The Legal Basis of Agency PDF

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THE LEGAL BASIS OF AGENCY IN COMMERICAL LAW...

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Seminar 1

1. The basis of agency 2. Agency and other relationships 3. The agent's actual authority

Questions for consideration:

1. A contract of agency can only exist if the agent has been authorised to act and does so act with the consent of their principal.

Discuss the correctness or otherwise of this proposition.

2. Mike, an entrepreneur, has acquired a public house and employs Bet to manage it. The licence for the public house is obtained in Bet's name. Bet is instructed to do nothing other than purchase supplies essential to the proper running of the business, with the exception of cigars, which Mike will arrange himself. In June, shortly after her appointment, Bet agrees to sell the premises to Des failing to make any mention of Mike's existence. The contract stipulates that completion of the sale should be effected by the end of August. Mike discovers the nature of the transaction, is pleased at the price and seeks to ratify the contract in September. In the meantime, Des discovers Mike's existence and says that he would not have entered into the agreement had he been aware of all the facts, since he was once cheated by Mike and vowed never to deal with their again. Advise Des.

3. How would your answer differ if Bet had agreed to sell the premises to Des and had agreed to purchase a quantity of cigars from Fred, a wholesale tobacconist. On their occasion, Des was aware of Mike's identity and was prepared to go through with the purchase, but Mike was not. Mike also believes he could have purchased better quality cigars, from a different source, at the same price as that agreed with Fred. BOOKS: Bradgate, Commercial Law ch. 3 Brown, Commercial Law, ch. 1 Dowrick, The Relationship of Principal & Agent, (1954) 17 MLR 24 Fridman, The Law of Agency, chs. 1 & 2 Goode, Commercial law, ch. 5 Markesinis & Munday, Introduction to the Law of Agency, Introduction McMeel, Philosophical Foundations of the Law of Agency [2000] 116 LQR 387 Sealy & Hooley, Text & Materials in Commercial Law, Ch. 3 Stone, Law of Agency, ch. 1 Commercial Agents (Council Directive) Regulations 1993

NB There is a long reading list, but all of the standard texts on Commercial Law and the Law of Agency have been listed. It is not intended that you read every author. The general texts (i.e. Bradgate, Brown & Goode can be regarded as alternatives. It would be helpful to look at a specialist book on agency (i.e. Fridman, Markesinis & Munday or Stone). The two articles are much more detailed, but ought to be helpful.

A number of attempts have been made at defining the concept of agency, but it is necessary to remain somewhat guarded about brief definitions as they may omit certain essential characteristics of the agency relationship. The following, in some shape or form appear in some or all of the standard definitions:

(A) CONSENT (B) AUTHORITY (C) POWER

FRIDMAN: "Agency is the relationship that exists between two persons when one, the agent , is considered in law to represent the other, the principal, in such a way as to be able to affect the principal's legal position in respect of strangers to the relationship, by the making of contracts or the disposition of property."

BOWSTEAD: "...[T]he relationship that exists between two persons one of whom expressly or impliedly consents that the other should represent their or act on their behalf and the other of whom similarly consents to represent the former or so to act."

COMMERCIAL AGENTS (COUNCIL DIRECTIVE) REGULATIONS (SI 1993/3053) reg 2(1)

"Commercial agent" means a self employed intermediary who to negotiate a sale or purchase of goods on behalf of another person (the principal), or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of the principal; but shall be understood as not including, in particular: (i) company officers acting for the company;

(ii) partners acting for their partnership; (iii) insolvency practitioners Their definition clearly limits the scope of the Regulations in a number of ways. For example, it is confined to agents who buy sell goods. Moreover, the phrase 'self- employed might also be taken to exclude companies acting as agents. To fall within the scope of the Regulations, the agent must also have a 'continuing authority' which seems to suggest that an agent appointed on a 'one-off or temporaray basis will not be covered by the Regulations. But does their mean that it will be possible

to exclude the application of the Regulations by specifying in the contract of agency that the agent's authority is limited to a specific number of transaction, whereafter the agent's authority ceases to exist? Bowstead's emphasis is upon CONSENT, which has been accepted in the House of

