Agency Essay

In the realm of commercial law, the concept of "agency" is a pivotal one. It involves a set of
intricate relationships between three key parties: the Principal, the Agent, and the Third Party.
These relationships encapsulate the dynamics of Principal and Agent, Agent and Third Party,
and Principal and Third Party. The crux of agency law is that, in most cases, it is only the
Principal who has the capacity to sue or be sued, as underscored by the ruling in the case of
Montgomerie v UK Mutual Steamship Association [1891]

To comprehend agency law thoroughly, we must delve into the various theories that define it.
These theories encompass Power Theory, Consent Theory, and Qualified Consent Theory.
Power Theory stipulates that an agency is established when an Agent is granted the power to
govern the relations between a Principal and a Third Party. Importantly, the Agent is not held
liable for their actions in such cases. Consent Theory, on the other hand, hinges on the
agreement between the Principal and the Agent, wherein the Agent is authorized to act on
behalf of the Principal. Qualified Consent Theory combines the principles of Consent Theory
with the concept of actual or evident authority.

In the world of agency, Agents can be categorized as general or special agents. A general
agent typically operates within the ordinary course of their work, such as a salesperson selling
products. Conversely, a special agent steps outside their usual role to act as an Agent, such as
a salesperson tasked with making a purchase.

The creation of an agency can take place in various ways. It may occur through either an
implied or express agreement between the Principal and the Agent, or through the ratification of
an Agent's actions by the Principal. Additionally, agency relationships may be necessitated by
specific statutes, such as the right of an unpaid seller to resell under S.48(3) SGA 1979.
Furthermore, an agency can also arise when the Principal represents the authority of the Agent
to the Third Party.

These agency relationships may take form orally or through the conduct of the involved parties,
often not requiring a written agreement to come into existence. The case of Chaudhry v
Prabhakar [1989] underscores this by highlighting that even acts of friendship can lead to an
agency relationship without financial compensation.

In examining the concept of "actual authority," we find that it is rooted in the prior consent of the
Principal, which empowers the Agent to act on their behalf in accordance with a predetermined
contract. Actual authority can be classified into "express actual authority" when it is expressly
granted by the Principal through a written or verbal agreement, and "incidental authority," which
authorizes the Agent to undertake actions necessary for the effective execution of their express
authority. This was evident in the case of SMC Electronics Ltd v Akhter Computers Ltd[2001],
where an Agent, in promoting sales, was found to have incidental authority.
Implied actual authority confers upon the Agent the implicit authority to fulfill tasks stipulated
within the agreement, complementing their express authority. A prime example of implied actual
authority is when the Agent is implicitly authorized to perform actions customary within their
trade or business, as seen in Hely v Brayhead. In this case, the court ruled that Richards, acting
on behalf of Brayhead, had apparent authority, making Brayhead liable for his actions.

"Apparent Authority," as asserted by Lord Denning in Brayhead, is the authority of an Agent as it

appears to others. It arises when the Principal represents the authority of the Agent to the Third
Party, rendering the Principal estopped from denying the existence of such authority. However,
it is essential to distinguish between "implied actual authority" and "apparent authority," as they
cannot coexist.

For the Principal to be held liable under Apparent Authority, they must have represented to the
Third Party that the Agent possessed such authority, and the Third Party must have reasonably
believed in the Agent's authority. This principle was exemplified in Nayyar v Sapte [2009], where
a representation was made to the Third Party to estop the Principal from denying the Agent's
authority. Representation must be in written form, and silence typically does not constitute
representation, except in specific cases like Spiro v Lintern, where silence implied confirmation
of the Agent's actions.

It is worth noting that if the representation is made by the Agent, the Principal is not held liable,
as illustrated in the case of Armagas v Mundogas. The case of Overbrooke Estates Ltd v
Glencombe Properties Ltd [1974] further highlights that the Third Party should exercise
diligence in ensuring the Agent's authority.

Detriment in agency law can be incurred merely by entering into a contract, a notion upheld in
the case of The Tatra. On the other hand, "Ratification" occurs when someone attempts to act
as an Agent or exceeds their granted authority, and the Principal, aware of these actions,
chooses to ratify them. The Principal becomes liable for the Agent's actions in cases of
ratification, as seen in Crampsey v Deveney. However, if the Principal fails to take reasonable
steps to disown these actions, it may be deemed as tacit ratification.

Ratification is subject to specific requirements, including the Agent's intention to act on behalf of
the Principal, the Third Party's awareness of the Agent-Principal relationship (regardless of the
Principal's identity), the Principal's competence at the time of ratification, and ratification
pertaining to the entire agreement within a reasonable timeframe, as exemplified in Metropolitan
Asylum v Kingham. Notably, there are no formalities required for a valid ratification.

The effects of ratification are retrospective, making it appear as though the Agent had the
authority from the outset, as observed in the case of Bolton Partners v Lambert (1889). If the
Principal refrains from ratification, the Third Party can pursue a claim for breach of warranty
against the Agent. However, in cases of ratified contracts, only the Principal can sue or be sued
by the Third Party. Two limitations exist regarding the general rule of Ratification: first, if the
interests of either the Principal or the Agent are at stake, ratification is unfeasible, as highlighted
in Bird v Brown (180); second, mutual termination of the contract by the Third Party and the
Agent precludes ratification, as seen in Walter v James (1871).

In the intricate domain of agency law, the relationships between Principal, Agent, and Third
Party are the crux of all interactions. We have explored the fundamental theories defining
agency, the various forms of agency creation, and the nuanced concepts of actual authority and
apparent authority. Moreover, we have examined the significance of ratification and its inherent
requirements, as well as the repercussions that follow in the event of ratification or its absence.
These intricacies within agency law underscore the vital importance of understanding the
dynamics of these relationships for all parties involved, ultimately ensuring equitable and just
outcomes.