit in with the consensual model of agency law, since here, the authority is determined by the relationship between the principal and the third party rather that the relationship between the principal and the agent. The creation of Agency

Actual Authority: - Where the agency is created by express agreement - The agent can properly do anything detailed within the agreement - The extend of an agent’s actual authority depends on the proper construction of the terms of the agreement - The courts will generally be prepared to find that the principal was bound by the acts of his agent where the agent had honestly interpreted those instructions in a manner not intended by the principal Ireland v Livingston - The principal’s instructions were ambiguous and capable of more than one interpretation - Since the agent acted reasonably and in good faith on one of those possible interpretations of the instructions, the principal was bound. - This argument may now be less in favour, the principal will not be bound if the agent has the opportunity to confirm the meaning of the instructions with the principal before acting on his behalf. Freeman and Lockyer v Buckhurst Park Properties - ‘an ‘actual’ authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties. Its scope is to be ascertained by applying ordinarily principles of construction of contracts, including any proper implications from the express words used, the usages of the trade, or the course of the business between the parties.’ - The words ‘including any proper implications’ is a reference to the second category of authority and implied actual authority. Implied Authority - Agency can be created through implication - A clear illustration of both implied actual authority and also the creation of the agency relationship through implications that of Hely-Hutchinson v Brayhead Ltd - The chairman of the company acted as managing director for the company and entered into various contracts on behalf of the company - One contract that Mr Richards entered into on behalf of the company was for the company to act as a guarantor for various debts of a third party - The company sought to avoid honouring the guarantee arguing that Mr Richards had no authority to enter into the contract

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The court of appeal held that the company was liable since Mr Richards had actual authority to enter into the guarantee implied from the conduct of the parties and the circumstances of the case Implied authority cannot be employed contrary to the express actual authority granted by the principal It requires there to be an express actual authority in the first place, which is then supported by the secondary notion of implied actual authority The Choko Star the issue arose as to whether a ship’s master was able to make salvage contracts acting as agent for the cargo owner. It was clear that the ships master was, at all times acting as an agent and it was equally clear that he could also be the agent for the cargo-owner where the concept of agency of necessity applied. What was not clear was whether the master had implied actual authority to act on behalf of the cargo owner in salvaging the cargo in the absence of some competing and immediate situation which invoked the rules of necessity. Court of appeal held that it was not possible to consider any implied authority of the ship’s master since there was no agency relationship or authority by implication or otherwise. The decision would of course have been very different had the court of appeal been able to find that this was a situation where the ship’s master was an involuntary agent of the cargo owner as an agent of necessity.

Apparent authority - Where an agency relationship can be formed despite there being no express agreement to that effect is that where estoppel is established. This means that where an individual leads a third party to believe that another person is acting as his agent, the courts can find that there is an agent-principal- third party relationship in effect and enforce the contract between the principal and third party accordingly. - The creation of agency through estoppel has certain distinct features which set it apart from agency created through agreement. - It applies through the conduct of the principal towards the third party and is not defined by the conduct between the principal and agent. - `estoppel in this context has two distinct abilities. It can be employed by the courts to discover the existence of an agency relationship. - However, in order to expand on the nature of the agents authority where, for example, the agents actual authority does not extend to encompass the particular agreement with the third party. - In order for the to argue successfully that the principal is bound by the actions of his agent, the following requirements must be satisfied. 1. There must be a representation by the principal to the third party that the agent has authority. 2. The third party must rely on this representation 3. The third party must be aware that the agent is acting without authority - All of these requirements must be satisfied. Representation from the principal to the third party that the agent has authority - The representation must be such that it indicates to the third party that the agent has authority to act on behalf of the principal

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A representation can be implied through e.g. the conduct of the principal or through the course of prior dealings between the principal and the third party. Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) ltd: Diplock LJ said ‘the representation which creates ‘apparent’ authority may take a variety of forms of which rhe commonesr is representation by conduct, that is, by permitting the agent to act in some way in the principal represents to anyone who becomes aware that the agent is so acting that the agent has authority to enter on behalf of the principal into contracts with other persons of the kid which an agent so acting in the conduct of his principal’s business has usually ‘actual’ authority to enter into.’ Summers v Solomon: where an agent had managed his principal’s shop for a number of years. In the course of managing the shop, the agent did, on many occasions, buy goods on behalf of his principal form the third party for which the principal paid. The agent absconded, however, but still purchased goods purporting to do so on behalf of his (old) principal. After absconding, the agent was clearly not acting with any actual authority but the principal was liable on the contract since the previous course of dealing constituted a representation sufficient to clothe the agent with the necessary authority.

Reliance upon the representation - This requirement means that where the third party is unware of the representation made by the principal the third party cannot seek to bind the principal into the contract through apparent authority. - Citerion Properties Plc V Stratford UK Properties LLC: ‘apparent authority can only be relied on by someone who does not know that the agent has no actual authority. And if a person dealing with an agent knows it has reasons to believe that the contract or transaction is contrary to the commercial interests of the agent’s principal, it is likely to be very difficult for the person to asset with any credibility that he believed the agent did have actual authority.’ - The third party does not need to act upon his detriment - Artic Shipping Co Ltd v Mobilia AB, The Tatra: Gatehouse J stated ‘the only detriment that has to be shown in such a case is the entiering into the contract by the oarty relying on the authority.’ Third party must be unaware of the agent’s lack of authority - Lloyds Bank ltd v The Charted Bank of India, Australia and China: an employee of a bank was fraudulently drawing cheques on his principals account and paying them into an account in his own name with the defendant bank. - It was held that the defendant bank, the third party, the sums involved were large and also each of the fraudulent cheques was purported to have been signed by the same officer of the principal - The issue is not the fraud f the agent, but rather how they had not turned a blind eye to any suspicion of wrong-doing, Gross J suggested that the exercise of reasonable care would likely have resulted in the fraud being discovered was ‘neither here nor there.’ Necessity

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In certain circumstances the law ill impose an agency relationships or, where such a relationship already exists, exists, extended an agent’s authority to act by virtue for an emergency Springer v Great Western Railway Co: a consignment of tomatoes was delayed in transit due, in part, to a strike by dock workers which meant that the tomatoes could not be unloaded upon their arrival at the port. This delay meant that the tomatoes were starting to deteriorate and an ‘agent; sold the entire cargo and sought to rely on his position of agent of necessity in order to effect sale before the goods became unmerchantable. The Court of Appeal held that whilst the doctrine of necessity could potentially apply to these facts, it did not do so, since the ‘agent’ had the opportunity to contact the owners of the various consighnments of tomaotes and take instructions on how to proceed. Since the agent culd have contacted the owners, he was not an agent on necessity. China Pacific SA v Food Corportation of India, The Winson: Lord Diplock considered a two fold division of agency on necessity. 1. Where an agent enteres into a contract with a third party on behalf on the principal, consequently binding the principal contractually to the third party 2. Where a person acts for another and subsequently seeks reimbursement or an indemnity from him Prager v Blatspiel, Stamp and Heacock ltd:...