TMT Law of Agency cq60/22.CLC AOF 2025.pptx

law clc aof

1. AGENCY

2. LEARNING OUTCOMES Why agency is important, what an agent is, and the types of agents The duties owed by the agent to the principal The duties owed by the principal to the agent Understand how the agency relationship is created Recognize the authority an agent has to enter into contracts on behalf of a principal, including express, implied and apparent authority, and given to partners under legislation.

3. Agency and agents An agent, very broadly, means someone who has authority, whether express or implied, to change or enter into legal relations on behalf of another person or business, and does so, whether intentionally or not. Agency is consensual relationship authorizing one party (the agent) to act on behalf of the other party (the principal) subject to the principal’s control. Agency can be defined as the “fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.”

4. Agency and agents The person who is acting for another is the agent ; the person for whom the agent is acting is the principal . The definition of agency reveals three primary elements of an agency relationship: (1) consent by the principal and the agent; (2) action by the agent on behalf of the principal; and (3) control by the principal. These elements reveal the general policy thrust of agency law—if there is mutual consent to an arrangement involving an agent acting to further the principal’s interest and subject to the principal’s control, then it is appropriate to make the principal liable for the agent’s actions.

5. Agency and agents If P (the principal) instructs A (the agent) to act in the purchase of goods from T (the third party) in the sale of those goods, the contract of sale that is made by A is enforceable between P and T. I n general, A has no liability to either P or T on that contract. This proposition is supported by the words of Wright J in Montgomerie v United Kingdom Mutual Steamship Association (1891) that; When a person contracts as agent for a principal the contract is the contract of the principal and not that of the agent; and, prima facie, at common law the only person who may sue is the principal, and the only person who can be sued is the principal.

6. Agency and agents Consent : Consent of both the principal and the agent is necessary to form an agency relationship. More specifically, both the principal and the agent must consent to the agent acting on the principal’s behalf and subject to the principal’s control. Thus, agency is a consensual relationship in which one person agrees to act for the benefit of, and subject to the control of, another person. The principal must manifest (or convey) his consent to the agent. This required manifestation of consent may be written, oral, or implied from the parties’ conduct. The agent’s consent may also be established by written or oral statements, or by implication from the parties’ conduct.

7. Agency and agents On behalf of : The agent must be acting on the principal’s behalf. This requirement is generally understood to mean that the agent must be acting primarily for the benefit of the principal rather than for the benefit of the agent or some other party. Control : The agent must act subject to the principal’s control, but the degree of control exercised by the principal does not have to be significant. The control a principal exercises over its agent is not defined rigidly to mean control over the minutia of the agent’s actions, such as the agent’s physical conduct … The level of control may be very attenuated with respect to the details. However, the principal must have ultimate responsibility to control the end result of his or her agent’s actions; such control may be exercised by prescribing the agents’ obligations or duties before or after the agent acts, or both .

8. Agency and agents In addition to these three primary elements, it is important to note that the agency definition uses the term “person” to refer to both agents and principals. The term “person” can include individuals as well as organizations. Thus, agency relationships are not limited to natural persons; indeed, artificial entities such as corporations, trusts, partnerships, or limited liability companies may act as principals or as agents. Keep in mind that, if the legal definition of agency has been met through satisfaction of the above elements, an agency relationship is present, regardless of whether the parties intended to create such a relationship.

9. Agency and agents Agency is a legal concept which depends upon the existence of required factual elements: the manifestation by the principal that the agent shall act for him, the agent’s acceptance of the undertaking and the understanding of the parties that the principal is to be in control of the undertaking. The relation which the law calls agency does not depend upon the intent of the parties to create it, nor their belief that they have done so. To constitute the relation, there must be an agreement, but not necessarily a contract, between the parties; if the agreement results in the factual relation between them to which are attached the legal consequences of agency, an agency exists although the parties did not call it agency and did not intend the legal consequences of the relation to follow.

