Agency Law Notes

Agency is an agreement, express or implied, by which the principal entrusts to the agent, the management of the business; to be transacted in his name, or on his account, and by which the agent assumes to do the business and to render an account of it. Agency involves: Principal, who passes authority to Agent to effect the legal relations between the principal Third party, acted with principal through the agent Section 135 CA (Definition of Agent) An “agent” is a person employed to do any act for another or to represent another in dealings with third persons.

The person for whom such act is done, or who is so represented, is called the “principal”. Effects of agent: The agent derives his authority to act for and on behalf of the principal Made between the principal and the third party through the work of the agent Creation of Agency 1. Express Appointment Involved in actual consent of the principal and the agent. Written or oral form In commercial transactions it is usual (but not essential) to appoint an agent in writing, so that the terms and extent of the relationship are set down to avoid misunderstanding.

Case: Garnac Grain Co Inc v HMF Faure & Fairclough Ltd Relationship of P and A can only be established by the consent of the principal and the agent. Consent must have been given by each of them, either expressly or by implication from their words and conduct. Section 138 No consideration is necessary to create an agency. 2. Implied appointment (suggest, but not expressed) Is by way of the implied consent of the principal and the agent Derived from words and conduct of the parties in the way they have acted in connection to one another Case:

Chan Yin Yee v William Jacks & Co (Malaysia) Ltd Any person, irrespective of his competency to contract, may become an agent, for whose acts the principal may be liable to third parties. Where any person, by words or conduct, represents or permits it to be represented that another person has authority to act on his behalf, he is bound by the acts of such other person with respect to any one dealing with him as an agent on the faith of such representation, to the same extent as if such person had the authority which he was so represented to have.

Hely-Hutchinson v Brayhead Ltd Equiticorp Finance Ltd v Bank of New Zealand Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd Section 140 An authority is said to be express when it is given by words spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case. 3. By Ratification.

Convert an unauthorized act into an act clothed with authority Occurs when an agent does an act without the authority of the principal, but because of the subsequent conduct of the principal, the unauthorized act effectively becomes ratified as the principal’s own act as if the principal had previously authorized it. Ratification is retrospective, and dates back to the time the contract was made. Only validates past acts of the purported agent. It gives no authority for the future. Section 149.

Where acts are done by one person on behalf of another but without his knowledge or authority, he may elect to ratify or to disown the acts. It he ratifies them, the same effects will follow as if they had been performed by his authority. Section 150 Ratification may be expressed or may be implied in the conduct of the person on whose behalf the acts are done. Section 151 No valid ratification can be made by a person whose knowledge of the facts of the case is materially defective (faulty). Section 152.

A person ratifying any unauthorized act done on his behalf ratifies the whole of the transaction of which the act formed a part. Section 153 An act done by one person on behalf of another, without that other person’s authority, which, if done with authority, would have the effect of subjecting a third person to damages, or of terminating any right or interest of a third person, cannot, by ratification, be made to have that effect. (must not injure third party) A contract can only be ratified: (1) The agent must purport to act as an agent. (2) The agent must have a definite principal in mind.

(3) The principal must be in existence at the time of the formation of the contract (4) The principal must have contractual capacity (5) The principal must have full knowledge of all the facts at the time of ratification (6) Ratification, where no time is specified, must take plave within a reasonable time (7) Ratification may be express or implied (8) Ratification must be in full. The effects of ratification are: To product the rights and liabilities of P and A with regard to the act ratified It relieves A of liability A TP can sue P on the contract, and vice versa.

4. By Necessity Agency of necessity probably only applies where there is already some existing contractual relationship between the parties, as the law is highly unlikely to allow a person to be bound by the act of a complete stranger. Mercantile law, shipping law Must be a GENUINE EMERGENCY where A is entrusted with P’s property and acting in their best interest cannot get in touch with them. Section 142 An agent has authority, in an emergency, to do all such acts for the purpose of protecting his principal from loss as would be done by a person of ordinary prudence, in his own case, under similar circumstances.

