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Law of agency


Law of agency
The law of agency is an area of commercial law dealing with a contractual or quasi-contractual, or non-contractual set of relationships when an agent is authorized to act on behalf of another (called the Principal) to create a legal relationship with a Third Party.[1] Succinctly, it may be referred to as the relationship between a principal and an agent whereby the principal, expressly or impliedly, authorizes the agent to work under his control and on his behalf. The agent is, thus, required to negotiate on behalf of the principal or bring him and third parties into contractual relationship. This branch of law separates and regulates the relationships between: • Agents and Principals; • Agents and the Third Parties with whom they deal on their Principals' behalf; and • Principals and the Third Parties when the Agents purport to deal on their behalf. The common law principle in operation is usually represented in the Latin phrase, qui facit per alium, facit per se, i.e. the one who acts through another, acts in his or her own interests and it is a parallel concept to vicarious liability and strict liability in which one person is held liable in Criminal law or Tort for the acts or omissions of another. Section 182 of the [Indian] Contract Act, 1872 defines Agent as “a person employed to do any act for another or to represent another in dealings with third persons”.[2]

The concepts
The reciprocal rights and liabilities between a principal and an agent reflect commercial and legal realities. A business owner often relies on an employee or another person to conduct a business. In the case of a corporation, since a corporation is a fictitious legal person, it can only act through human agents. The principal is bound by the contract entered into by the agent, so long as the agent performs within the scope of the agency. A third party may rely in good faith on the representation by a person who identifies himself as an agent for another. It is not always cost effective to check whether someone who is represented as having the authority to act for another actually has such authority. If it is subsequently found that the alleged agent was acting without necessary authority, the agent will generally be held liable.

Brief statement of legal principles
There are three broad classes of agent 1. Universal agents hold broad authority to act on behalf of the principal, e.g. they may hold a power of attorney (also known as a mandate in civil law jurisdictions) or have a professional relationship, say, as lawyer and client. 2. General agents hold a more limited authority to conduct a series of transactions over a continuous period of time; and 3. Special agents are authorized to conduct either only a single transaction or a specified series of transactions over a limited period of time.

or authority may be implied. even if the principal and the purported agent had never discussed such a relationship. and whether it exists is a question of fact. indeed. is only entitled to indemnity from the principal if she has acted within the scope of her actual authority. their liability being joint and several. An agent.. Either the principal may have expressly conferred authority on the agent. For example." • Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 • The Raffaella or Egyptian International Foreign Trade Co v Soplex Wholesale Supplies Ltd and PS Refson & Co Ltd [1985] 2 Lloyd's Rep 36 . Actual authority Actual authority can be of two kinds. as a general rule. (ii) reliance on the representation. Slade J.[3] • Rama Corporation Ltd v Proved Tin and General Investments Ltd [1952] 2 QB 147. third parties are protected so long as they have acted reasonably. all executives and senior employees with decision-making authority by virtue of their position have authority to bind the corporation. There are essentially two kinds of authority recognised in the law: actual authority (whether express or implied) and apparent authority. and (iii) an alteration of your position resulting from such reliance. and may be in breach of contract. Authority arises by consensual agreement. As such. For example. also called "usual authority". is authority an agent has by virtue of being reasonably necessary to carry out his express authority. it has been termed agency by estoppel and you cannot call in aid an estoppel unless you have three ingredients: (i) a representation. and liable to a third party for breach of the implied warranty of authority. where one person appoints a person to a position which carries with it agency-like powers. and in a corporation. Express actual authority Express actual authority means an agent has actually been expressly told she may act on behalf of a principal.. partners have authority to bind the other partners in the firm. "Ostensible or apparent authority. where the principal will be estopped from denying the grant of authority if third parties have changed their positions to their detriment in reliance on the representations made. those who know of the appointment are entitled to assume that there is apparent authority to do the things ordinarily entrusted to one occupying such a position. • Ireland v Livingstone (1872) LR 5 HL 395 Implied actual authority Implied actual authority. This is sometimes termed "agency by estoppel" or the "doctrine of holding out". • Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 Apparent authority Apparent authority (also called "ostensible authority") exists where the principal's words or conduct would lead a reasonable person in the third party's position to believe that the agent was authorized to act. it can be inferred by virtue of a position held by an agent. If a principal creates the impression that an agent is authorized but there is no actual authority.Law of agency 2 Authority An agent who acts within the scope of authority conferred by her principal binds the principal in the obligations she creates against third parties. is merely a form of estoppel.

