The creation of the agency relationsh ‘Capacity Formality Agency by agreement Agency by ratification ‘Agency by operation of law ‘Agency arising due te-estoppel INTRODUCTION Having discussed what agency is.and the various types of agent that exist, this chapter moves conta consider the various methods by which a relationship of agency can be created, namely: © agency by agreement; © agency by ratification; © agency by operation oflave-and © agency arising due toestoppel. Its worth noting at the outset that the fact that the parties describe themselves as “principal” and ‘agent’ will not conclusively establish that a relationship of agency exists, and the courts will disregard such labels ifthe realities of the relationship indicate that It is not one of agency’ ‘Similarly, an agency relationship might be held t@ exist, even though the parties (or one of the parties) do-not wish for such a relationship 10 exist, ar have expressly declared that such & ‘relationship does not exist, Agency relationship can therefore be created consensually or non consensually, 38 Table 41 indicates: TABLE 4.1 Conconsual and non consensual agencies + Agencyrby agreement (express andimmpled) + Agencvaring dueteestoppel + Agency by ratification + Agency by operation ofthe law Scanned with CamScannerCHAPTER 4 THE CREATION OF THE AGENCY RELATIONSHIP. tel Al of these forms of agency are discussed in this chapter. However, before the methods of _ creation can be discussed, it is important to answer two preliminary questions: +1. How does the contractual capacity of the principal and/or agent affect the creation of an gency elationshipt 2, What formalities are required in order to create an agency relationship? Figure 4.1 provides an overview ofall the major istes discussed inthis chapter. # Capacity In many cases, a relationship of agency will arise via contract and the agent will have the ability to affect the contractual position of his principal. In such cases, the contractual capacity of the principal and agent are of fundamental importance and, =p centyctust if either of the parties lacks capacity, any resulting contracts (including the contract of poomancttarrond agency itself} may be void or voidable. Spertanean ener Interac ‘Capacity of the principal “= “The general rule is that a principal can appoint an agent to engage in any act that the ‘principal himself has capacity to engage in, or te put it mare simply, whatever a party ‘himself may do, he may do through the intermediary of an agent’! It follows that an agent who lacks capacity to enter inte a transaction in his own name may nevertheless center into that transaction on behalf of his princi roviding that the principal has ‘capacity to enter into that transaction, Bearing this in mind, consider the following, example: COMCORP LTD ComCorp appoints an agent, Olver, to negotiate and enter into @ number of eontrects on ts behalf. Oliver carries out his instructions and creates a number of contracts between CamCorp ‘and several third parties. ComCorp then discovers that Oliver is only 17 years.old, In this example, Oliver is 2 minor (ie. a person under the age of 18)? A minor will lack the capacity to:make many types of contract and can only enter into binding con ‘tracts in limited circumstances.’ Where the minor lacks capacity, the contract will not normally be void, but will be voidable at the minor's instance. However, in cases of — - ‘agency, a minor who is #¢ifag as agent can enter Into binding contracts providing that his principal has capacity to enter into such contracts, Accordingly, in this example, Oliver's lee capacity will not be an issue (although the contract of agency between 1. Roderick Mudflay, Agency: Law and Principles (2nd eda, OUP 2013) 38. 2, Family Law Refoeta Act 1969, 1. 3. Namely, where the contract is one for necessbvis, or is a contract of sevice (eg, employment or apprenticeshiph. Scanned with CamScanner(ovabie owopean ay, Lr aUNO sip 4 Pinos Ua aque pur gnung ou sapbanousbe Deere epeasS = susie eae nEH Fafu pasar jowoasd law Vasa) stesut.op ve edocs ng. 1 De hue rabbis muatioue sabe ue ease Panu ‘pede Scanned with CamScannerCHAPTER 4 THE CREATION OF THE AGENCY RELATIONSHIP ka ComCorp and Oliver might be voidable}. The general rule regerding capacity also applies to a minor that acts as principal, namely that ‘{w]henever @ minor can lawfully do an act for his avn behalf, so as to bind himself, he can instead appoint an agent ‘o do it for him’* Prom this, it follows that: wre ‘a contract that would bind a minor if he were to enter into it himself will also bind him it he eatees into it vis an agents ‘® acontract that would not be binding om a person because he is a minor will not be conie binding simply beeause tis entered into by an edult agent acting on the minos's behall. Where a principal is mentally incapacitated, the Issue is more cormplest, The law pre- a eS a ee lee earery Cota A neon will lack mental capacity if ‘at the material time he is unable to make a decision for himself in relation to # matter because of an Impairment of, or @ disturbance of the functioning of, the mind or brain’ Even if mentally incapacitated person docs enter nto a contract, general contract law provides that the contract will be binding unless the other party knew of the incapacity, in which case the contract will be voiable the instance of the incapacitated | TH TeTaTION to the contract of agency itself, kas Been contended that this general contractual rule will apply,* but will it apply to any contracts entered into by the agent with thind parties en the principal's behalf? Where the contract was entered into based upon the agent's actual authority, then it seems clear thet the incapacitated principal will not be hound, ireespective of whether the third party knew of the incepacity.? In cases involving the agent's apparent au- thority, two contentions have BRSPREFEced: 1. Where the principal ie mentally incapacitated at the time that he made the represen= tation as to the agent's authority, thest that principal will wot be Bound, irrespective o whether the third party knew oft TEESE ies mental iagE-THER any contracts entered intolby.the-agenton behalf of.the principal will be Binding on the principal, providing thatthe thigd pasty had no knowledge of the prin- cipal Tincapacity ee Capacity of the agent As noted, an agent who lacks capacity to enter into a contract on his own behalf may nevertheless be able to enter into a contract on behalf of principal who docs have capacity to enter into sucha contract. It follows that, in many eases, the capacity of the agent is irrelevant. The only general requirement that the law imposes is that the agent be of sound mind and if, due ta mental incapacity, the agent cannot understand the nature ofthe acts he is required to undertake, then he will not be able to affect thelegal 4. GfA) »G( 1970) 2 Qu 643 (Ca) 642 (Lord Denning MFI Mental Capacity Act 2005, 312). 6. ibid 20) 1 Molton» Camrowx (1845) 4x 17; Impertal Laan Go Lid Stone [B92] 1.08599 (CA), 4. Peer G Wills, Bowateul & Repo om Ageney (20th edn, Sees &x Maxwell 2014) [2-009 3. Yonge v Toye [1910] | KB215 (CA), [n such a case, the agent wil beable te the thitd party for breach of warranty of authority (Gkscusved stp 168) 10, Peter G Walia, Bowsicad-e Reynolds on Ageney (ith eda, Sweet & Mansell 2014) [2-008 H, Drewy von (1878-75) LR 4 QID 66 (CA Scanned with CamScannerPosition of his principal, The actual contract of agency between the principal and the ‘agent would remain valid, vl new of the incapachtyInWhkctreasey, ‘wotild be voidable at the incapacitated agent's instance.” Formality Generally, the law imposes no formalities upon those who wish to enter into an agency relationship, Thus, an agency relationship can be brought into existence orally, in writing, or by peceing eet eT aoa een een taions WRCE Tae AE ITUPPONTE To enter into contracts on the principal’s behalf that are required tobe in writing, or evidenced in writing,” ‘This principle is subject to exceptions, however, and, incertain cases, the law will impose stipulations as to formality, with examples including: © ifthe agent is appointed to execute a deed on behalf of the principal, then generally the agent will need to be appointed via a deed." © ifn agent is engaged to create or dispose