Case: Sachs v Miklos There was no emergency China pacific SA v Ford Corp of India Agent must act reasonable and prudently in the circumstance Acted in good faith Impossible for the A to get P’s instruction Elements of agency of necessity There must be situation of necessity The A cannot obtain instructions from the P The A must act in good faith & in the interest of the P The A’s acts must be reasonable & prudent 5. By Estoppel Arises by operation of law and is no less effective than an agency expressly created.

Arises when words or conduct of the P give to contract with the TP is the A of the P, and the TP, as a result acts upon this. Arise where conduct of the apparent P creates it. Principal is “stopped”, prevent from denying the existence of the agency. Section 190 When an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by those acts or obligations if he has by his words or conduct induced such third persons to believe that those acts and obligations were within the scope of the agent’s authority.

Element to constitute Estoppel A representation made by or on behalf of the P to the TP concerning the authority of the agent. Reliance by the TP on the representation made by the P to the TP The TP rely on the P’s representation & alter his or her legal position on the strength of the representation. Case: Pole v Leask P is prevented from denying an agency existed if P has not communicated the termination of agency to the TP. Cheng Keng Hong v Government of the Federation of Malaya.

Authority of Agent to bind the Principal The contract made by the agent is binding on the principal and the other party only if the agent was acting within the limits of his authority from his principal. 1. Actual Authority Authority expressly given by the principal (orally or in writing), or implied from the express authority given, from: (1) Circumstances of the case, (2) Custom or usage of trade (Con-Stan-Industries of Australia v Norwich Winterthur Insurance), and (3) The conduct of parties.

Derived from the legal relationship of P and A as a consequence of a consensual agreement between the parties Section 139 The authority of an agent may be expressed or implied. Section 140 An authority is said to be express when it is given by words spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case. Section 141.

(1) An agent having an authority to do an act has authority to do every lawful thing which is necessary in order to do the act. (2) An agent having an authority to carry on a business has authority to do every lawful thing necessary for the purpose, or usually done in the course of conducting such business. 1b. Implied Authority Authority may also be implied from the nature of the agent’s activities or from what is usual in the circumstances, save in so far as such of implied authority would be contrary to authority expressly given.

Incidental and usual authority are implied because they are not expressly stated but they are still part of an agent’s actual authority. Thus , an agent also has actual implied authority 1. To do all things that are incidental to the actions expressly authorized 2. To do all things that are usual by the virtue of the agent’s office. Case: Watteau v Fenwick The P is liable for all the acts of the A which are within the authority usually confided to an A of that character, notwithstanding limitations, as between the P and the A, put upon the authority. – Wills J.

Agent does not have any usual or customary authority to contact on behalf the company as this is not usually confided to a clerical assistant (from model answer) Panorama Developments (Guildford) v Fidelis Furnishing Fabrics (Secretary has ostensible authority) Norwich Fire Insurance v Brennans Peterson v Moloney Estate agent has power to make representations binding on principal but usually no power to contract/receive money Estate agent, not principal’s agent for the receipt of money, purchaser must show that (1) Estate agent had express/implied authority.

(2) Principal has ratified the agent’s act (agency by ratification) or (3) Principal held out the agent’s act (agency of estoppel) 2. Ostensible/ Apparent Authority Section 190 When an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by those acts or obligations if he has by his words or conduct induced such third persons to believe that those acts and obligations were within the scope of the agent’s authority. Agent has a particular level of authority.

The authority as it appears to others Based on a representation by the principal to the TP that another is his agent or acts on his behalf and with his authority and the third party relies on such representation and deals with the agent. P represents to the TP that the A has authority to perform a particular task, when in reality A does not. Ostensible/ apparent authority is that which is not expressly given by the P but which the law regards the A as possessing although the P has not consented to his exercising such authority.