all executives and senior employees with decision-making authority by virtue of their declared position have apparent authority to bind the corporation. which is power derived solely by virtue of the agency relation. however. so long as the relationship of the agency and the identity of the principal have been disclosed. the agent is liable to indemnify the principal for any resulting loss or damage. the principal must indemnify the agent for payments made during the course of the relationship whether the expenditure was expressly authorized or merely necessary in promoting the principal’s business.g. It has been explained as a form of apparent authority. the principal may ratify the transaction and accept liability on the transactions as negotiated.[6] For example. the purported agent is liable to the third party for breach of the implied warranty of authority. Liability of principal to agent If the agent has acted within the scope of the actual authority given. Wills J held that "the principal is liable for all the acts of the agent which are within the authority usually confided to an agent of that character.[4] Lord Coleridge CJ on the Queen's Bench concurred with an opinion by Wills J that a third party could hold personally liable a principal who he did know about when he sold cigars to an agent that was acting outside of its authority. This may be express or implied from the principal's behavior. Even if the agent does act without authority. there is a concept of Inherent Agency power. their liability being joint and several (see below). but the principal is nevertheless bound because the agent had apparent authority. or "inherent agency power. the failure to notify all concerned of the agent's lack of authority is an implied ratification to those transactions and an implied grant of authority for future transactions of a similar nature. • Authority by virtue of a position held to deter: fraud and other harms that may befall individuals dealing with agents.[5] though not entirely overruled in the UK. as between the principal and the Liability of agent to principal If the agent has acted without actual authority. Liability of agent to third party If the agent has actual or apparent authority. where it is synonymous with "implied actual authority"). both the agent and the principal are liable. It is sometimes referred to as "usual authority" (though not in the sense used by Lord Denning MR in Hely-Hutchinson. if the agent has purported to act in a number of situations and the principal has knowingly acquiesced. e.Law of agency 3 Watteau v Fenwick In the case of Watteau v Fenwick. Where the principal is not bound because the agent has no actual or apparent authority. put upon that authority. the agent will not be liable for acts performed within the scope of such authority. and in a corporation. When the agency is undisclosed or partially disclosed. partners have apparent authority to bind the other partners in the firm. ." This decision is heavily criticised and doubted. notwithstanding limitations.

(Illustrations to section 201) (ii) By the agent renouncing the business of agency. An agent can represent the interests of more than one principal. renounces an agency for a fixed period. When an agent’s authority is terminated. If the trust between the agent and principal has broken down. with poor to recoup himself from the sale proceeds. where the goods are consigned by an upcountry constituent to a commission agent for sale. the principal cannot revoke the agent’s authority till the goods are actually sold. The termination does not take effect as regards the agent. and • a duty to avoid conflict of interest between the interests of the principal and his own (that is. before such authority has been so exercised (Sec 203). damage resulting from want of such notice. Termination An agent's authority can be terminated at any time. will have to be paid (Section 206). 1872. the agent cannot engage in conduct where stands to gain a benefit for himself to the detriment of the principal). it is not reasonable to allow the principal to remain at risk in any transactions that the agent might conclude during a period of notice. In return. (iv) By the principal being adjudicated insolvent (Section 201 of The Indian Contract Act.Law of agency 4 Duties An agent owes the principal a number of duties. and rude or insulting behavior has been held to be sufficient cause for dismissal of an agent. he is liable to compensate the agent for the loss caused to him thereby. e. as per section 205.[7] . the principal must make a full disclosure of all information relevant to the transactions that the agent is authorized to negotiate and pay the agent either a prearranged commission. or otherwise unduly enrich himself from the agency. only after full disclosure and consent of the principal. (iii) By the business of agency being completed. principal cannot revoke an agency coupled with interest to the prejudice of such interest. in such a case. the revocation or renunciation of an agency may be made expressly or impliedly by conduct. reasonable notice has to be given by one party to the other.g. the agent must not do things that he has not been authorised by the principal to do). if the agency is for a fixed period. (Section 210). These include: • a duty to undertake the task or tasks specified by the terms of the agency (that is. As per section 207. till it becomes known to him and as regards third party. An agency is coupled with interest when the agent himself has an interest in the subject-matter of the agency. 1872) The principal also cannot revoke the agent’s authority after it has been partly exercised. An agent must not accept any new obligations that are inconsistent with the duties owed to the principal. • a duty to discharge his duties with care and due diligence. Further. An agent must not usurp an opportunity from the principal by taking it for himself or passing it on to a third party. though he can always do so. As per Section 201 to 210 The Indian Contract Act. the advances made by him to the principal against the security of the goods. except for sufficient cause. Such Agency is coupled with interest. it operates as a termination of subagent also. An agent also must not engage in self-dealing. nor is the agency terminated by death or insanity. till the termination is known to them (Section 208). The same rules apply where the agent. an agency may come to an end in a variety of ways: (i) By the principal revoking the agency – However. or a reasonable fee established after the fact. conflicting or potentially conflicting. so as to bind the principal (Section 204).. otherwise. Notice in this connection that want of skill continuous disobedience of lawful orders. Further. If he does. the principal cannot terminate the agency before the time expired.