of an interest in land, then he must be author- ied todo so in writing ‘Having discussed capacity and formality, the chapter will naw look at how a relation- ship of agency can be created. Agency by agreement “The vast majority of agency relationships are created through an agreement between the principal and agent (.e. both parties consent to an agency relationship coming into ex- istence). In many cases (especially in commercial agencies}, the agreement will be estab- lished contractually, either orally, in writing, or via the execution of a deed. However, there is no requirement that a relationship of agency be contractual, and where no con- tract of agency exists or where a contract purports to exist but lacks 1 then the agency is said to be ‘gratuitous’ Agency by agreement is founded upon consent, not on theexistence of a contract. As Calman J stated: ‘Although in modern commercial transactions agencies are almost invariably founded upon s contract between the principal and agen, there is no necessity for such a contract to exist Itis ruficien if there is consent by the priscipal to the exercise by the agent af authority and consent by the agent to his exercising sth authority on behalf ofthe prineipal.”” Whilst both contractual and gratuitous agencies are equally valid, there are two note worthy differences between them, First, where an agency is gratultous, the parties ne 12 Malton» Comrou (1868) 4 Ex LF; Imperial hoa Co Ee wStome [1862] 1 8-99 (CA. 13, Heard v Pilly (6H) LR.4Ch App $38 agent orally appolnied o enter nto-contrak tbat maust be > writing 1 Berkeley Handy {1624) BBC 335, Note tha bls stpalation will mat apply where the deed i atthe direction of and inthe presence ofthe prtcpal, aod tva witness attest te signature (L Property (afisallaneous Provisions) Art 1989, ¢ 13) 18 Law f Propsty Ack 1925, 511M). 16, For example. because sufficient consideration ls nat present, or because aneJbath of the parties Lack the requisite contractual capacily. 17. Yarada Fire & Marine Insurance Co of Europe Lid» Orion Marine Ferurance Underriting Agen) ‘ad 1995] QB 198 (QB) 148. ed of Scanned with CamScannerCHAPTER THE CRERTION OF THE AGENCY RELATIONSHIP need nat provide consideration for the agency agreement, whereas consideration must be preset in the case of a contractual agency agreement. Second, where the agency is contractual, the duties, rights, and obligations of the principal and agent will be stated GE hesune,. ges in the contract and can be defeated or enforced by either party via the normal laws of ee ies cantract. In the ease of gratuitous agencies, the duties, rights, and obligations of the gicutadinchpte's parties are set aut in law falthough the law does also provide for certain rights and obligations in cases involving contractual agencies). Most agency agreements are express, but the courts might also find that an-agree- ‘ment can be implied based upon the conduct of the parties, Express agreement ‘The paradigm method of creating an agency relationship occurs where the principal and agent expressly agrée to enter into an. agency relationchip (ie. the principal ex- pressly appoints the agent, and the agent expressly agrees to act on the principal's behalf), This agreement will usually be contractual (either in writing or oral), but need not be. The appointment can normally be made informelly, even if the agent is to transact contracts that must be made, or evidenced, in writing." All that is neces sary is a desire to appoint A as agent and 4's consent to.act as such, Where an agent 4s appointed. as a commercial agent, he is entitled to receive, on request, a signed, ‘written contract setting out the terms of the agency agreement and any terms subse- quently agreed Implied agreement A relationship of agency might be implied based upon the words or conduct of the principal or agent. Bowstead & Reynolds state that an agency agreement between the principal and agent will be implied ‘where one party has conducted himself to- wards another in such a way that it is reasonable from that other to infer fram that conduct assent to an agency relationship’*" and the Court of Appeal has confirmed that this is the correct test to apply when determining whether an agency agreement should be implied. The use of the word ‘reasonable’ indicates that the courts are not concerned with the subjective intentions of the parties, but with what a reasonable person would infer based on the words and conduct of the other person. Implied agency agreements can be contractual or gratuitous. ‘The key requinement is mutual consent (or “assent” as Bowstead & Reynolds state) — ‘one party (A) acts in such a way towards another party (B), thet itis reasonable for B to infer that A consents to an agency relationship-arising between them, This could accur in humerous ways, including: ‘© The principal (A) might appoint the agent (B) to a position which would usually result in B having the authority to act on A's behalf By being appointed to that position, ‘B reasonably infers that he has A’s consent to act on A's behalf. 14. Heard vile (868) LR ACh 54 19. Gormmercal agents (Couoct Directive Regoltions 195, e130) The principal aca ill right sos the spent 20, Peter Watts, Ronstend& Reynolds on Agency(20th edn Sineet & Marvell 2014 (2-90) 2 Marine Bast dv Tange Towing Le 2005] FVYCA Civ 346, [20041 Llapo Rep72 (1 (Mance Lf) 22 Paley Leask (14653531 Ch 155. Scanned with CamScanner} THE LAW OF AGENCY © The principal may acquiesce to another person acting as his agent. However, should be noted that there will need to be an Indication that the principal has acquiesced and acquiescence will not be presumed merely because the principal remained silent © The agent (H) may act on behalf ofthe principal (A}* From thls, A might reasonably infer that B has consented to act a bis agent. Hovwever, it shauld be noted that merely carrying out the principal's instructions will notin itself, esult ih the implication of fan agency relationship. and that there must be some indication present that B was act Ang on ts behall® Agency by ratification Consider the following example: i comcorr itp Com€orp Is ooking to acquire several pleces of art to diplay in the Iabby oF ts carporate | headquarters. Daniella, an art dealer, purchases a number of rantings from an art gallery, She Informs the gallery thet she ls purchasing the paintings on behalf of ComCorp, bur this is ret the kase—she has not been appointed as ComCorp's agent and has no autherity'to act on ‘CamCorp’s bell Upan discovering this, the gallery seeks to repudiate the contracts of sale. ‘ComCorp, however, upon dscovering that Danie#a has fabely been claiming to be ts agent, | wishes forthe sale to go ahead andso ratifies Daniels’sactons. Theart galery refuses toseil the paintings 0 ComCorp. ‘The question that arises is whether an agent must be imbued with authe she acts, or whether ComCorp can retroactively authorize Daniella to act on its behalf, thereby holding the art gallery to the contracts of sale. Where an agent acts without any authority (as is the case in this example), oracts beyond the scope of his authority, then the principal can validate the agent’s actions by a pracess known as ‘ratification’ ‘The basic effect of ratification is to retreactively authorize the agent to engage in the relevant acts. Where no relationship of agency exists, the effect is to create a relation- ship of agency and retroactively provide the agent with authority. Requirements for ratification As the effect of ratification is to alter retroactively the legal consequences of actions that have already taken place, i sa concept thet must be watched closely. Accordingly, in order for a principal to effectively ratify the actions of his agent, a’ number of requirements will need to be satisfied, Principal must exist at time of contract In order for a principal to be able to effectively ratify the acts of the agent, the Principal must exist at the time the agent undertook the act in question. This 25, Burmsicley Darel (1890) 3 Ex 224, 24. Roberts v Oplby (821) 9 Price 269. 