Lords in Garnac Grain Co v H.M.F. Faure & Fairclough Ltd [1967] 2 All ER 353 at 358 per Lord Pearson. But can consent be the only relevant criterion in the light of legally imposed varieties of agency (e.g. presumed authority, apparent authority) and see also Boardman v Phipps

[1966] 3 All ER 721; [1967] 2 AC 46 where an agency relationship existed despite the lack of any evidence of consent. Also Lord Pearson in Garnac talks of deemed consent. Where consent is a relevant issue, it is important to appreciate that the courts will ascertain consent objectively, thus it was observed in Atlas Maritime Ltd v Avalon, The

How does their differ from actual consent?

Coral Rose, [1991] 4 All ER 769 (774-775 per Neill LJ) that the parties may have

consented even though they say they have not. A further consideration in defining agency is that an agent enters into legally binding contracts on behalf of the principal (see FRIDMAN above), so that definitions can be based on AUTHORITY.

See White v Lucas (1887) 3 TLR 516.

Was their decision based on the agent's lack of authority or on the fact that the principal had not consented to the agent representing their?

POWELL defines agency in terms of AUTHORITY and POWER. "An agent is a person who is authorised to act for a principal and has agreed so to act and who has a power to affect the legal relations of their principal with a third party."

Likewise DOWRICK, The Relationship of Principal & Agent, (1954) 17 MLR 24, states that, "the essential characteristic of an agent is that he is invested with a legal power to alter their principal's relations with third parties; the principal is under a correlative liability to have their legal relations altered."

What is meant by authority?

How does it differ from power? What or who confers power - is it the principal or the law? The primary duty of the agent is to make contracts on behalf of the principal. But can an agent affect their principal's relations with a third party where he has no authority and the principal does not consent to the manner in which the agent deals with the third party? See Lloyd v Grace, Smith & Co [1912] AC 716.

Does their mean that POWER is the best basis for definition? Does a definition based on power alone suffer the defect that it downplays the internal relationship between the principal and the agent? A power-based definition tends to concentrate mainly on the relationship between the principal and the third party as affected by the agents power to make contracts on the principal's behalf.

Are all of the traditional common law elements of an agency relationship to be found in the definition given in the Commercial Agents Regulations? What is absent? What is included which is not to be found in Common law definitions?

Another feature of the Principal-Agent relationship is said to be that of representation, that is A represents P. But it is important not to confuse the ability to represent with the authority to bind. Not all representatives necessarily affect the legal relations of the principal they represent.

See Sorrell v Finch [1977] AC 728 - what powers does an estate agent have? More importantly, are there any powers not possessed by an estate agent despite their representational capacity.

Also in Moorgate Mercantile Co Ltd v Twitchings [1977] AC 890 - who represented whom - but was there any agency relationship?

Agency and Other Relationships

An agent is a person who acts on behalf of another and enters into legally binding relationsips for the principal. However, the word agent is sometimes used in other senses which are not covered by the general law of agency. See e.g. Branwhite v Worcester Works Finance Co Ltd [1968] 3 All ER 104 where the phrase "sole agent"

was used to describe the relationship between a car dealer and the finance company and/or manufacturer. In their situation there is no true representational capacity. Concepts of true agency may creep into these relationships due to the presence of a reservation of title clause in the contract of supply under which the seller retains title in the goods sold until the supplier has paid for the

goods. See above "Retention of Title" (Sale of Goods Remedies) and the interpretation of the decision in Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676.

(a) Agents and Trustees

While agents and trustees both stand in a fiduciary position (neither may make a secret profit and both must account for property held on behalf of the principal/beneficiary) there are differences between the two types of relationship.

