Agency Law

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1 Agency – creation

• an agency relationship exists between a principal and an agent in which the role of the agent is to bring the principal into contractual positions with third parties

• this relationship may be established in a number of ways

• by agreement, express

  • usually in writing, the principal will appoint the agent, typically with specific authority

  • a power of attorney is a formal written instrument that may grant broad or limited authority; breadth alone does not create it

• by agreement, implied

  • as a result of the conduct of the two parties, the courts may imply an agency relationship

• by ratification

  • an agency relationship may be created retrospectively!

  • where an unauthorised person acts in a way which suggests they are an agent, the person on whose behalf they claimed to be acting may adopt / ratify the contract

  • ratification is not possible if, at the time the “agent” entered into the agreement, the “principal” did not exist

  • ratification adopts the whole transaction; the principal must have existed and had capacity, the agent must have purported to act for that principal, and the principal must know the material facts

• by estoppel

  • agency relationship created, possibly without either express or implied agreement of the principal

  • where the principal holds out to third parties that somebody is their agent then...

  • ... they cannot deny (they are estopped from denying) that the “somebody” is their agent

• by necessity

  • where there is an emergency situation and the goods’ owner cannot be contacted, a third person acting in good faith may take action concerning the owner’s goods

  • that action-taking third party becomes an agent by necessity

2 Authority of the agent

• authority of an agent may be express, implied or apparent

• express authority is where the principal expressly authorises the agent in relation to a specific contract

  • this authority may be written or

  • may be oral

• where an agent acts without authority, breach of warranty of authority is owed to the third party may recover loss caused by relying on the warranty of authority

  • the principal may instead have a separate claim against the agent for breach of duty or instructions

  • the third party may recover loss caused by relying on the warranty of authority

• implied authority arises where the agent acts in accordance with what is “normal” in the circumstance

• for example, an agent acting as the purchasing officer of an entity may be seen to have the implied authority to enter into purchasing / procurement contracts on the entity’s behalf

• the entity will therefore be liable to the third party may recover loss caused by relying on the warranty of authority, but …

• ... the entity will have a claim against the agent

• apparent authority, sometimes called “ostensible” authority may be greater than actual authority

• this situation arises for example when an entity allows the agent to act as though they have authority even though such authority does not in fact exist

• where a third party contracts with this agent, and is not aware of any restriction on the agent’s power, the entity will be liable to the innocent third party

• this apparent or ostensible authority is not limited to what is normal for an agent

• it could be much wider, and will be so if:

  • the entity itself (and not just the director) represents the agent as having wider authority

  • such representation should be one of fact, not one of law

  • the representation must be made direct to the third party may recover loss caused by relying on the warranty of authority and not, therefore, to someone else

  • the third party may recover loss caused by relying on the warranty of authority must show that they relied upon this representation and …

  • ... must have acted upon that representation

3 Termination of agency relationship

• an agency agreement may be terminated by

  • agreement or

  • operation of law

• operation-of-law termination depends on the nature of the authority and notice to third parties

  • death or loss of capacity may terminate ordinary authority

  • authority coupled with an interest may continue despite the principal’s death or incapacity

  • third-party rights may depend on whether notice of termination was received

4 Liability of the agent

• where an agent contracts for a disclosed principal within authority, the agent normally

  • incurs no liability under the contract

  • cannot enforce the contract

• but an agent may be held personally liable where

  • where the principal is undisclosed, the third party may usually elect between the agent and principal, subject to the contract and circumstances

  • the agent acts on own behalf even though claiming to act on behalf of a principal

  • normal trade custom has established liability on the agent