25. Kennedy v De Trafford (18971 AC TBO(HL). Scanned with CamScannerCHAPTER 4 THE CREATION OF THE AGENCY RELATIONSHIP requirement arises prime n to legal persons, notably bodies corpo- rate such as companies and limited liability partnerships. Accordingly, if a cam- pany has not been fully incorporated at the time the agent's act was undertaken then, upon its incorporation, the company cannot ratify the act, as the following case demonstrates. Kelner v Baxter and Others (1866-67) LR 2 CP 174 FACTS: It was agreed that company (the Gravesend Royal Alexandria Hetel Co Ltd) would ‘be set up to run a hotel and Kelner (a wine merchant) would became one of is directors. On 237 January, Kener agreed to sella quantity of wine to the company, and ths agreement was “signed by the other directors ‘on behalf ofthe Gravesend Royal Alexandkla Hotel Co Utd The company was incorporated on 20 Febrvery, but collapsed soon after, having not paid Kelner for the wine, Kelner infiated proceedings, claiming that, as the company did not exist at the te of the contract, the ather directors were persanally lable. The other directors contended that the company had ratified the contract upon its incorporation, and se it was lable forthe price ofthe wine. ELD: The companys purported ratification of the contract was inelfectiv, as it did not exist _attherime the contract was entered into, Erle C2 stated that ‘Where. contracts signed by one who professes to be signing “as agent," but who has no principal existing at the time; and the contract would be altogether inoperative unless binding upon the person who signed It he Is bound thereby" Accordingly, the directors who signed the contract were personally abe to compensate Kelner far the price ofthe wine, COMMENT: The rule that the promoters of 2 company are personally lable for contracts | —> sremewrsperan entered ica on behalf of a company that does nat yet ont hasbeen coated in s 51 of | "esteem the Companies fet 2006.# The company cannot ratify the contract and take the benefit | ‘Cimrupscanpany, of iif the company wishes to benefit from the contract, the erlginal contract must be discharged and a new contract must be created with the company on the seme terms. It Can be argued that this is commercially inconvenient, especially as the EC Directive that led tothe enoctment of 51 did permit the company to ‘assume the obligations’ arbing under the contact Agent must purport to act fora disclosed principal A principal can only ratify those acts that the agent purported to carry out on behalf of that principal, It follows that ratification cannot take place where the agent purports to act on his own behalf, even if the agent is in fact acting on be- half ofa principal. 26, (1866-67) LR2 CP 174, 183. 27, Although not stated by & 51, has Been established thet the promoter can also-enforce the contract against the theed party (Brayonise Led v Wise Binance Co Lid [2003] EWCA Civ 127, (2002) Ch 273), Section 51 is discussed In mote detain p 165, 228 Howard v Patent ivory Blarfacturing Co (1888) LR 38 CAD 156(Ch), 29, Firs Coal Directive 64/151/EEC of # Match 1968 on co-ordination of safeguards whih, fo the ‘tection ofthe nteress of members and others, are required by Meraber States of companies within themeaning ofthe second paragraph of Article 58 ofthe Treaty witha view to making sch safeguards cquivabet throughout the Comaunity [1968] OFL6S(8, Art Scanned with CamScannerE LAW OF AGENCY FACTS: Krighiey, Maxsted & Co (KM the principal) instructed Roberts (the agent} to purchase a ‘quantity of wheat ata certain price. fobertscouldnat obtain the wheat atths price and, in breach cf his autharity, agreed to purchase the wheat ata higher rice fam Ourant. Although the wheat ‘was actually being bought on behalf of KM and Roberts, Raberts did nat disclose this, and so mt | appared that he was buying it purely on his awa account KM then purparted to ratify Roberts ‘actions, but Mand Roberts then falled to tskedelivery ofthe wheat, resulking in Durant having to seltt eewere at loss, Durant Initiated proceedings aginst KM and Raber forthe amount lost ‘At first instance, the ccurtbeld that KMS atifctlon wasinvalid anes any Roberts was able, On appeal it washeld that KMS ratification wasvald ad soit could beable KM appealed. HELD: The House held that KM's ratification was invalid because Roberts had not purported toact on behalf of a principal, Lord Macnaghten staked that it was‘a well-established principle | ln English law that clit obligations are not to be ereated by, er founded upon, undisclosed | intentions!” Accordingly Durant could recover theamaunt ast from Roberts. COMMENT: The result of this case is that an undisclosed principal can never ratify the ‘mauthoriaed acts of hs agent, This rule has been strongly cktclzed, with Keighfey being described as a ‘short-sighted decisian’®* Roberts was already KMis agent, and he had merely exceeded his authority as regards the price of the wheat. Khthen ratified hisactions and Durant, in initiating proceedings, was merely trying to hold KM to its decision to ratiy. Accordingly. it has been contended that‘ principal whe ratifies should be able in the situation where the person who isaleady an agert exceeds hisauthorty” ‘The agent nced only purport toact on behalf of another, From this, it follows that if an agent falsely purports to act on behalf of another person, that person can still ratify theacts ofthe agent, asthe following case demonstrates. FACTS: Tiedemann (the principal) authorized Vimar (the agen) to sell wheat on his behalf, Vilmar sold quontiis of wheat to third parties, but, after seeing that the price of wheat began) | torise, he purchased the wheat back from the thid parties and resold it later that same day for | 1 higher price, thereby making a prof, Vilar was engaging in these sales on his ov behalf, but falsely claimed that he was doing so on behalf of Tiedemann, The price of wheat began to {all and the third parties began to suspect that Vbnar was purchasing the wheat on his own account. Accordingly, hey sought to repudiate the contracts a sale. Tiedemann, unturpisingly, ‘sought to ratty Vimar's unauthorized activities and recover the profs for hse | ‘ELD: Tiedemann’ ratification was vali, Channel J stated that the consracts could be validly | ‘rattied by the person in whose name they purported ta be made, even although they were 4h fact made without his actral authodty, and although ithe agent] had in hés mind some: | froudulent intent Channel did state shat i the principal was also acting fraudulently, then ratification would not have be en permitted, but ths wasnot the case ere, | 30,190 A240 C247 21, lan Brown, "The Signiicance of General and Special Authority In the Development of the Ageat External Authority in English Law’ [2004] 11.391, 394 52. Peter G Watts, owsend & Reynolds om Agency (20th ed, Sweet &eMa wel 2014) [2-061]. 53, (89912 Q8 64 (DG) 7, a Scanned with CamScannerCHAPTER A THE CREATION OF THE AGENCY RELATIONSHIP fea ‘The final issue to discuss is whether the agent needs to identify the principal he is acting for, 8s oppased to merely disclosing his existence. The answer iso, but it would appear that the agent must do more than simply state that he is acting as an agent, as the following statement of Willes J Indicates: “The Law obviously requires that the person for whom the agent professes to act raust be a person capable of being ascertained at the thm. It is not necessary that he should be named: bbut there must be sucha deseription of him as shall ammount to a reasonable designation of the person intended tobe hound by the contract.” Principal must be competent ‘The effect of ratification is to treat the agent's act as being authorized at the time it was undertaken (ie. authority is granted retroactively), It follows from this that order for ratification to be effective, the law requires that ‘at the time the act was done the agent must have had a competent principal” (this is @ corollary of the rule dis- cussed at p 59, namely that a principal can, through an agent, undertake any act that he has competence to undertake personally). Where, at the time of the agent's act, the principal lacked competence to engage in such an act himself, then ratification cannot occur. FACTS: In 1940, a trailer belonging to a French company named Pécherias de Ia Morinie (PM the principal) was decked at an Englch harbour, Whit at the harbour, France was occupied by German forces, resulting in PIM becoming an allen enemy. Boston Deep Sea Fishing and Ice Co Ltd (‘Boston’, the agent), which owned 48 ner cent of the shares in PM, took control ofthe trawler and continued fo use it, despite the fact that PM had aot granted it authority to do so. Once the hostilities had ended, PM purported to ratify the acts of Boston. ln order to correctly caleuate the amount of tax owed by Moston asa result of profits gained through the use ofthe trawler, it became necessary ta determine whether or not PMS ratification was valid ELD: Harman J stated that‘at the time theacts were done the French company was an allen enemy at comman lav, It was therefare not a competent principal because it could not have done the act itself? Accordingly. as PM lacked the compete to wrkértake the acts itself, it ‘ould not subsequently ratify those acts when undertaken by Boston, ‘The law nat only requires competence atthe time of the agent's act, italso requires that ‘at the time of the ratification the principal must have been legally capable of doing the Act himself.” So, to use an example similar to Baston Deep Sea Fishing, if an English 34. Watsore v Swarrn (1862) 11 CBNS 756, 771. 