Definition "Agency" - a bilateral, onerous, consensual contract whereby one party, the principal, authorises another, the agent, to execute business on his behalf. Agency involves three parties: (a) Principal - person who employs agent to act for him. (b) Agent - person who acts for the principal in the transaction. (c) Third Party - person with whom agent transacts. and two contracts: (a) Contract between agent and principal, governing terms of their relationship. (b) Contract made by agent with third party, which results in a contract between the principal and the third party. 2. Capacity Same rules regarding capacity as with any other contract. The principal must have capacity to enter the contract in question - he cannot increase his own capacity to contract by employing an agent with the necessary capacity.e.g. (a) Young People - person whose contractual capacity is limited by the Age of Legal Capacity (Scotland) Act 1991 cannot make a binding contract by employing an agent of full age. (b) Enemy Aliens - an alien enemy cannot make a valid contract by employing a British national to make it on his behalf. (c) Companies - a company has no legal capacity until incorporated. A company cannot be bound by a pre-incorporation contract made by someone acting on its behalf. Tinnevelly Sugar Refining Co Ltd v Mirrlees, Watson & Yaryan Co Ltd (Case 1) Kelner v Baxter (Case 2) .II. CONSTITUTION OF AGENCY Agency relationship may arise in one of five ways: 1. Express Agreement Where a principal specifically appoints a person as an agent. No specific formalities are required. Express agreement may detail scope of agent’s powers or may leave some to be implied. 2. Implied Agreement (a) Implied by Conduct Where no express contract, but it is apparent from actions of parties that agency relationship has been formed. (b) Implied by Law Agency relationship is implied by law in some circumstances - e.g. partners in a firm and directors of companies. 3. Holding Out Where one person has allowed another to appear to outsiders to be his agent, he will be personally barred from denying the relationship. Arises in two situations: (a) Where there is no agency relationship but it appears that there is. (b) Where there is an agency relationship, but agent is held out as having more authority than he actually has. Creation of agency by holding out requires: (a) Representation - principal must have represented person as his agent, either by express statement or by his conduct. (b) Reliance - the third party must have relied on the representation. (c) Altered Position - the third party’s position must have been altered because he relied on the representation, so that he would be adversely affected if no agency relationship existed. Freeman & Lockyer v Buckhurst Park Properties (Case 3) 4. Ratification Where person acts for a principal without having authority to act, but the principal accepts and adopts (i.e. ratifies) the agent’s actions. Ratification may be express or implied. Ratification makes the agent’s act valid from the time he did it, not just from the time of ratification. Requirements for ratification: (a) Principal in Existence - principal must have been in existence at the time the act was done by the agent, not just at the time of ratification. Kelner v Baxter (Case 2) (b) Principal with Capacity - principal must have had the necessary capacity at the time the act was done by the agent. (c) Ratification must be Timeous - if validity of act depends on it being done within a certain time, it must be ratified within that time. Goodall v Bilsland (Case 4) (d) Agent Acting as Agent - agent must have told third party he was acting on behalf of identified or identifiable principal. An undisclosed principal cannot ratify. Keighley Maxted & Co v Durant (Case 5) (e) Principal Aware of Material Facts - at the time of ratification, principal must have been made aware of all facts material to his decision to ratify. 5. Agency of Necessity Where agent acts without authority to protect principal’s interests in an emergency.


