The Law of Agency

Who is an agent?

A person who has authority to enter into contracts on behalf of another

That other is the principal

They will attempt to bind a third party

Examples
Auctioneers Directors Partners Estate Agents Sports Agents Sales staff

Agents Powers

To enter into a binding contract with a third party

To buy goods To hire To sell goods or property To agree contractual terms

Duties of the Agent to the Principal

To obey instructions
To exercise care and skill [s13 Supply of Goods and Services Act 1982] and Chaudry v Prabhakar [1988]

To avoid conflict of interest Armstrong v Jackson [1917]

More duties

Not to make a secret profit Boardman v Phipps [1967]

No bribes!

Account for actions [Boardman as above]

Rights of an agent

To be paid and/or reimbursed for expenses

Not to be terminated during the agency contract [breach by principal]

Termination of the agreement

Frustration Condor v Barron Knights [1966]

Death! Insanity!

Bankruptcy

Authority of the Agent

1.
2. 3. 4. 5.

6.

Express authority Implied actual authority Apparent authority By necessity Usual authority By ratification

Express

Verbal or by contract
Limits may be set on the agents ability to contract

Implied Actual

Arises from the agreement or conduct between principal and agent

This gives the agent the power to enter contracts/deal in line with their trade/profession/position/custom Hely Hutchinson v Brayhead 1968 The Chairman and Chief Executive of a company acted as the de facto Managing Director although he had never been formally appointed to that position. He entered into a contract on behalf of the company which attempted to bind a third party and the company. The third party tried to enforce the contract, but the company claimed that the chairman was acting outside the scope of his authority. Held: Though the director had no authority as chairman, he DID have implied authority as the CEO, and thus the contract was binding on the company. As such the director COULD bind his company on the basis of implied authority.

Implied [cont]

The implied authority can exceed the express authority BUT not if it contradicts an express limitation that is communicated to a third party

Watteau v Fenwick (1893) Facts: the new owners of a hotel continued to employ the previous owner as manager. The expressly forbade him to buy certain products including cigars. However, the manager did buy cigars from a third party, who then sued the new owners as the managers principal for non-payment Held: that the buying of cigars was WITHIN the usual authority for a manager of such an establishment, and that if that authority was limited then it MUST be communicated to the third party

Apparent or ostensible authority

This arises through the principal representing to a third party that the agent has authority and the third party relies on this.
It also arises where the third party believes the agent has authority and the principal does not act to correct the mistaken belief

Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964) Facts: A particular director had never been appointed as MD, but he acted with the clear knowledge of the other directors and entered into a contract with the third party on behalf of the company. The contract failed and the third party sued for the fees Held: the company was liable. A properly appointed MD would have full authority to enter into such a contract, and the third party was entitled to rely on the uncorrected representations made by the other directors

Apparent [cont]
Willis Faber & Co Ltd v Joyce (1911) Where a principal has PREVIOUSLY represented to a third party that an agent has the authority to act on their behalf.

Even if the principal has since revoked that authority, they may still be liable for the actions of the former agent UNLESS they have informed the third party of the revocation of those powers. As such, companies must inform previous clients where a director has had his authority removed or reduced.

Necessity

The agent must be in control of the principals property

It must have been possible to take instructions

There must have been a real emergency that needed the agent to act
The agent must act in good faith Springer v Great Western Railway [1921]

Usual

The courts IMPLY authority where there was neither actual nor apparent authority

Watteau v Fenwick [1893]

By ratification

This arises where the agent acted WITHOUT authority and the principal decides to ratify the contract [ie retrospectively giving authority]
But there are strict rules when this can happen:

Ratification

The agent must have been acting as agent to the third party Keighley v Durant [1901]
The principal must have full capacity to make the contract which the agent made Kelner v Baxter [1866] At the time of ratification, the principal knew all the relevant facts, or intended to ratify regardless If the contract is void, ratification cannot happen Ratification must take place within a reasonable time and NOT if it is detrimental to third party

Ratification will not be allowed if third party KNEW that the agent had limited or authority or KNEW that the contract would NEED to be ratified [ie then not apparent!]

Liability of agent and principal

This depends on whether the principal was disclosed or undisclosed Disclosed: agent has no liability contract is between principal and third party Undisclosed: contract is between agent and third party but two scenarios:

Undisclosed
1.

agent had no actual authority principal NOT liable

2. agent had actual authority principal may become liable BUT

Where the principal will not be liable

Where the terms excluded agency relationships Said v Butt [1920]

Where the third party would have refused to contract with the principal had they have known Dyster v Randall [1926] [undisclosed principal knowing landowner would not sell land used an agent]

The third party wanted to contract with the agent personally Greer v Downs [1926]

Agent liability

Where the principal is undisclosed as above

Where the reality of the contract is that the agent is ACTUALLY the true principal Where the agent has no authority and third party relies on his representation that he does have authority agent is liable for breach of warranty of authority