Agency Law

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 Learning Objectives
After successfully completing this chapter, you will
be able to:
• Define agency and the roles of the principal, agent
and third party.
• Distinguish agency from other relationships.
• Classify agents according to extent of authority.
• Explain how agency can be created.
• Distinguish actual authority and apparent
authority.

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 Learning Objectives
• Describe the duties, rights and liabilities of agents
and principals
• Identify the relevance of agency to companies and
partnerships.
• Outline the liabilities of principals and agents to
third parties.
• List and explain the ways in which an agency can
be terminated.
• Identify common types of commercial agents

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 Definition of an Agency
• An agent is a person legally authorised to
act on behalf of another person (the
principal).

• As a result, the principal will be legally

responsible for the agent does.

• This relationship is called “agency”.

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Typical Agency Relationship

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 Distinguishing Agency
• Agents differ from other relationships
 Employees: Usually not liable to third parties & lack
authority to make contracts for employers. (But may
have apparent authority. Panorama Developments v
Fidelis, p 206).
 Independent Contractors: Unlikely to take on role of
agent, usually lack authority to make contracts.
 Franchisee: Not an agent, conducts business on their
own behalf.

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 Types of Agents
Three main types:
1. Special Agents: appointed for specific/limited
purposes e.g. to sell a car.
2. General Agents: wider authority. Arrange contracts
and act in their 'ordinary course of business' e.g.
solicitors.
3. Universal Agents: have authority to carry out
virtually any activity under power of attorney
(which may be ‘general’ or ‘limited’ by purpose or
time).
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 Creation of Agency
1. Agreement or ‘Actual Authority’
• Can be oral or in writing.
• Authority given can be:
 Express: Given directly.

 Implied: Agent with express authority

can also have implied authority to
perform certain tasks for the
principal.
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 Creation of Agency
2. Estoppel (‘Apparent’ or ‘Ostensible’
Authority)
• Apparent authority only has the
appearance of authority.
• However, principal may become liable for
the actions of a ‘false’ agent in certain
circumstances.
• See Panorama v Fidelis, p 106 and Tooth v
Laws, p 107.
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 Creation of Agency
3. Ratification
• Principals become liable if they ratify
(approve) unauthorized acts by a party
who lacked authority. Three main tests:
 Agent clearly indicated agency existed.
 Principal had knowledge/legal capacity.
 Ratification made within reasonable
time. Bolton v Lambert, p 207.

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 Creation of Agency
4. Operation of Law
• Agency of necessity or emergency
• Essential conditions:
 Agent entrusted (handed over) with principal’s
property.
 Genuine emergency.

 Impossible to contact principal.

 Agent acted 'in good faith' and principal’s best

interests; Great Northern Railway v Swaffield, p 209.

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 Duties of the Agent
1. Follow principal’s lawful instructions
2. Act personally (unless principal approves
otherwise). McCann v Pow, p 210.
3. Exercise reasonable care, skill and
diligence.
4. Act in the principal's best interests.
Fiduciary duty - must show good faith,
loyalty, trust and fully disclose any conflict
of interest. Hewson v Sydney Stock
Exchange, p 210.

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 Duties of the Agent (Cont.)
5. No secret commissions. Any benefit must be
fully disclosed. Possible remedies are:
• Secret commission paid to principal.
• Damages.
• Agent loses right to usual fee. Regier v
Campbell-Stuart, p 211.
• Fines and/or prison also possible

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 Duties of the Agent (Cont.)
6. Keep principal's money and property
separate from their own.

7. Avoid disclosing confidential information.

6. Account for property and money received.

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 How is Agency Relevant to
Companies and Partnerships?
• Companies: Directors are agents. Bound by
any contract made within their actual or
apparent authority. Owe fiduciary duty to the
company.

• Partnerships: Each partner an agent and

principal for the other partners. Owe
fiduciary duty to other partners.

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 Agent’s Rights Against Principal
1. Remuneration (payment) for services.

2. Indemnify against losses and reimbursement

of expenses.

3. Retain principal's goods until paid.

4. Redirect goods to possess and retain them

until paid.

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 Principal’s Liability to Third Parties
• Under common law, third party only has
rights against agent for a breach of contract in
limited circumstances.

• Principal is held liable for any tort that agent

commits while acting within scope of their
actual or apparent authority.

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 When is an Agent Liable?
Liable to a third party for breach of contract in five
situations:

1. Principal disclosed and named but special factors

make agent liable.

2. Principal's existence not made clear.

3. Principal’s existence not disclosed.

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 When is an Agent Liable?
4. Agent breaches warranty of authority if all of
following four tests satisfied.
• Agent falsely claimed to act with authority.
• Claim caused third party to enter contract with
principal.
• Third party unaware agent lacked authority.
• Third party suffered a loss.
5. Agent breaches consumer protection legislation.

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 How Can An Agency Be
Terminated?
• Mutual agreement.
• Revocation of agent's authority.
• Withdrawal by agent.
• Agent accepted a secret commission.
• Operation of common law - terminated like
other contracts if death, bankruptcy,
insanity, illegal purpose or frustration etc.

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 Common Commercial Agents
• Mercantile Agents: Have authority to sell goods
for principals.
• Del Credere Agents: Guarantee principal paid
when goods are sold. Where the agent also acts
as a guarantor. That means, if the buyer is
unable to pay, the agent will become liable.
• Stockbrokers: Advise clients and act on their
behalf. Have fiduciary relationship with client so
must disclose any conflict of interest.

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 Travel Agents
• Supply and arrange travel services.
• Must be licensed. Applicants must have:
Adequate funds for Travel Compensation
fund.
Adequate premises.
A qualified manager.
Proof of good character.

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 Real Estate Agents
• Assist vendors to sell property and/or manage
leased property for principals.
• Main roles
To find a purchaser.
To complete the sale – if they have express
authority.
To receive a deposit – if allowed in contract.
To receive purchase price – if they have
express authority.

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 Real Estate Agents
• Agents with actual/apparent authority can make
the principal liable for their actions. Catanzariti v
Lee Raod Pty Ltd, p 221.
• Agents may be personally liable if they breach
Trade Practices Act or other consumer protection
laws.
 Krakowski v Eurollynx, p 216.
 Hinton v Comm’r for Fair Trading, p 219.

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