In particular:

- A trustee is the legal owner of the property he holds on behalf of the beneficiary, whereas an agent usually has no proprietary right at all;

- Trustees so not act in a representational capacity;

- A beneficiary can enforce their rights against the trustee on a proprietary basis, but generally a principal only has a personal claim against an agent. Although there seems to be an exception to their where the agent is in breach of their fiduciary duties as to which see later, especially the decision in Attorney General for Hong Kong v

Reid [1994] 1 All ER 1, Privy Council.

(b) Agents, Employees and Independent Contractors

Agents are generally employed to make contracts and dispose of property whereas employees and independent contractors are often employed to perform other tasks e.g. to provide services etc.

Agents also tend to have greater freedom from control than employees. However, the way in which the concept of apparent authority (see below) has been interpreted, there may be little difference between an employee and an agent, so far as misleading a third party is concerned.

(c) Agents and Bailees

If there is a delivery of property to a bailee by a bailor, the bailee is duty bound to deliver back the identical item and to look after the property in a particular way under the terms of the bailment.

Unlike an agent, a bailee does not act in a representational capacity. Also the bailee

cannot enter into contracts on behalf of the bailor. However, the bailee is entitled to perform such acts as are necessary for the completion of the task required under the bailment and these acts will bind the bailor - e.g. send goods to a third party for the purposes of repair.

The Creation of agency

BOOKS: Bradgate, Commercial Law ch. 4 Brown, Commercial Law chs. 2 & 4 Fridman, The Law of Agency chs. 4 & 5 Markesinis & Munday, Introduction to the Law of Agency chs. 1 & 2 Sealy & Hooley, Text & Materials in Commercial Law, Chs 3-6 Stone, Law of Agency ch. 2 Commercial Agents (Council Directive) Regulations 1993

A contract of agency may be created in FOUR different ways:

By express or implied agreement; By ratification Under the doctrine of apparent authority (estoppel);

· By operation of law; (see seminar 2)

(a) Express Agreement

While an express agreement will always produce an agency based on consent, it should be appreciated that the relationship will not always be contractual since there is such a thing as a gratuitous agent - i.e. there is an agrement without consideration and the principal is under no obligation to remunerate the agenet in respect of the work he does. For the purposes of an express agency, generally there are no formal requirements, although c.f. the position of an agent appointed to execute a deed under the Powers of

Attorney Act 1971 s. 1.

(b) Implied Agreement

An agency relationship can arise in the absence of agreement from the conduct of the parties. Thus the consent of the principal to be bound may be inferred from the fact that he has appointed a person to a position which suggests that he has the power to represent and affect the principal's legal position.

See Pole v Leask (1862) 33 LJ Ch 161: "No one can become the agent of another except by the will of that person. Their will may be manifested in writing, or orally or simply by placing another in a situation in which....that other is understood to represent and act for the person who has so %3D placed their...." Thus permitting someone to act in a capacity which is normally regarded as representative may give rise to an implication of authority. See Townsend Carriers Ltd v Pfizer Ltd (1977) 121 Sol Jo 375

(c) Agency arising under the doctrine of apparent authority (estoppel) (d) Agency arising by operation of law; (e) Ratification.

The Actual Authority of the Agent

The authority of an agent may be:

   

Actual (express or implied) By ratification Apparent By operation of law

Although artificial, it is the notion of authority which describes the agent's power to affect the legal position of the principal.

