Agency is almost indispensable for the smooth functioning of modern day business and is almost as important as a contract (Muller - Freienfels, 1957). It is essential for commercial activity (Stone, 2005). In Lamb v. Goring, bricks and other building materials manufactured by Goring were to be sold, solely by Lamb & Sons. The Court held that the relationship was not that of an agency because Lamb was selling the building materials after purchasing them from Goring (Lamb & Sons v. Goring Brick Co, 1932).
Agency is governed by the same principles that apply to contracts and Privity of Contract involves the three parties to an agency, namely the principal, third party and the agent (Spurin, 2004).
Agency is a legally binding, wilful and mutually accepted agreement between two people. It need not be a written agreement, but the usual practice is to have a written agreement of agency (Moye, 2005).
The relationship between the principal and the agent is fiduciary in nature. The agent has to discharge these duties even if the agreement is silent about them. These are first, the agent’s duty to act in good faith and make available to the principal any relevant information. The second duty requires that the agent should not entrust the principal’s work to some other person, unless it involves discretion or confidence and has been included in the agreement.
The third duty requires the agent to refrain from an agreement that results in a conflict of interests. The fourth duty makes it imperative that the agent should not accept bribes and should transfer all amounts received from third parties to the principal. If the agent fails to do so, the principal can discontinue the agency and file a case in order to claim such amounts. The fifth duty specifies that the agent should not profit beyond the amount given by the principal. The principal can file a case for recovering such profits, abstain from making any remuneration to the agent, withdraw from the contract or dismiss the agent without notice.
Raphael the proprietrix of the Dreamland Guest House entered into a contract with Sylvester in order to recondition the Guest House. This contract specified that all changes to the contract had to be in writing. Raphael entrusted the supervision of this work to Andy. Subsequently, Andy suggested to Sylvester that it would be better to replace tiles with bathroom carpets in the bathrooms, which he would supply. Since, Sylvester agreed to this suggestion, Andy asked him to get Raphael’s written affirmation.
Sylvester refused to do so and stated that such confirmation was required only for additional structural changes. Therefore, Andy brought a number of carpets, which had to be stored in Colin’s garage for a fee of £100. Raphael on being appraised of these developments refused to pay Colin as well as Andy.
The relation between Raphael and Andy is that of Principal and Agent, respectively. Hence, Andy has to obey Raphael’s instructions exactly. The law of agency results in a fiduciary relationship between the principal and the agent. Moreover, in the absence of the principal’s concurrence, the agent is prohibited from undertakings that bring about a clash of interests. Any undisclosed amounts received by the agent have to be accounted for to the principal. This was the decision in the Mahesan case (Mahesan v Malaysian Government Officers Co-operative Housing Society Ltd , 1975).
In Hely-Hutchinson v Brayhead the court held that a managing director appointed by the board of directors was empowered to do all those things that by implication were supposed to be done by a managing directorship (Hely-Hutchinson v Brayhead, 1968).
Raphael had not empowered Andy to take major decisions regarding the renovation of the Guest House. Moreover, the substitution of tiles with bathroom carpets is not an act that is incidental to the work of renovation. Raphael had entered into a written agreement with Sylvester in order to get her Guest House renovated. Andy suggestion to use bathroom carpets instead of tiles should have been ratified by Raphael, as it involved additional expenditure. However, Andy made this change without obtaining Raphael’s approval. It is essential for the agent to provide complete information concerning any matter that the principal would want to know in respect of a transaction undertaken by the agent.
The agent has to employ reasonable skill and care, this was demonstrated in a particular case in which one of the parties to the dispute, namely, Chaudhry bought a car on the advice of Prabhakar, which was not up to the mark. On the basis of the circumstances of the case, the Court held that it was reasonable for Chaudhry to rely on Prabhakar’s opinion; therefore Chaudhry’s claim for negligence was successful against Prabhakar (Chaudhry v Prabhakar, 1988). The agent who works on a contractual basis has to discharge duties of care in contract and tort (Henderson v Merett Syndicates Ltd, 1995).
In addition, these bathroom carpets were stored in Colin’s garage, because the delivery person was unable to locate any one to accept them. This indicates Andy’s negligence because these bathroom carpets had been supplied by him. Furthermore, he should have made adequate arrangements for their proper storage. Moreover, Andy as Raphael’s agent had to carry out her instructions with reasonable care, diligence and to act solely for her benefit. Therefore, Raphael need not pay Andy for the bathroom carpets and Colin for having stored them in his garage.
Raphael asked Mildred to find a buyer for thousand teapots, which she would sell for £70,000 or to anyone who came closest to this price. She offered Mildred a five percent commission for the sale. Despite her best efforts the highest offer that she could obtain was for £60,000 from Kumar. Since, Mildred obtained information that the price of these teapots was falling rapidly and also because she was unable to contact Raphael, she accepted Kumar’s offer over the telephone. Subsequently, the teapot market registered an upswing and Mildred received £100,000 offers. Raphael refused to deliver these teapots to Kumar.
The duty of the principal is to pay the agent the agreed upon remuneration. Moreover, the principal has to reimburse the expenses of the agent and indemnify the latter against loss and liability that take place while carrying out the terms of the agency.
