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

  • if the agent has unrestricted power to act on behalf of the principal, this is a power of attorney and must be in writing

• 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 must apply to the entire “contract” and must be notified to the third party who must have known that the agent was not acting on their own behalf

• 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

• if an agent has neither actual nor apparent authority, the principal is not bound unless the act is ratified; the agent may be liable for breach of warranty of authority

  • the principal and

  • the third party

• 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, 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 and not, therefore, to someone else

  • the third party 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

• it is automatically terminated by

  • death of the agent or the principal

  • insanity of the agent or the principal

  • bankruptcy of the principal

  • termination of actual authority should be communicated to third parties who previously dealt with the agent, otherwise apparent authority may continue

4 Liability of the agent

• so long as an agent acts within the limits of their authority, the agent

  • incurs no liability under the contract

  • cannot enforce the contract

• but an agent may be held personally liable where

  • the agent enters into a contract without disclosing the existence of a principal

  • 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

  • a disclosed principal is normally bound by a contract made by an authorised agent; an agent is normally not a party unless the agent undertakes personal liability or acts for an undisclosed or non-existent principal