35, Firth y Staines (1897] 2 QB7@ (QB) 75 (Wright). 36 1957] 1 WHER 1051 (Ch) £058. leis along-hcld earnmon law prineiplethat a person does nat have cap- acityto contract with an enemy ofthe sate, and as-enemy cannot appoiatanagentto engage in actthat ‘sight benefit that enemy (Stevenson e Sons Lid w Aktlengeslechaf fr Cardonnogen-Industre [1818] ‘AC 239 (HE. Further, «1 ofthe Trading with the Enemy Act 1999 made ia criminal offence te trade ‘with the enemy. 37. Firth v Staines 11897] 2QB70(QB) 75 (Wright 1 ~ Scanned with CamScannercompany acted as agent for a principal based in a friendly state that subsequently be. came an cnemy, then the principal could not ratify the acts of the English company until hostilities ceased. Ik would appear that not only must the principal be legally capable of doing the act himself, he must also be actually capable of doing the act himself at the time of ratification, FACTS: Graver & Graver Lid Grover’ the principal instructed Grows (the agent) to take aut ‘an insurance policy over one of its Factores. Upon the expiration of the insurance policy, Brows contacted the insurers to renew the policy, although he was nt authorized to do so by Grover, The insurers sent renewal details but, before the renewal premium could be paid, the factory burned down. Grover sought to ratify Brows’ act (Le. the renewal) by paying the premiurn, but the insurers reused to accept the prerniumn, onthe ground that It was sent after ‘theloss had occurred, ELD: Whilst Groverhad capacity toenter into the contrat of insurance, iteauld net actualy'do spin tiscase,as.a contract f insurance cennt be entered int after the event causing the lass has eccurred™ Accordingly the purported raticaton was invalid Principal must have knowledge of material circumstances Bowstead & Reynolds state: In order that a person may be held to have ratified an act done without his authority, itis ne essary that, atthe time of the ratification, he chowld have fall knowlege ofall the material circumstances in which the act was done, unless he intended to ratify the act and take the ‘whatever the circumstances might have beer.” In Suncorp Insurance and Finance v Milano Assicuraziont Spa," Weller J approved this pessage and went on to state that the requirement of full knowledge existed in order to protect principals from being found to have ratified too early. Quite what amounts to full knowledge’ is difficult to predict because it s ‘necessarily dependent upon the specific circumstances of any case'" but where the principal is aware of ‘the essentisls ‘of what happened as between the agent and the third party’* then the requirement of full knowledge will most likely be satisfied. Limitations on ratification ‘The courts have stated that, in certain cases, ratification will not be effective, even if the requirements outlined in the previous section have been satisfied. 38, lshould be noted thar this principle fs not absalue, For example 686.0 te Marine Insurance Act 1906 tales that a contract af marine insurance can Be rated by a person wha saware of the Loss. 38, Perec G Wats, Bowstead & Reynolds on Agency (20th edn, Sweet 8 Maxwell 2014) [2-068]. 40. [1993] 2 Lops Rep 225198). 41 SET dg Allg ‘Maches 2008] EWHC 35 {Comm [2005] 2 loy's Rep 129 11331 loser, AZLING Re (UR Lid» REV Verscherng AG [2006] EWHC 1544 (Comm). {2006] 2 All ER (Comin) 870 [153] CFoulson Scanned with CamScannerCHAPTER THE CREATION OF THE AGENCY RELATIONSHIP Us ‘Acts which are void ab initio Not all acts can be ratified, In the following ease, the court drew a distinction be- tween voideble acts and acts that ate woid ab initio, with the latter being incapable of ratification. FACTS: Jones tine agent) forge the signature of Hock the principa}on a promissory noten | =p pomisony _an attempt to prevent Janes from being prosecuted, Hook purported to ratify Jones's actions, | notearwacondltionsl ‘weves the promissory nate was not henoured ad Brook the third party inwhosefivourthe | meester ‘ote hadbeen granted initiated proceedings against Hook. cmt MELD: The ritifcatian vce ineffective, Kelly CB stated that “though a voidable act may be rated by matter subsequent itis otherwise when anactiserginallyand nits inception veld? ‘The forged signature rendered the note anullty and so Broek could not recover the proceeds of the note from Hook. COMMENT: The distinction drawn by Kelly CB between voldable acts (which can be ratified) and void acts {which cannot be ratified) has heen described as unsatisfctory**on the ground that unauthorized acts cannot properly be Gescribed as voidable and, if anything, are better described 2s being vold. thas been argued that aletter way of explaining the result in Books thatin agent wha forges his principal's signature isnot in fact acting on his principa’s behalf, and so the issue of ratification does not arse. Ratification must not unfairly prejudice a third party Bowstead & Reynolds state that ‘rletification is not effective where to permit it would unfairly prejudice a third party's This principle has been judicially accepted,” but the case law in this area is extremely confusing and is rife with inconsistent interpret- ations. For example, consider the following case. Queer FACTS: Bed (the agent, purportedly acting on behslf of Ils ithe prinéjpal and consignor of goods, ordered the stoppage of those goods sfter discovering thatthe consignee had become bankrupt oct: Bird had no authority to order sucha stoppage: The goods event aly rearhed theirdestinatlon where the consignee’s trustee in Bankruptcy made formal demand for them, Thepaods were tobe shinned to the consignee, butthe shipmaster refused vo delve the goods (nthe bass they had been stopped in transit ins sought to ratty the stoppage in tenslt. 43.(1970-71) LRO EK 89,99, 4, See eg. Peter G Watts, Bowstead & Reynolds on Agency (20th edn, Sweet x Maxwell 2014) [2-057 ‘Len § Sealy und Richard [A Hooley, Commercial Lave Text, Caaed aid Materials (ah edn, OUP 2008) 16, 45, See Edwin Peel, Teel on the Law af Contract (th edn, Sweet & Maxwell 2015), Greemmood v Martins ak Lid 932] 1 KB 378 (GA) 178-9 eruttonL). 46, Pater G Watts, Bewatea & Reyolde om Agency (2th ede, Swcet& Maxwell 2014) 2-087]. 