e. but which the law presumes principal would have given if he had been consulted in advance.implied . 5. Third parties dealing with a general agent are entitled to assume he has authority to do anything that would be usual for an agent in the same position to be able to do. Estate Agents Find buyers for property which clients wish to sell. Shipmasters Captain or similar officer of ship. Implied Authority Agent’s authority is defined by the nature of his employment. Authority may be: . Divided into: (a) Factor: has possession of principal’s goods and authority to buy and sell in his own name.extent of authority to act varies with different kinds of legal work. Express Authority Where contract between agent and principal specifically defines the extent of what the agent is allowed to do. Arises where: (a) Agent has had express authority which has been withdrawn. but third party has not been notified of this. Agent appointed for single transaction has implied authority to do what is necessary to complete the transaction. Ostensible and presumed authority is deemed by law to exist. Ostensible Authority Authority which has not been actually been given to the agent. stockbroker. 3.ostensible or apparent . Presumed Authority Authority which has not actually been given to the agent. Morrison v Statter (Case 8) Other Kinds of Agent 3. (b) It must have been impossible for the agent to communicate with the principal to get his instructions. auctioneer. (b) Broker: no possession of goods and cannot buy and sell in his own name. but which he has been held out as having. Solicitors Solicitors were formerly called "Law Agents". 2. Commercial Agents Commercial Agents (Council Directive) Regulations 1993 A “commercial agent” is a self-employed intermediary who has continuing authority to negotiate and/or conclude the sale and purchase of goods on behalf of a particular principal. regardless of terms of contract. Regulated by: Estate Agents Act 1979 and Property Misdescriptions Act 1991 6. crew and cargo .) IV. Arises in cases of agency of necessity. Glendinning v Hope & Co (Case 9) 4. See: International Sponge Importers v Watt (Case 13) Watteau v Fenwick (Case 14) British Bata Shoe Co v Double M Shah (Case 15) 4. 8.third party must satisfy himself as to extent of agent’s authority. General Agents General agent has authority to act for principal in the ordinary course of his trade or profession . AUTHORITY OF AN AGENT Agent can only bind principal in contract with third party if he has the necessary authority. Employed to negotiate a contract.g. insurance broker.either in all matters. Very wide authority in respect of navigation. 1. Special Agents Special agent only has authority to act in a particular transaction on express instructions of principal. or in all matters of a particular nature. but principal has limited this and third party is unaware of the limitation. Employed to conduct legal business . 2 .must be real necessity. (b) Agent is in position where certain authority would be implied. Agent appointed to particular job has implied authority normally expected of someone in same position. .g. objectively judged.Requirements: (a) The actions must be necessary for the benefit of the principal . Mercantile Agents People employed to buy and sell things (usually goods). 2. More common now are Confirming Agents who undertake liability for any failure in performance by the third party.even wider powers in emergency situations. 7. (Partners in a firm and directors of companies are excluded from the definition. CATEGORIES OF AGENT Traditional distinction is between general agents and special agents. No authority to make binding contract of sale unless expressly instructed by client.presumed Express and implied authority is called actual authority and is regarded as arising from contract between agent and principal. Will not bind principal to contract if he exceeds instructions . (c) Agent must have acted bona-fide in the interests of the principal and not wholly or partly in his own interests Great Northern Co v Swaffield (Case 6) Springer v Great Western Railway Co (Case 7) III. 1. Del Credere Agents Mercantile agents who undertake to indemnify the principal if the third party fails to pay the contract price.

RIGHTS AND LIABILITIES OF THIRD PARTIES Depend on way in which agent contracts with third party. Duty to Obey Instructions Agent is in breach of contract if he fails to obey express instructions or exceeds his actual authority. Duty not to Delegate Delegatus non potest delegare . Milne v Ritchie (Case 20) 6. Lien Lien = the right to hold on to possession of goods until the owner of them has paid a debt or fulfilled an obligation. Factors. Lothian v Jenolite Ltd (Case 21) (a) Agent must not transact with the principal on his own behalf unless principal is aware of all the facts and consents. and for a person to offer a bribe. Reimbursement of Expenses Agent has the right to be repaid for any expenses incurred in performing his duties as agent.V. Right to Remuneration Agent has the right to be paid the agreed fee or commission for the work done. 3 .Gilmour v Clark (Case 16) Agent loses right to claim fees or commission for period he is in breach of contract: Graham & Co v United Turkey Red Co (Case 17) 2. Agent has no rights or liabilities under the contract. If A has right of general lien. Duty of Care and Skill Agent who fails to exercise reasonable care and skill in carrying out his duties may be liable to his principal for negligence. (iii) Principal may be able to claim damages from third party for bribing the agent. he can retain possession of shirts until commission for sale of jeans is paid. It is an offence for an agent to accept or agree to accept a bribe. (c) An agent owes a duty of confidence in respect of information relating to his principal which he has gained through the agency. 