Is that which his P represents to other persons (with whom the agent deals) that he has given to the agent. As a result, an agent with limited actual authority can be held in practice to have a more extensive authority. A partner has considerable but limited implied authority merely by virtue of being a partner. If, however, the other partners allow him to exercise a greater authority than is implied, they represent that he has that greater authority and they bound by the contracts which he makes within the limits of this ostensible authority. Ostensible authority is not restricted to what is usual and incidental.

The P may expressly or by inference from his conduct confer on the agent any amount of ostensible or apparent authority. Case: Freeman & Lockyer v Buckhurst Park Properties When the principal by conduct allows an agent to exercise more authority than that originally given, when the principal gives an agent less authority than other agents of that class but fails to inform the third party of this act 3 elements to be shown Smith v Prosser When the principal terminates the agent’s authority but still allows it to appear that the agent still has that authority Curlewis v Birbeck.

First Enerygy (UK) Ltd v Hungarian International Bank Ltd Agent acted within his ostensible authority ELEMENTS TO PROVE OSTENSIBLE / APPARENT AUTHORITY [FREEMAN& LOCKYER V BUCKHURST PARK PROPERTIES] (1) P made a representation to the TP that the A had authority to enter into a contract. (2) The representation was made by a person who had actual authority to manage the business of the company. (3) The TP was induced by/relied on the representation to enter the contract. If there is no causal link between the TP’s loss and his reliance upon the representation, the TP will not be able to hold the principal liable.

Where a P has represented to TP that an A has authority to act but subsequently revokes the A’s authority, he will not escape liability. The P should inform TP who have previously dealt with the A of the change in circumstances. Implied or Ostensible authority may be greater than express authority. Duties of Agents 1. Fiduciary obligations Agent must act in “good faith” Case: Hewson v Sydney Stock Exchange Agent must follow Principal’s instruction Case: Bertram, Armstrong & Co v Godfray Agent must act in Principal’s best interests Agent must disclose personal interests Case: Lowther v Lord Lowther.

Agent not to make a secret profit Case: Blackham v Haythorpe Mahesan v Maysian Government Officers Co-operative Husing Society Ltd 2. Agent must use reasonable skills, etc Case: Mitor Investment Pty Ltd v General Accident Fire & Life Assurance Corp. 3. Agent must not divulge (disclose) confidential information. 4. Agent has duty to account to Principal all money &other property he receives for and on behalf of Principal Section 166 An agent is bound to render (provide) proper accounts to his principal on demand. 5. Agent must not delegate & must act in person. Case: John Mc Cann & Co v Pow Section 143.

An Agent cannot lawfully employ another to perform acts which he has expressly or impliedly undertaken to perform personally, unless by the ordinary custom of trade a sub-agent may, or, from the nature of the agency, a sub-agent must, be employed. Section 144 A “sub-agent” is a person employed by, and acting under the control of, the original agent in the business of the agency. Section 145 (1) Where a sub-agent is properly appointed, the principal is, so far as regards third persons, represented by the sub-agent, and is bound by and responsible for his acts, as if he were an agent originally appointed by the principal.

(2) An agent is responsible to the principal for the acts of the sub-agent. (3) A sub-agent is responsible for his acts to the agent, but not to the principal, except in case of fraud or willful wrong. Section 146 Where an agent, without having authority to do so, has appointed a person to act as a sub-agent, the agent stands towards that person in the relation of a principal to an agent, and is responsible for his acts both to the principal and to third persons; the principal is not represented by or responsible for the acts of the person responsible to the principal. Section 147.

Where an agent, holding an express or implied authority to name another person to act for the principal in the business of the agency, has named another person accordingly, that person is not a sub-agent, but an agent of the principal for such part of the business of the agency as is entrusted to him. Section 148 In selecting such an agent for his principal, an agent is bound to exercise the same amount of discretion as a man of ordinary prudence would exercise in his own case; and, if he does this, he is not responsible to the principal for the acts or negligence of the agent so selected.