(a) Express Actual Authority

According to Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, 502: "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 ordinary principles of construction of contracts, including any proper implications from the express words used, the usages of the trade or the business between the parties." Frequently, the agreement will be contractual, but it does not have to be, provided there is an agreement e.g. where there is no consideration or where there is no intention to create legal relations. See Chaudhry v Prabhakar [1988] 3 All ER 718. It is vital to ascertain the scope of an agent's actual authority since their is capable of affecting other matters. For example, if the agent acts within the scope of their actual authority he is entitled to remuneration in respect of the work he has done according to the terms of the contract. Subject to the issue of ratification, acting outside the scope of an agreed authority may also constitute a breach of contract for which the agent may be liable in damages both to the principal and also to the third party on the basis of a breach of warranty of authority. Since ordinary principles of construction apply to the issue of the agent's express actual authority, it follows that if the principal's instructions are ambiguous and therefore capable of more than one construction, then any reasonable act peformed by the agent in good faith will be regarded as falling within the agent's authority. See Ireland v Livingstone (1872) LR 5 HL 395 If authority is given to perform specific acts, then general words following the specific language will be construed so as to allow the agent to perform only those acts necessary for the performance of the specific acts. See Jacobs v Morris [1902] 1 Ch 816: A power to purchase goods and sign cheques

did not confer a power to borrow money.

(b) Implied Actual Authority

It is possible to imply an authority in excess of that expressly granted if their is required for the effective and proper execution of the express authority. In Howard v Baillie (1796) 2 H BI 618 it was said that "an express authority necessarily

includes medium powers which are not expressed; medium powers denoting the means necessary to be used in order to obtain the accomplishment of the object of the The trouble with their rule is that a similar principle also applies to apparent authority

principal."

and it is often difficult to ascertain whether a particular decision rests on implied or

apparent authority.

See e.g. Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549

Here Roskill J based their decision on a finding of apparent authority, and that there was no implied authority on the part of the de facto managing director merely by virtue the Court of Appeal did not disagree with Roskill J's decision on apparent authority.

of their office. However, the Court of Appeal was unanimous that there was an implied authority 'from the conduct of the parties and the circumstances of the case.' However,

As Lord Pearson observed, actual and apparent authority can often 'coexist and

coincide'.

Examples of what has been treated as part of A's implied authority include: - An agent with a power to sell a house can also sign a written contract for the the Law of Property (Miscellaneous Provisions) Act 1989: Rosenbaum

purposes of

v Belton [1902] 2 Ch 267

- An agent employed to sell and receive goods and pay yourself out of the proceeds power to bring a personal action against the third party for wrongfully witholding possession: Curtis v Barclay (1826) 5 B & C 141

has a

However,

- An agent employed to find a purchaser for a house has no authority to receive a deposit: Sorrell v Finch [1977] AC 728 - An agent employed to sell goods by description has no authority to warrant their quality: Benmag Ltd v Barda [1955] 2 Lloyds LR 354

Where there is an actual implied authority, it must derive from the express authority given to A by P. Thus if the express authority prohibits A from performing a particular act, that agent cannot be given an implied authority to perform the same act.

Furthermore, there cannot be an implied authority in isolation, since what is implied must be related to some authority expressly conferred on A by P.

See The Choko Star [1990] 1 Lloyds Rep 516

There is an accepted trade usage that a ship's master is A for the owner of the ship. It follows from their that there cannot be any implied authority on the part of the master to enter into a contract of salvage on behalf of the cargo owner.

NB the position is different now by virtue of the Merchant Shipping Act 1995 s. 224(1) which gives the master authority to make such a contract.

Ratification

Generally, the P-A relationship is created before A acts, but in the case of ratification, P legitimises retrospectively an unauthorised act on the part of A. There are some conceptual difficulties with the doctrine, not least that the effect of the doctrine is to allow P to enforce a contract made on their behalf by A, despite the fact that A was not authorised to enter into the contract. However, the doctrine is well established and is regarded as a 'wholesome and convenient fiction'. (Lord Macnaghten in Keighley, Maxsted v Durant [1901] AC 240 at 247).

A number of conditions attach to their type of agency:

(i) Identification must be known or be capable of identification. It follows from their that P does not P have to be named, provided the fact of a representative capacity is revealed. However, the doctrine of ratification does not apply to a wholly undisclosed P. See Keighley Maxted v Durant [1901] AC 240

It appears, however, that if P is unnamed, provided the...