7. law and ethics - Agency Law

1. Law and Ethics
7. Agency Law

2. By the end of this section you will be able to ...
● Define the agency relationship and know the different
types of agents
● Describe how agency relationships are created
● Identify the duties and rights of an agent
● Identify the liability of an agent
● Discuss the various methods of terminating an agency
relationship

3. What is agency
law?

4. Agency law governs the relationship between
agents and principals. Some principals are
the owners of businesses who employ agents
to help them to find a relevant third party to
negotiate and enter into a contract with.

6. https://www.youtube.com/watch?v=DEX-w31q6U0

7. Law of Agency
Governs relationship between three
parties
PRINCIPAL == AGENT == THIRD PARTY
The Agent is not a party to the
contract nor will they have any rights
and obligations under contract.

8. Why might
someone get an
agent to do work?

9. Why?
Expertise
Skill
Better negotiating

11. Consent and Authority
The principal and agent enter into
relationship on consent.
This relationship then gives the agent
“authority to act” on the principals
behalf in creating a legal relationship
between the principal and a third party.
This authority is the most important
aspect.

13. Classifications of an Agent (Two Types)
General Agent and Special Agent
General Agent is person who acts for
the principal in ordinary course of
trade
Special Agent only has the authority to
act for a specific purpose

14. Creation of an Agency
1. Agreement
2. Ratification
3. By Estoppel
4. By Necessity

15. Creation of an Agency - 1. Agreement
Most common - both parties enter agreement
Verbal or written
Authority must be expressed or implied
a) Express authority = limited to actual
terms
b) Implied authority = where parties act in
a way reasonable for other persons to
infer from conduct that the agent has the
authority

16. https://www.youtube.com/watch?v=ccMahobJTQg

17. Wattau v Fenwick
Hotel manager entered contract with
cigar manufacturer to supply cigars
against wishes of hotel owners.
Owners refused to pay and said manager
had no authority to enter contract.
Court upheld contract and said that it
was reasonable to presume owner had
authority to enter contracts

18. Hely Hutchinson v Brayhead
Company chairman was allowed to act
as a managing director agreed to
guarantee debt of another company.
Court held that although he wouldn’t
normally have authority to guarantee
the loan, as he was acting MD, the
third party was entitled to believe
he was entitled to a loan.

19. Robinson v Mollet
Court held that if you are going
to rely on implied authority
arising from a custom, then the
custom must be:
1) Universally known
2) Binding
3) Reasonable

20. Creation of an Agency: 2 - Ratification
When agreement is entered into between
the principal and the agent after the
agent has made the contract with the
third party.
Even though principal may not have given
the agent authority to contract, they may
be happy to ratify after the fact.
Rules exist so that no one is unfairly
prejudiced

21. Kelner v Baxter
Directors of hotel were personally
liable for contract entered into with
a third party on behalf of a company.
Ratification by the principal must
take place within a reasonable time of
the contract entered into by the agent
and the third party.

22. Bolton Partners v Lambert
Company ratified the MD’s contract with a third party to buy
the company’s factory, two weeks after the contract was made.
Court held that two weeks was a reasonable period in which to
ratify contract.
Agency must tell the third party they’re acting on behalf of
a principal

23. Keighley Maxsted & Co. v
Durant
Principal authorised the agent to buy
wheat at a certain price on his behalf.
Agent purchased wheat at higher price from
third party in his own name and didn’t
disclose the existence of principal with
third party.
Principal failed to pay and third party
sued for breach.

24. Remember these rules
Principal must have existed at time contract was made between agent and third
party
Ratification must take place in reasonable time
Agent must tell third party they’re acting for principal
Principal must have legal capacity to enter contract
Principal must ratify entire contract not just parts, and must communicate
this to third party
Once ratified, contract is binding from date of ratification

25. Creation of an Agency - 3. Estoppel
Estoppel means that an individual or
corporation is prevented (or estopped)from
making assertions that are contradictory
to his or her prior position on certain
matters.
In this case, they are estopped from
denying the existence of a contract on
basis of behaviour where the behaviour
points to the individual acting as if
contract was in existence.