The Court held in Kepple v Wheeler, that it was the duty of Estate Agents to fetch the best price that could be procured reasonably. A number of Estate Agents had been engaged in order to sell a block of flats. These agents were in receipt of an offer for purchase that the owners approved subject to contract. Subsequently, these agents obtained a much better offer from some other party.
This information was not disclosed to the owners and the agents arranged for a resale betwixt the first and second offeror. The court decided that the agents had committed a breach of duty to procure the highest price and that the damages to be paid by the agents were deemed to be the difference between these two offers. An agent has to exercise a standard of care that any member of a trade or profession exercises.
The case of Ireland v Livingstone, concerned the purchase of five quintals of sugar from Mauritius by an agent. The principal disputed the amount purchased and stated that the agent had not followed his instructions. The court decided that that the agent had acted in good faith. Therefore, the principal could not avoid the contract (Ireland v Livingstone, 1872).
Mildred had discharged her duties as an agent with the utmost of skill and loyalty. Since, the antique teapot prices started to decline, she accepted Kumar’s offer. Unfortunately, after the agreement between Mildred and Kumar was concluded, the price of such teapots started to increase. Mildred’s had acted in good faith therefore her act binds Raphael the principal. Consequently, Raphael cannot withdraw from the contract with Kumar, despite the fact that she had not been conducting business with him for quite some time.
Raphael instructed Baldwin to manage the Guest House as she had to leave for some other place. On the 20th of July 2006, Henry, a local tradesman, offered to purchase the Guest House. After two weeks Baldwin accepted this offer, however on the 20th of August 2006, Henry withdrew the offer. A meeting was conducted between Raphael and Baldwin on the 20th of September 2006, wherein Raphael acknowledged the validity of Baldwin’s actions.
An essential feature of ratification is that it is applicable even if the third party withdraws from the agreement with the agent before the principal ratifies the agent’s act. Such a principle prohibits the retraction of the third party from the agreement despite the fact that the agent is without authority.
In Bird v. Brown it was held that ratification cannot deprive the property or contractual rights that have been vested in another person (Bird v. Brown , 1850). If a contract is entered into between an agent and a third party, in which the third party consents to sell property to the principal and in which the agent has not been authorized; then if the third party consents to sell the property to another person, the subsequent ratification by the principal cannot divest this other person’s contractual rights that have already been vested.
Since, Raphael had ratified the actions of Baldwin, her agent, after Henry had withdrawn his acceptance, she cannot claim against Henry for specific performance of the contract. This is due to the fact that before ratification the agent’s acts are not binding (Hinkel, 2003).
On the date that Raphael had ratified Baldwin’s action, in respect of the sale of the Guest House; Henry had already withdrawn his acceptance.
This is clearly illustrated in the case of Bolton Partners v. Lambert. In this case Lambert made a sale offer to Bolton’s agent. After Bolton ratified his agent’s act, Lambert attempted to revoke the offer. The court did not permit such revocation and held that it was too late (Bolton Partners v Lambert, 1889).
In Watson v. Davies, the court held that there cannot be contracts that have been formed without ratification as this equivalent to an offer that is to be accepted. It is possible to withdraw the offer prior to ratification (Watson v Davies, 1930). In our present problem, ratification of the agent’s act was done after the acceptance had been withdrawn.
Any such contract is incomplete prior to ratification. As per the decision in Watson v. Davies, offer can be withdrawn prior to ratification. In our case acceptance by the third party had been withdrawn prior to ratification by Raphael. Since there is no existing contract at the time of ratification, specific performance cannot be claimed. Hence, Raphael will fail in her claim for specific performance of the contract by Henry.
Bird v. Brown , 4 Exch. 786. (1850).
Bolton Partners v Lambert, 41 Ch D 295 , 302 (1889).
Chaudhry v Prabhakar, 3 All ER 718 (1988).
Hely-Hutchinson v Brayhead, 1 Q.B. 549 (Queens's Bench 1968).
Henderson v Merett Syndicates Ltd, 2 AC 145 (1995).
Hinkel, D. F. (2003). Practical Real Estate Law. Thomson Delmar Learning. P. 119.
Ireland v Livingstone, 5HL 395 (House of Lords 1872).
Lamb & Sons v. Goring Brick Co, 1 KB 710 (King's Bench 1932).
Mahesan v Malaysian Government Officers Co-operative Housing Society Ltd , 1 MLJ 77. (1975).
Moye, J. E. (2005). The Law of Business Organizations, 6e. Thomson Delmar Learning. pp. 1 - 4.
Muller - Freienfels, W. (1957). Law of Agency. The American Journal of Comparitive Law , 6 (2/3), 165 - 188.
Spurin, C. H. (2004). The Law of International Trade and Carriage of Goods. Retrieved March 5, 2007, from The Nationwide Academy for Dispute Resolution (UK) Ltd: http://www.nadr.co.uk/articles/published/shipping/002CHAPTERTWOTRADE5.pdf
Stone, R. (2005). Modern Law of Contract. Routledge Cavendish. pp. 157 - 159.
Watson v Davies, 1 Ch. 455. (1930).