theatre. This form of agency is inherent in the status of a partner and does not arise out of a contract of agency with a principal. the partner will have apparent authority unless the Third Party knows that the authority has been compromised. There is more likely to be liability in tort if the partnership benefited by receiving fee income for the work negligently performed. • financial advice (insurance agency. music. The other partners or the firm are the principal and third parties are entitled to assume that the principal has been informed of all relevant information. Whether the injured party wishes to sue the partnership or the individual partners is usually a matter for the Plaintiff since. there is no imputation if the partner is acting against the interests of the firm as a fraud. However. Hence. • employment procurement • real estate transactions (real estate brokerage. stock brokerage. in Scots law where there is a separate personality. accountancy) • contract negotiation and promotion (business management) such as for publishing. In the English Partnership Act 1890 provides that a partner who acts within the scope of his actual authority (express or implied) will bind the partnership when he does anything in the ordinary course of carrying on partnership business. fashion model. in English law. the knowledge of the partner acting will be imputed to the other partners or the firm if a separate personality. Even if that implied authority has been revoked or limited. there would be little substantive difference if English law was amended (see Law Commission Report 283 [8]): partners will bind the partnership rather than their fellow partners individually. For these purposes. show business. 5 Agency relationships Agency relationships are common in many professional areas. An Agent in Commercial Law (also referred to as a manager) is a person who is authorised to act on behalf of another (called the Principal or client) to create a legal relationship with a Third Party. movies. Others treat the partnership as a business entity and. Thus. In real estate brokerage. for example. a distinction is drawn between knowledge of the firm's general business activities and the confidential affairs as they affect one client.Law of agency This has become a more difficult area as states are not consistent on the nature of a partnership. if the partnership wishes to limit any partner's authority. even if only as an aspect of the standard provisions of vicarious liability. their liability is joint and several. like a corporation. and sport. vest the partnership with a separate legal personality. a partner is the agent of the other partners whereas. This causes problems when one partner acts fraudulently or negligently and causes loss to clients of the firm. a partner is the agent of the partnership. In most states. mortgage brokerage). Some states opt for the partnership as no more than an aggregate of the natural persons who have joined the firm. Hence. the buyers or sellers are the Principals themselves and the broker or his/her salesperson who represents each Principal is his/her Agent. See also • • • • • • • • • Corporate officer Employee Entertainment law Independent contractor Literary agent Ostensible authority Principal-agent problem Cestui que Lawyer • Registered Agent • Hawala . in most jurisdictions. it must give express notice of the limitation to the world.

"(1)Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control. Principal. trans-lex. 'The Demise of Watteau v Fenwick: Sign-O-Lite Ltd v Metropolitan Life Insurance Co' (1991) 70 Canadian Bar Review 329 [6] Restatement of Agency (Second) § 8A. Inherent Agency Power.Law of agency 6 References • LS Sealy and RJA (http:/ / www. trans-lex.Vyas. pdf . org/ 911000) [3] International Principle: Trans-Lex. apparent authority to do an act is created as to a third person by written or spoken words or any other conduct of the principal which. reasonably interpreted. gov. Agency. (2)The one for whom action is to be taken is the principal. (http:/ / www.Principles of Mercantile Law. lawcom. Cases and Materials (4th edn OUP 2009) [1] International Principle: Trans-Lex. Commercial Law: Text. (3)The one who is to act is the agent. uk/ docs/ lc283. trans-lex." [2] International Principle: Trans-Lex. by Ramkrishna R. Restatement of Agency (Second)§ 27: "Except for the execution of instruments under seal or for the conduct of transactions required by statute to be authorized in a particular way. org/ 911000).org (http:/ / www. and consent by the other so to act. 8th edition. Restatement of Agency (Second) § 1. apparent authority or estoppel." [4] [1893] 1 QB 346 [5] eg GHL Fridman. "Inherent agency power is a term used in the restatement of this subject to indicate the power of an agent which is derived not from authority. causes the third person to believe that the principal consents to have the act done on his behalf by the person purporting to act for him. org/ 911000). but solely from the agency relation and exists for the protection of persons harmed by or dealing with a servant or other agent." [7] Pandia . [8] http:/ / www.

0/ . Amenking. Duoraven. Patchouli. Puckly. Greenw47. Michael Hardy. Thatguyflint. Legis. Rj. Eastlaw. Powerono. Coren. Drae. Pavel Vozenilek. Maelnuneb. Francis Davey. Jagged 85.wikipedia. 112 anonymous edits License Creative Commons Attribution-Share Alike 3. Velho. Luna Ascobb. org/ licenses/ by-sa/ 3. Tamilmani. Gnomeliberation front. Materialscientist. Alexander Moritz. Wikidea. Frissell. GreatWhiteNortherner. Famspear. AdamCarden. PullUpYourSocks. David91.0 Unported http:/ / creativecommons. KeithJonsn. Bachrach44. Subwayguy. Akerans. Phi-NC43. El C. Lexicon. Kuru. Dbfirs. J04n. Taxman. BD2412. MsDivagin.Article Sources and Contributors 7 Article Sources and Contributors Law of agency  Source: http://en. MisfitToys.php?oldid=380144794  Contributors: A E Francis. RossF18. RafaAzevedo. Adi4094. BoNoMoJo (old).