26. No actual agreement between agent
and third party but principal allows third
party to believe that the person is acting
as an agent on their behalf.
(see page 84)

27. Freeman and Lockyer v Buckhurst Park
Properties
Company (principal) held out one of their directors to be MD.
Director made contract with firm of architects. Company
refused to pay and argued that the contract between the
company and architects was not effected properly as the
director who entered contract did not have proper authority.
Court held that the company had held the director our to be a
managing director and represented to architects that he had
authority: CONTRACT UPHELD.

28. Ostensible / apparent authority
Authority that arises where there’s no agreement.
Authority not given to the agent by the principal but the
principal makes representation to the third party that agent
has authority to act….
….so the agent is considered to have apparent authority to
act.

29. Court will uphold contract made on the basis of
apparent authority to act provided
- Representation made to third party by principal or
agent acting on behalf of principal
- Third party relied on the representation to enter
contract
- Principal had legal capacity to enter the contract
- Third party did not know that the agent did not have
the authority the principal represented the agency to
have.

30. Creation of an Agency - 4. Necessity
Agency can be created without consent of the
parties where an emergency situation arise and
forces agent to act in this capacity to protect
the property or interest of the principal if
- Agent is entrusted with principal’s goods
- A genuine emergency situation exists

31. Sachs v Miklos
Storage owner who was storing furniture on behalf of
principal, acted as principal’s agent and sold furniture
because it was not convenient for him to continue storing.
Principal sued for losses and owner argued that he acted as
agent by necessity.
Court held there was not an emergency situation and storage
owner was liable to principal for losses incurred.
(entrusted with goods / genuine emergency)

32. Springer v Great Western Railway
Railway company sold tomatoes that had just arrived off
delayed cargo and were going bad. Principal sued company
for losses incurred as result of selling locally and
preventing principal from selling in London.
Court held railway co. should have been able to communicate
with principal before selling tomatoes, therefore they were
liable for losses incurred. Agent must be unable to
communicate with or obtain instructions from the principal

33. Great Northern Railyway v Swaffield
Agent must be acting principal’s best interests and not his
own benefit
Defendant delivered a horse to railway company for transport
but failed to collect it on arrival as agreed. Railway co.
sued the Def for the cost of feeding the horse, arguing an
agency of necessity.
Railway co. said they were acting in the best interest
defendant. Court upheld the claim.

34. Dutiesan agent owes to principal:
- Duty to act with due care and skill
- Duty to obey instructions and not exceed authority
- Duty to avoid conflicts of interest and make full
disclosure
- Duty not to make secret profit
- Duty not to delegate
- Duty to account
- Duty to communicate and keep confidentiality
Rights of agent:
- Entitled to be paid once performance is completed

35. Liability of Agent
to a third party

36. https://www.youtube.com/watch?v=3mtyHL43FYU

37. Contracting within authority
Agent who creates a contract on behalf of principal is not
personally liable for contract provided the agent has acted
within his actual or apparent authority and complied with
relevant rules in creating agency relationship.
Principal is liable to third party and must perform to avoid
a breach of contract.
Agent sets contract but principal enforces it.

38. Contracting outside authority
Agent who creates contract but exceeds authority will be
personally liable to third party for breach of authority.
This means, the agent who has breached the warranty or
guarantee to the third party that he has the authority to
enter into such a contract on behalf of the principal.
The agent will not have liability towards the principal for
exceeding his authority because the principal is not party to
the contract.

39. Terminating an Agency Agreement
Methods - Actions of the parties:
Consent
Revocation
Renunciation
Completion
Notice

41. Termination by operation of the law
Agency relationship automatically terminated where one of
following events arise
- Death, mental incapacity or bankruptcy
- Expiry of the agency agreement
- Occurrence of a frustrating event
- Change in the law affecting the contract of agency

42. Attempt Qs 1,2
and 3 on page 89

43. msstephanielord@yaho
o.com