1. Stevenson v Duncan (Case 29) Marshall Wilson Dean & Turnbull v Feymac Properties (Case 30) But not where liability was incurred when agent was exceeding his authority. Robinson v Middleton (Case 31) 4. Fiduciary Duty Agent owes principal a duty of loyalty and good faith. If no usual rate. Duty to Account Agent must keep accounts and hand over all money received on behalf of his principal. agent is entitled to customary rate for trade or profession. unless: (a) The agent is expressly allowed to delegate: De Bussche v Alt (Case 18) (b) Right to delegate is implied by what is usual in a trade or profession. VII. He must not let his own interests conflict with those of his principal.Applies even when agent is acting without payment. (iv) Principal may be able to rescind the contract with the third party. payment is calculated quantum meruit ("as much as it is worth") Kennedy v Glass (Case 26) 2. Where amount of payment not agreed. Relief From Liability Principal must indemnify agent against any legal liability legitimately incurred in performing duties as agent. 3. auctioneers. An agent must always act personally. Fiduciary duty is restricted to what is done in the course of the agency.g. (v) Both agent and third party may be liable to criminal penalties under the Prevention of Corruption Acts 1906 and 1916. DUTIES OWED BY AGENT TO PRINCIPAL These duties are implied into every contract of agency unless expressly altered by the parties. P fails to pay agreed commission for this. P then gives A consignment of shirts to sell for him. commission or benefit from the third agent must not delegate. A sells consignment of jeans for P. (a) General Lien Right to retain any of principal’s property in agent’s possession until any debt owed to agent is paid. Contrast:Drummond v Cairns (Case 27) Tomlinson v Scottish Amalgamated Silks (Case 28) 3. He will be liable for any shortfall even if no evidence that he was dishonest. McPherson’s Trustees v Watt (Case 22) (b) Agent must not receive any profit. If he does: (i) He will be liable to pay any amount received over to the principal: Ronaldson v Drummond & Reid (Case 23) De Bussche v Alt (Case 24) (ii) Agent will lose his right to any commission and may be dismissed for breach of contract. e. unless the principal consents. solicitors and stockbrokers have general lien. 1. 4. Duty of Relief Agent must indemnify principal against any liability principal incurs because agent acted outside his authority. The principal could have the contract set aside.Tyler v Logan (Case 19) 5. Agent Transacting as Agent for Named Principal Principal and third party are bound to the contract. RIGHTS OF AGENT AGAINST PRINCIPAL 1. He will be liable to his principal for breach of confidence if he discloses this: Liverpool Victoria Friendly Society v Houston (Case 25) VI. (b) Special Lien Right to retain principal’s property only in respect of debts/obligations connected with that particular property.

TERMINATION OF AGENCY 1. del credere agents.insanity of principal will not terminate a power of attorney or deed of factory and commission granted after 1 January 1991. but does not reveal to third party that he is only acting as an agent. (d) Cessation of Business Agency is frustrated if principal ceases to carry on the business in which the agent is employed. Agent Transacting as Agent for Unnamed Principal Normally creates a binding contract between principal and third party on which agent has no personal rights or liabilities. Livesey v Purdom & Sons (Case 34) (c) Agent may have a right to sue the third party on the contract if he has a personal interest in enforcing it.e. Agent Contracts as Principal Where agent acts within his authority. 6. Agent will normally have no claim for breach of contract. s. Principal cannot revoke factor’s authority to sell unless he repays money first . 3. If third party has become aware that he has contracted with an agent. Principal can disclose his existence and enforce the contract against the third third party has no rights against the principal.e.Third party can sue agent for damages on basis that he misrepresented his authority.but may be liable in damages if this is a breach of contract. Irving v Burns (Case 42) VIII. Mackenzie v Cormack (Case 35) (d) Agent will be personally liable to third party if principal turns out not to be a legal person. (c) Bankruptcy Agency is terminated if either party becomes bankrupt. solicitors. Completion of Transaction or Expiry of Time If agency entered into for single transaction or set time period. Revocation by Principal Principal can terminate agency by giving notice of revocation to agent . Law Reform (Miscellaneous Provisions) (Scotland) Act 1990. Agency will not be revocable by principal where agent has a "procuratory in rem suam" (authority coupled with an interest) e. 2. 5. he can elect to sue either the agent or the principal.g. 2.Stone & Rolfe Ltd v Kimber Coal Co (Case 32) Armour v Duff & Co (Case 33) Exceptions: (a) Agent may expressly or impliedly undertake personal liability on the contract . Renunciation by Agent Agent can withdraw from agency by giving notice . Agent is not personally liable on the contract. (Either fraud. Election is final once made: Ferrier v Dods (Case 38) 4. or breach of warranty of authority). Agent Contracts as Agent. Patmore & Co v Cannon & Co (Case 43) 4 . Frustration Agency is frustrated by: (a) Death of Principal or Agent Agency is a contract where delectus personae is involved .g. (b) Agent may incur personal liability through custom of trade .the debt is a procuratory in rem suam. but Exceeds Actual and Ostensible Authority Principal is not bound to the contract .so is frustrated by death of either party. (b) Insanity of Principal or Agent Agent’s insanity terminates the agency. Collen v Wright (Case 39) Yonge v Toynbee (Case 40) Anderson v Croall & Sons Ltd (Case 41) Measure of damages is the amount that the third party lost through not having a binding contract with the principal. Gibb v Cunningham & Robertson (Case 36) 3. No notice of termination is needed. Bennett v Inveresk Paper Co (Case 37) Third party can sue the agent on the contract. Agent will be personally liable if he refuses to name his principal when asked to do so. Factor is given goods to sell for principal and advances money to principal on security of the goods. it terminates when this is completed. because third party knows he is only an agent.71 . Third party cannot sue agent under the contract.g. Mutual Agreement Agency is created by mutual agreement and can be terminated the same way.but may be liable for breach of contract.