49, The Ghencrs ofthe Skip ‘Barviilant v The Owners af the Ship Romina G” [2008] EWCA Civ 35, {2003} 2 AILER (Comm)736, [70] (Clarke LJ}. Scanned with CamScannera THELAWOF AGENCY HELD: The ratification was ineffective (COMMENT: The reasoning behind the decisian has been a topic af considerable debate, tn Bird, Rolfe-B stated that ‘the goads had elready become the property of the iconsignee}, free from ail rights of stoppage," leading certain judges” ta contend thatthe decison was based on the notion that ratication cannet occur where it would divest the vested proprietary rights of 2 | ‘thir party, Other judges, however, cartend that the revo in Bis that ‘fa time is fixed or doing anact, whother by statute or by agreement, the doctrine af ratification cannot be allowed | to apply itt would have the effect of extending that time! It haseven Been argued that Bird -hadgararlpheitrepieprribipnaiadoate | sence | pass fr determining cases whore ratifcaton takes pce after property av contractual rights mopereclen | ave vested, ar cases were ratification takes place after atime limit provided for has been exceeded! ‘More recent cases have moved away from attempting to determine the precise rea- soning behind Bird and instead state that these cases should be regarded as examples ‘of the general rationale identified in Bovstead & Reynolds’ Art 19, that is, unfair prejudice. It would therefore appear that the current approach of the courts, when determining whether to permit ratification, is determine whether ratification would unfairly prejudice the third party, and not to place limitations on the instances when ratification may be rendered ineffective due to sueh unfair prejudice. Ratification must take place within a reasonable time Inonder for ratification to be effective, the principal must ratify the agent's act within a reasonable time, as established in the following case. FACTS: Metropolitan ASylums Board (MAB; the principal invited suppers to submit tenders forthe supply ofegss,with supply due to begin on 30 September. Kingharn & Sons (Kingharn’) ‘2s notified on 22 September that its tender had bean accepted by MAB's managers (the agents), but the acceptance was Invalid as MAB's seal had not been affed to the tender, On 24 September, Kingham Informed the managers that the price stated in the tender was incorect, and purported to withdraw the tender. 6 October, MAB sought to ratify the acts ‘ofits managers by affaing the corporate sedi to the tender, thereby holding Kingham to the {tendered price. Kingham refused to perform, and so MAB commenced proceedings. HELD: The purported ratification was Inéfectve, 35 It was too late, Fry LI stated obiter that | 'f ratification isto bind, fe must be made within 3 reasonable time after acceptance by an 48, (185004 Exch 786, 800 49, Seeeg Coton if in Bolton Partners v Lambert (1899) 41 CAD 295 (CA) 307. This view was cor: firme by Roch Lin PresentaclonesusiciesSA v Scena [1984] Ch 271 (CA) 284 50, Presentuclones Musicales $4 v Secunat [1984] Ch 21 (CA)279(Dillon {J}. This view vas confirancel lay Clarke LJ in The Owners ofthe Ship Barvigitantv The Ormers ofthe Ship ‘Rorcina G [2003] EWCA ‘Civ 935, [2005] 2 All ER (Coen) 736 [84 ‘51. Tan Cheng-Han, "The Principle in Bird v Brown Revisited (2001) 117 LOM 628, 643~4, 52. Smith v Hewniter Major & Co [2002] EWCA Civ 762, [2003] Ch 18271 (Robert Waller LI) Scanned with CamScannerCAPER A THE CAL ATION CTI GENE REL ATION IE eae] njamborived prvi Tel rewscnne line cave awe ete Aen the Ane wb veieh the nde WN Cibo ined {EAUANAENATY Nos soars ia vation re tae ylaem view rexel ne Bw Agia wrdsanen ecuetH neie a aan of vmntA, weer nes renew Hk ary ha erase tet mponmnents yh wy want si Labs wathonty In aah eet hid ari al or unborn ony wvtion temo lnc can eave Th ‘sone pn AN Fe ato nay toi abe canned abe vce ali Hh tne when the ‘oe ins se Corinna cen ote aaa ate jelly canna Ine vonared re aw Who ean ratify? Crea the requlrernenta for fatificatten Inve heen met, tee newt Heoeee to Aliceae be when Jane the obi ie roby the aysi’s neta, Uy foie v Hope Het 14 elated at ‘bendy am vat cnet paarion tia, Wl rade yan gent cic ean ce fe Ioald Wve ayer prarpor ted erat"? Accovtinghy ely Hoe principal tn shite Pca he sent purported towel emo aalily, Hest yer the priilpl seve al persenlly tify He ayers ates hie an wal irize ans pen treaty the urwalvanbert ct Tie Bohl fas ac w cnr, wl Abe agg vexqbec de Me autberity te cay Hoe aed fee will wo a quia aun toggle Ht ase Boke rte ‘Methods of ratification Wi Niviiedd \iveturicen, tive fan will otute that ratification reerel neewr bw certain way. Hor exwonple, wu ayert authorize tn reece a deed sus te wpa oy deed, and edie fran ke va oe sa fimcs wic atet is wabe yceea® Ceerennly, however the by ww nt apecty the wat by which runficatbun taken place-—W i be eager ape, wand by ode Ly calc, Haptena taiBew tien cei ‘huts the princtyal exprevaly iaiseete ie Hiern An rally Hh agente wet Cee BY exer tng ot Fe eit taf ingle rain an i ego ahr andh anew were Ie cect Vie jaro woe Parnas ara Woon ein He ctr Hranaa HBR Ie alone enere woe ea 10 wana ee lene wectorine hat He adxptev rorbe wh a ‘Ivano enn wn oe pls Fer te se ac queen a nse eye ie pr apa Tia fe riuabatiion low, env rnstnendar iecanient, heen crnafirmied by tae comet a anh aes eunete west cat ve Uwe! Aw attends tHoerw weil mevel ee bee ‘clear evidence” that the 8 Fi LTE A 164 aw Paver Wot, Morven Mey Ay (Neen, inet Be Minn al Of 1 be Melinl Baetee on Yl esq [V0 Ha) 7, SW Fin TEAC aH Me Poteet master Mine 1 DAC Me A Fate ashe Any 7 EAM Aa 14 Peo 1 Was Paveste ot a patde a Age pede, Mowe Aan N89 | A 44 bow nye ar np yn on Pe Ateab Ah tor ged IRON» Masi Hea AA (OD SHE at Foot 4A # foomtvsad an Ba Molin init Ile onesie ae MEH 1411 eu) JNU INR Pd a Ll rad Nove Pep en ne PoP ne Tn LAL Scanned with CamScanner! Eee ener purported principal ratifies the act or transaction—if the purported ratification iy vague and could be interpreted to mean something else, it will be ineffective. Whether oF not implied ratification has occurred is usually a question of fact based upon the circumstances of the case, The following case provides an example of the type of act that ean amount to implied ratification, ‘Hogan and Others v London Irish Football Rugby Club Trading Ltd (QB, 20 December 1999) FACTS: The principal, London lish Footbal Augby Cub Teding Lid (the Chub’, ernployed Aaderson (the agent] asthe dectr of rughy. Hs job was to coach th fist fifteen and set up 2 recrutment programme fo ensare the Club’ lang-term suceess, The Club’s board of directors expressly informed Anderson that he dd not have the authority to enter into binding agreements with players. Despite this, he entered into negotiations with four players and affeedeachof them atwo-yeor contract. These players attended raining sessions, represented the Club, and were paid thelr contractual rte of remuneretion, A few months later, these ayers were informed that thelr services weve not required. They alleged that this amounted tw abreich of ther emoloyment contacts, while the Club contend thatthe contracts were | tnvalid, as Anderson hadnaauthority to enter into binding contracts with players. HELD: By allowing the players to attend training sessions and represent the Club, and by continuing to pay them their salares, the Club: had impliedly ratified Anderson's actions. Accordingly, the termination of the playess' contracts amounted to a breach of contract, for which they were entitled todamages. ‘Acquiescence or inactivity ‘As Rowlatt J stated, "atfication is aunilateral act of the will’® Accordingly, the prin. cipal isnot required to communicate his intention to ratify to theagent or third party, providing that the intention to ratify is (expressly or impliedly) manifested in some ‘way, From this, it follows that acquiescence or inactivity can amount to ratification, #3 stated by Moore-Bick J: [Ratificstion} does not. -depend on communication with or representation to the third party... but since the intention to ratify must be manifested im some way it will in practice ‘often be communicated to and relied pan by the atber perty tothe transaction, Ratification can no doubt be inferred without dificulty from silence or inactivity in cases where the pris ‘cipal, by failing to disown the transaction, allows.a state of affairs to come about which is in ‘consistent with treating the transaction as unauthorized. ‘However, where the principal has not manifested an intention to ratify, thenit{s less likely that acquiescence or inactivity will amount to ratification ané will instead be regarded as. “an unwillingness or inability on the part ofthe principal to commit himself. Partial ratification It's not possible for the principal to ratify part of the agent’s actions and reject the rest or, as Robert Walker 1 stated, 'fo] party wishing to ratify a transaction must adapt (2, Harrison & Crate Lid» Landon & North-Westere Rail Co 1917} 2 KB 755 (KB) 738, 53. Yor: fnternationel Lid-v Le Rewnion Francais 4, [1996] 2 Lloyd's Rep 84 (QB) 106. 