Rights of Agents Agent rights to remuneration (money paid for work or a service) or to commission [depends upon individual contracts] Section 172 In the absence of any special contract, payment for the performance of any act is not due to the agent until the completion of the act; but an agent may detain moneys received by him on account of good sold, although the whole of the goods consigned to him for sale may not have been sold, or although the sale may not be actually complete. Rights to indemnity Recover their costs of exercising their authority and acting on behalf of the principal Section 175.

The employer of an agent is bound to indemnify him against the consequences of all lawful acts done by the agent in exercise of the authority conferred upon him. Right to lien When the principal doesn’t pay the agent’s fees, the agent can “keep” the property in their possession until principal pays the agent’s fees Section 174 In the absence of any contract to the contrary, an agent is entitled to retain goods, papers, and other property, whether movable or immovable, of the principal received by him, until the amount due to himself for commission, disbursements, and services in respect of the same has been paid or accounted for to him.

Liability of Agent and Principle to Third Party As a general rule, agent cannot sue or be sued on a contract between principal and third party where Agent discloses the agency relationship and names principal Agent discloses the agency relationship but does not name principal Agent is act as an “intermediary” Principal is the “party” to the contract with the third party Exception: Breach of warranty of Authority Case: Collen v Wright If agent expressly or impliedly represents they have the sufficient level of authority, it is actually like entering in a contract with the third party in which the agent promises they have personal authority.

The promise is a TERM, a WARRANTY. In other words, “I, the agent am promising that I have authority to do X” Section 188 A person untruly representing himself to be the authorized agent of another, and thereby inducing a third person to deal with him as such agent, is liable, if his alleged employer does not ratify his acts, to make compensation to the other in respect of any loss or damage which he has incurred by so dealing. Agency termination 1. By action / agreement of the parties 2. By the principal revoke the agent’s authority 3. By agent’s renunciation 4. By performance 5. By operation of law 6. Frustration of contract.

Termination of agency Section 154 An agency is terminated by the principal revoking his authority or by the agent renouncing the business of the agency; or by the business of the agency being completed or by either the principal or agent dying or becoming of unsound mind; or by the principal being adjudicated or declared a bankrupt or an insolvent. Termination of agency, where agent has an interest in subjectmatter Section 155 Where the agent has himself an interest in the property which forms the subject-matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest..

When principal may revoke agents’ authority Section 156 The principal may, save as is otherwise provided by the last preceding section, revoke the authority given to his agent at any time before the authority has been exercised so as to bind the principal. Revocation where authority has been partly exercised Section 157 The principal cannot revoke the authority given to his agent after the authority has been partly exercised, so far as regards such acts and obligations as arise from acts already done in the agency. Compensation for revocation by principal or renunciation by agent Section 158.

Where there is an express or implied contract that the agency should be continued for any period of time, the principal must make compensation to the agent, or the agent to the principal, as the case may be, for any previous revocation or renunciation of the agency without sufficient cause. Notice of revocation or renunciation Section 159 Reasonable notice must be given of such revocation or renunciation; otherwise the damage thereby resulting to the principal or the gent, as the case may be, must be made good to the one by the other.

Revocation and renunciation may be expressed or implied Section 160 Revocation and renunciation may be expressed or may be implied in the conduct of the principal or agent, respectively. When the termination of agent’s authority takes effect as to agent, and as to third persons Section 161 The termination of the authority of an agent does not, so far as regards the agent, take effect before it known to him, or, so far as regards third persons, before it becomes known to them. Agent’s duty on termination of agency by principal’s death or insanity Section 162.

When an agency is terminated by the principal dying or becoming of unsound mind, the agent is bound to take, on behalf of the representatives of his late principal, all reasonable steps for the protection and preservation of the interests entrusted to him. Termination of sub-agent’s authority Section 163 The termination of the authority of an agent causes the termination (subject to the rules herein contained regarding the termination of an agent’s authority) of the authority of all sub-agents appointed by him.