64, abid. Scanned with CamScanner‘CHAPTER 4 THE CREATION OF THE AGENCY RELATIONSHIP Kea] it im its entirety’ ‘The rationale behind this limitation is that, if partial ratification were permitted, a third party would be bound to the principal in a way that he did not intend. Accordingly, the general rule is that if the principal has not ratified the agents actin Its entirety, then ratification cannot be said te have eccurred, However, the courts have also stated that, in certain cases, ‘adoption of part ofa transaction may. be held to amount to ratification of the whole’. Revocation of ratification (Once a principal has ratified the acts of his agent, he cannot then change his mind and revoke his ratification.” However, a principal who originally declined to ratify can change his mind and ratify the act,* providing that such ratification ismade within @ reasonable time,” and does not unfairly prejudice any third parties” Effects of ratification ‘Where principal validly ratifies an act of his agent, then the lave will regard this rati- fication a8 being “equivalent to antecedent authority.” In other words, the lave will regard the agent's actions as being authorized when they were undertaken, with the result that the contract between the principal and the third party will be enforceable by both parties. As the following controversial case demonstrates, this will even be the case where the third party purports to withdraw from the contract prior to ratifi- cation occurring. Partners Ltd v Lambert (1889) LR41ChD295(CA) —_| FACTS: Lambert offered to buy a factory that belonged to Bolton Partners Ltd (‘Bolton’, the principsy Lambert made the offer to Scatchey (the agent" WHO" Wwas Batons managing director, Scratchley purported to ScegPME TREE Behe the authority to do so. On 13 Janary, a dispute arose and Lambert purported to revoke his offer. On 17 January, Bolton commenced proceedings against Lambert fer breach GF contact, ind sought specific performance to enforce the agreement, On 28 Jonuary, Bolton sought to ratily Scratchley’s acceptance of Lambert's ofr Camber coMETSSTTSC icra eceyarc wes val ewer Tee To revoke the affer and, as the offer had been revoked, Bolton could not ratify Scratchiey’s purported acceptance HELD: The ratification wes valid, and the order for specific performance wes granted. Catton Ld stated that [he rule a to ratification by a principal af acts dane by an assumed agent is thatthe tatifeation s thrown back othe date ofthe act done, ond that the agent isputin the sare position as if he had had sutharity to da the act at the time theact was: done by him.” Wee 15, Smith» Hennier Maar Co [2002] EWCa Civ 76, [2603] Ch 482 (56 166. id, For ap-cxample ofthisoccurting, see Re Mabon Lid [968] | WLR 7A(Ch) (2.SEB Try Holding Aktebolag v Manches [2005] EWHC 35 (Comm). 2005] 2 Lopes Rap 128 ‘68. Soames rSpencer (1822) 1 DER 32, £8. Metrepolitan asylues Board y Kingham & Soe (1890) 6TLR217 (QB) The cree discussed at p70 10, McEvoy v Beles! Banking Co La [1935] AC 24 (HL). 31 Koenigsblnt Sweet [923] 2h 24 (CA) 325 (Lord Sterna MB). 72, (1689) LR CRD 285 (CA}306. Scanned with CamScannerEL AWE AGENCY petit one ety educces ‘Applying this, Scratchloy was authorized to accept Lambert’s offer at the time he accepted | it Rt follows that a valid contract point, and so Lambert could not subsequently revo his afer. ‘Unsurprisingly, the decision has heen criticized for several reasons. Fitst, the rule strongly favours the principal, but places the third party in an ‘invidious position in that he cannot withdraw from the obligation before ratification, yet the principal ‘may elect nat to ratify without legal consequence’? Second, it has been conteaded that, where a third party is trying ta-escape the contract prior to ratification eccur- ring (es in Bolton), then ratification should be ineffective as ‘until ratification takes place, there is no contract enforceable either by the agent or the principal’ Third, many countries have moved away from Bolton and held ratification to be ineffective in such cases, As far back as 1920, one commentator stated ‘[w}here [the third party] did not know of the lack of authority ... fairness ... would allow him an option to withdraw... Most of the American courts have reached this deci sion in cases dealing with ratification, The English cases to the contrary must be wrong,” The American Law Institute's Restatement also rejects the rule In Bolton,” and Article 15(2) of the Convention on Agency in the International Sale of Goods states that: Lb)here, at the time of theagent'sact, the third party neither knew nor ought to have known of the lack of authority, he shall not be liable to the principal iat any time befote ratficatton, be _gives notice of his refusal to become bound by a ratification. Despite this criticism, it has been argued that the decision in Bolten is justifiable for two reasons. First, it has been contended that ‘if the principal ratifies the contract, the third part RIBEITS peTSpeCHVe, ‘Gh. tract existed the moment Scraichley accepted his offer, and so any attempt at revoca tion would have predictably been regarded as a breach of contract om Lambert’s part Second, the rule in Boifon is not absolute and will not operate in many instances, a3 is emt un Beton notabaclne and jemonsirated erous requiremenis and litiliations that eeist upon a princi pals ability to ratify. a... "Ta wadition to providing antecedent authority, rtitication may also entitle the agen! to receive remuneration /commission,” or to be indemnified for any expenses incurred in the course of the ratified agency.” ‘Agreements subjectio ratification ‘Where « contract is entered into subject to vatification by the principal, then the rule in Boltan will not apply 35, in such a case, the act of ratification creates the contract. Is such a case, the third party is free to withdrawat any time before ratification, as dem: onstrated in the following case, 13. Ian Brown, Ratification, Rettoaetivity and Ressonableness (1994210 LOR 538336 74. Tan Cheng,Han, “The Principle in Bird v Brawn Revisited” (2001) 17 LOR 626, 62 73. WASeavey,"The Rationale af Agency’ (1920) 29 Yale L185, 89. 76. American Law Institute, Rertatemenit ofthe Law Agency (American Lave Tsstitute 2006) § 4.05. TH. Len § Sealy and Richarel JA. Haley. Conmmircil Lane Text, Caves ard Moterfels (4th edn. OUP 2008) 148, 78. Keny r Fick (ETE)LAI CPC THS{CA), 79. Hartas yRibbons (1869) LR 22 QBD 254 (CA) Scanned with CamScannerFACTS: Davies offered to sell a plece of property to a charity (the principal. The charky arranged for an inspection of the property to be carried out by several of its board members. ‘This inspection team (the agents) told Davies that they had resaived to buy the property, and 10 accepted the offer subject toa formal meeting of the board (Le. their acceptancewas subject to ratification). The charity's secretary informed the board that the inspection tearn was Inquorate and so had ne authority to accept Davies's offer, A meeting of the full board was Comened In order to ratty the inspection team’s acceptance, burt tefore the meeting took place, Davies ‘withdrew the offer, Despite this, he board meeting went ahead, where i purperted to ratify the -acceptance of Daviess offer, Davies refused to proceed withthe sale and Watson, the charity's managing director, sought an order for specific performance. HELD: The High Court refused togrant specific performance. Maugham | stated that: Info acceptance by an agent subject in express terms to ratification by his principalislegaly nullity until ratification, and is no more binding an the-other party than an unaccepted offer which can. of course, be withdrawn before acceptance. Accordingly, as Davies had withdrawn the ale prior to ratifcation, it could no longer be accepted, Liabifty oftheagent ‘The final issue to discuss is whether ratification exonerates the agent of all liability for breach of authority. Such liability can arise in two ways. First, the agent can be liable to the principal for exceedinghis authority. Ifthe principal ratifies the agent's act, does give up any right to sue the agent for exceeding his authority? In ‘many cases, the principal will obtain an advantage from ratifying the agent's act, and sa-will not seck to commence proceedings against the agent (especially if he wishes ta work with the agent again in the furure). However, the courts have acknowledged that ratification will not automatically exonerate the agent of his breach of authority, and the issue should be considered in two stages: First. is there ratification of the contract which the agent purported to make, Second, has the principal waived the breach of dutyif any'vie-S-vis the agent. Often the fact will lead toratifi cation and exoneration, but not always" Second, the agent eam be liable to the third party for breach of warranty of authority, GED treat worsey and the general rule is that ratification does not exonerate the agent's liability for such Simeesr sheet a breach. However, as the measure of damages for such a breach is based on the loss which the parties should reasonably have contemplated would result from the breach (le. the loss incurred as a result of the contract not coming inte operation), and as the act of ratification will normally avoid such loss (by bringing the contract into oper- ation), it follows that that the third party will not normally be able to recover dam- ages. f however, the third party has incurred costs due to the unauthorized acts ofthe agent, then these may be recoverable. ae ‘5, [1931] 1 Ch a5 (CH £68. Bh Suncorp Insurance ana Findncé ¥ Milano Assicurazioni SpA [1995] 2 Lloyd's Rep 225 (QB) 234-5 (aller, Scanned with CamScannerAgency by operation of law In several cases, an agency relationship may be imposed upon the parties by the oper. ation of law, In such cases, the fact that the parties donot intend or wish for an agency relationship to arise is irrelevant. It does not follow, however, that the agency relation- pis not consensual, as the law will deem that the parties consented, even if they did, infact, not do so. Agency of necessity Agency of necessity arises where there is some pressing need for action to safeguard the interests of another, In such a case, the courts might be willing to deem that the Person acted as an agent to safeguard the interests of a principal, as the following ¢x- ample demonstrates COMCORP LTD ComCorp agrees to purchase a quantity of appesftom a carnpany based in Portugal. ComCorp enters. into an agreement with FreightSafe Ltd to transport the apples by sea. The apples are Jaded anta ane af FreightSafe's ships but, due to poor weather conditions the ship is Forced 10 remain in dock ata port in Portugal until the weather improves. Oue ta the delay, the apples begin to deteriorate and so the shinmaster decides to sell the goods on behalf of ComtCorp, bout, given thelr state, the price obtained half what ComCorp pald for them. ComConpstates | that the shipmaster had no leg right to sll the goods and intates legal proceedings. The | sshipmaster contends that he wasacting &sComCorp’s agent, ‘The shipmaster was not appointed as ComCorp's agent (and even if he was, he was not authorized to sell the apples). nor did ComCorp ratify his actions, $0 on what basis can he claim to be an agent? The shipmaster would likely argue that the agency: re- lationship arose through necessity. Unlike agency by agreement or agency by ratifi- cation, agency of necessity is not based upon the consent of the perties, and usually arises in cases where a relationship of agency is not desired by the principal. Where agency of necessity i established, the effect will usually be to increase the au- thority of an existing agent, but it can also create a relationship of agency where none previously existed. It isimportant to note tha, in the following case, the House of Lords indicated that only certain types of case would amount to ‘true! cases of agency of necessity ) Chine-Pacific SA v Food Corporation of India (The Winson) ~ (1982) AC 939 (HL) a 4 FACTS: Faod Gor portion of nda (FCI chartered aship totransaort cargo of wheet fram the USA to Bombay (now Numbal) En ute, the ship became stranded an a ree. The shipmaster > salvenapies | entered Into a contract with China Paci SA (CP). a firm af professional salvars. CP managed ngage he sane | to salvage 152% tonnes of wheat and, to procect I from deteriorating, stored i at its own Se ‘expense. CPthen sought torecover these storage expences from FCI, but Fl refused to pay. AUB seerbtosecfon | HELD:The House held that CP could recover the storage expenses from FCL Necesarrotestue! = two emus de Scanned with CamScanner‘CHAPTER THE CREATION OF THE AGENCY RELATIONSHIP ‘The decision in The Winson was not actwally determined throwgh agency principles, but was instead based on the law relating to salvage, boilment, and lions. However, as the ease clearly involved a situation in which a relationship of agency might be found to exist, Lord Diplock decided to provide guidance regarding the scope of agency af necessity by distinguishing between two different types of case: 41. Cases where ‘Gircumslanees exist which in law have the effect of conferring on [a person] sutherity 10 create contractual rights and obligations between [another person] and a third party that are directly enforceable by cach against the other" 2. Cases where ‘the anly relevant question is whether a person whe, without obtaining instructions from the owner of goods incurs expenses in taking steps that are reason ably necessary for their preservation is in law entitled to recawer from the owner of the goods the reasonable expenses incurred by him in taking those steps" Jn the second type of case, the ability of the “agent” to legally bind his ‘principal’ (o a third party is not # key issue—the only issue is whether the ‘agent’ can recover, -expenses for costs incurred, and so it could be argued that, strictly, no relationship of agency arises. Lord Diplock appeared to agree with this argument, and stated that only ‘the first type of case provides a true example of agency of necessity, with the second type of cate being more appropriately regarded as a form of restitution. Accordingly, ‘tis section will focus on the first type of case only. ‘Requirements forageney of necessity In order for agency of necessity to arise, four requirements must be satisfied. Tt is ‘worth noting that in The Winson (discussed earlier), Lord Diplack was of the opinion ‘that these requirements might only apply to cases of true agency, and might not «ply in their entirety to cases where the agent is simply seeking to recover his expenses, ‘The first requirement is that the actions of the agent must be necessary for the ‘benefit of the principal, The test Is an objective one, meaning that it dees not matter ‘whether the agent honestly believed that his actions were necessary—what matters 1s whether a reasonable person would regard the action taken as necessary." The inev- itable issue that arises is how is necessity to be determined. The courts have provided ‘some specific guidance—for example, the Court of Appeal has stated that acting in order to avoid mere inconvenience will not be enough to establish necessity.” Overall, ‘however, the scope of necessity is rather vague. Perhaps the best indication comes from Sir Montague Smith, who stated that the concept of necessity refers to: the force ofciccumstances which determine the course 2 man evight ta take, Thus, when by ‘the force of circumstances a man hhas the duty cast upon him of taking some action for an- ‘other. and under that obligation, adopts the eousse Which to the judgment of a wise ané pro- ‘dent man, is apparently the best for the interest of the persons for whom he acts in a given ‘emergency, it may propery be suid of the course so taken, that it was, in mercantile sense, necessary to take it “The second requirement is that itis not reasonably practicable for the agent to comin ‘nicate with the principal. The exact scape of this test is unclear, as the following case demonstrates. es 82, [1982] AC S39 CHL) 958.83. ibid. 34, Teley © Co v rth Trade Corp (1922) 20 LIL Rep 678 (KD). 85. Sachs w Miklos (1948] 2 KB 23 (CA). 86, The Australasian Stesrm Navigation Co v Morse (1871-73) LR 4 PC 222(PC} 230. Scanned with CamScanneraN [FACTS: A quintty of tomatoes belonging to Springer was delivered to the Great Westem ‘allay Co GWE), who would then deliver them to Springer, The tomatoes were placed ‘na ship for delivery but, ue to bad weather, thelr arival was delayed. Upon arrival, GVAR's ‘dackworkers went on ste, further delaying the dalivery of the tomatoes. By ths time, the Tomatoes had started to deteriorate and so GVR's-rafic agent decided to sell the tomatoes Focaly, without fest cussing this with Springer, which be could have done. Springer Sught damages for breach of carisge, and GWR contended that the sale was justified because it was necessary. HELD: GW had time to cammnuniate with (Spsinge] and it was commercially posible to a so and to ask him what he wished should be done withthe tomatoes" The fale to co sa meant that a relalonshipofageney based on neceshy hd net arisen and so Springer action succeeded. | ‘COMMENT: Detate araseasto how impracticable communication must bein order to satisty | this equlrement. Sutton Listated that communication had to be'commercalyimpossible?® | whereas Bankes L stated that communication had to be ‘practically impossible" McCardie J, ina diferent case, went further and states tat agency of necessity does nat arse ifthe agent Iterewon ah he thipd nde ae ed epee | ‘contended that Scrutton L's less stringent formalationispreferable on the graundthatit would lnlue situatlons where communication was actualy posite, but wouldnot be commerdally veatistc eg. where an agent is acting on behalf of many principals simultaneous) ct es mer ees na Increasingly dificult to sets, esulting ina significant reduction inthe numberof actual cases. | ‘of agency of necessity, | ‘The thind requirement is that the agent’s actions were reasonable and prudent, and that he acted bon fide in the interests of the principal, with the following case pro- viding in example of situation where this requirement was not satisfied. FACTS: Blasple, Stamp and Heacock Lid (BSH; the agent) # London-based company purchased fur skins onbehalfofProge ithe prindpal a Bucharest based fur merchant, and was to despatch them ro Romania Prager pld forthe skins, but, before they could be despatched ‘German forces occupied Romania and it became impossible for BSH to send the:skins to, oF ‘contact, Pager. Subsequently, BSH sold the skins, by which time they had increased in value. ‘When the war ended, Prager requested that 8H send the skins, When Prager discovered that the shins had been sol, he Iniloted proceedings against BSH, BSH contended that it eS ‘ecessay to sel the skins quickly 2s they were geting ‘ale, and so authority was granted to it Waagency af necessity, HELD: As the furs detenorated very slonfy and any lass in value caused by this was easly atfset by the increase in the Value ofthe furs, MeCarde J emphatically rejected BSH claim thatthe | (190 18257 (CA) 60 (Seumon L). 68. tid267, bid 266. 90. Peer» Blaypil, Stamp an Meacock 84] | KB 46 (KD) 57, Scanned with CamScanner(CHAPTER 4 THE CREATION OF THE AGENCY RELATIONSHIP sale was necessary. He stated that decide, without hesitation, thatthe defendants didnot act bbona fide... hold that the defendants were not in factagents of necessity, thatthe sales ofthe plaintiffs goods were not justified, and thet the defendants acted dishonestly.”" Accordingly, ASH was ordered to compensate Prager forthe price the skins. Little difficulty arises where, asin Prager, the agent has a single motive (namely to sell the skins and make a profit for itself), Problems can arise, however, where the agent acts for a variety of motives, some of which may be bona fide and others not so. The law has yet to provide an adequate solution to such instances. Lord Diplock has stated that ‘It may well be that the court will look to the interest mainly served or to the dominant motive’? but which of these two tests is prefer able is not clear. ‘The fourth, and final, requirement is that the principal was competent at the time of the agent's act. So, for example, if at the time of the agent’ act, the principal was an alien enemy." or a company that had not been fully incorporated or had been dissolved, then a relationship of agency by necessity would not arise. Scopeofagency of necessity As can be seen from the eases discussed, virtually all of the cases im this area in~ volve goods being transported by sea. The question that arises is whether agency of necessity is limited to maritime cases, or whether it can apply to any case involving some form of necessity. Unfortunately, the issue is unclear, Limiting the doctrine to maritime cases would appear illogical as ‘an agent may be faced with the same ne- cessity to act whether he finds himself on foreiga waters or on land.” Indeed, there have been a number of non-maritime cases involving perishable goods where the courts have found an agency of necessity to exist Despite this, the courts appear reluctant to extend the doctrine to non-maritime cases. For example, Bowen LI, referring to the doctrine of agency of necessity stated that ‘[njo similar dactrine applies to anything lost upon land, nor to anything except ships or goods in peril at seg Agency imposed by statute or the courts An agency relationship may be imposed upon certain parties by statute. Examples include: © Every parinerin en ordinary partnership isan agent ofthe firm and of his fellow par'- ners for the purposes of the business ofthe partnership." Stenilarly, every member of A linited ability partnership is an agent of the limited liability partnership.” Lib 54 52. Cutna Pacific $A v Rood Corparation of Tada (The Winson) [1987] AC339 (HL) 956. 9%. bara v Ditantan Bank 2927]2 KB 254 (CA SH.Re Banque des Marchards de Iescaw (No 1) 11952) | AILER 1269 (Chi 55, Same!) Stolitc The Lawaf Agency (weet & Maxwell 1862) 151. 36 Sere, Sims Co v Madtond Rauay Co [913] 1 KB 103 (KB) 57, lek v attire pera Jnsurance Co (1807) LR 34 CAD 234 (CA) 748, 58. Partnership Act 1890.55. %P.Lirnted Libilty Partnersbipa Act 2000, (1 Scanned with CamScanneraw THE LAW OF AGENCY © ‘Thcadministrator of company is an agent ofthe company” as area receiver andan administrative receiver © In certain regulated consumer ceedit agreements, the person negotiating with iby debtor will be deemed to be scting as an agent forthe creditas!™* ‘A relationship of agency may also, based upon the particular facts of the case, be insposed upon certain parties by the courts. For example, itis well established that while the directors of s company are agents of the company, they are not normally agents of the compaty’s members." However, in limited situations (e.g. where the dir ‘ectors act for the members in selling their shares)."*the courts have held that te die ectors can be acting as agents of the members. Agency arising due to estoppel ‘An agent may be imbued with authority where his principal represents to a third party that the agent has authority to act in a particular way. In such a case, the Apsaeeeatorty agent may be imbued with apparent authority, and the principal may be estopped saedeie® from denying that an agency relationship exists. The use of estoppel as the theor- tical basis of apparent authority has heen described as ‘shaky’ and ‘artificial’ principally on the ground that many cases of apparent authority do not fully sat isfy the requirements for estoppel. Despite this, itis now generally accepted that estoppel does form the basis of apparent authority, albeit a form of estoppel ‘with ‘weak requirements, special to agency’! Apparent authority and its basis in es toppel are diseussed in detail in Chapter 5. All that need be noted here is that «s ‘oppel can serve to extend an agent's authority orto create a relationship of agency ‘where none previously existed. Lt@ ati Te) |) Given that heactons of en agent can affect the legal polion ofthe principal tis vital fr al pate! involved to be confident tht a relationship of so Burhessesshoulé have Sand rash oF he methaas by which a relationship of agency can ue created, As discussed ‘Mt miay-even be the case that 8 relationship of agency maybe imposed upon two parties who did not wish, or who had no desire, for sucha relationship to arise, Such parties should be careful nat toa in. doit cue eco ama oe epee 100. ewoveny Act 1985, Sch, para. 10) sid $57( The receiver wi only be nesgent in elation tothe property that sattached tothe oa!” ing charge by which be was appoiaed. 1a ibid 5 44()ok Noe that an administrative receiver will not be an agent ofthe company ifthe ont pany sinliquidaton. 10), Consumer Credit Aet 19945552) 104, Gramophone and Typewriter Lid Stoney (908) 2 KB E9 (CA) 105 Alley Hyatt (1814) 30 TLR 448(8C, 6 Roderick Munday, Agency: La ad Principles Bnd edn, OUP2013) 63, 07, PeeeG Watt, Bowie & Reyotds Ageacy 20th edn, Sweet B Maxell 2014) (8028), 108 id [2.106 Scanned with CamScanner