10. Common types of agency Commercial agents: One of the most common forms of agency is commercial agency. Commercial agents are often used by businesses seeking to expand to new markets or locations, in which the agent may have express authority to conclude sales with new clients. Sales representatives : Sales representatives often have express or implied authority to negotiate deals with third parties on behalf of a company, and can create legal contracts directly between the company and third parties. Managing agents: Managing agents, may not be agents in law necessarily. If have express authority to bind an artist, sportsperson or client to new deals, they are likely to be agents in law; but if they can only present the deals to the artists for the artists to decide whether or not they want to accept, they may not be agents.

11. When can agency potentially be beneficial? Use of commercial agents might be particularly helpful if a business wants to take advantage of an agent’s specialist market, foreign culture or sector knowledge, or the agent’s existing commercial contacts and sales ability. Agents with a strong sales record can assist in expanding the sale of goods to a wider audience and more quickly, and avoid some potential pitfalls. Agents are sometimes used to keep the identity of the principal anonymous when desirable or if the principal is not physically able to sell goods themselves. The principal can act as an “undisclosed principal”. Agents are often used when the business owners are simply too busy to deal and wishes to outsource particular tasks. When the agency is intentional and well thought out, and made with a skillful and reliable agent, it can offer powerful commercial advantage. When agency arises unintentionally, it can be difficult to untangle.

12. What are potential risks of agency? Issues commonly arise when the principal never intended to create an agency, but one has arisen unintentionally in law and the principal finds themselves bound to unwelcome liabilities; or when the principal did intend to create an agency, but when the agent turns out to be untrustworthy, unreliable, purposefully deceptive or fails to deliver, or overpromises what can be achieved. If a principal company vaguely represents to a third party that an employee or director has the principal’s authority to do or agree something, or if they do not make it clear that they don’t, and if the third party takes action or relies on something the employee or director does or says, and it is reasonable for the third party to have done so, the principal may be legally bound, whether or not it knew what the employee or principal has done or agreed, and whether or not it actually agrees it now.

13. THE CREATION OF AGENCY The agency relationship is created either by mutual consent or by operation of law ; or by ratification . An agency may be created: By express or implied agreement between the principal and agent; Where there is a representation by the principal to the third party that the agent has authority (agency by estoppels); Where the principal ratifies an act by someone who, without authorization, purported to undertake that act as an agent of the principal; Where there is an agency of necessity.

14. CREATION OF AGENCY A consensual relationship created by contract or by law where one party, the principal, grants authority for another party, the agent, to act on behalf of and under the control of the principal to deal with a third party. An agency relationship is fiduciary in nature, and the actions and words of an agent exchanged with a third party bind the principal. The law of agency is the law of delegation—i.e., the legal principles that govern the ability of one person (the principal) to have another person (the agent) act on his behalf.

15. Agency by consent Consent may be express or implied. An agency can be expressly created either orally or in writing. An agency agreement is a contract. It’s formed when two parties, the principal business with products/services to sell, and the agent who will sell them on the principal’s behalf, agree to work together. A ‘fiduciary’ relationship is created where the agent holds a position of trust with the principal, to act as if it were the principal when selling the principal’s goods or services.

16. Agency by consent It’s advisable for an agency agreement to be in writing, because it is a contract between the two parties. While there is no legal requirement for the agreement to be in writing, the Commercial Agents Regulations 1993 provide that the agent has a right to request a written statement of terms. Also, to be enforceable, restraint of trade clauses must be in writing. At any rate, it is always advisable to have a written agreement in place (ideally drafted and checked by a business solicitor) so that each party is clear as to its rights, duties, activities and restrictions, and which will include any provisions in relation to termination of the agreement.

17. Agency by estoppel Where a person, by words or conduct, represents or permits it to be represented that another person has authority to act on his behalf, he is bound by the acts of that other person with respect to anyone dealing with him as an agent on the faith of any such representation, to the same extent as if such other person had the authority that he was represented to have , even though he had no such actual authority. Apparent authority rests on conduct or words of the principal which lead the third party to believe reasonably that the agent is acting with authority. The law on agency defines apparent authority as the agent's power to affect the legal relationships of a principal "by transactions with third persons, professedly as agent for the other, arising from and in accordance with the other's manifestations to such third persons”.

18. Agency by estoppel Estoppel is based on the ease with which someone could have prevented harm to himself. Having failed to prevent the harm, he is "estopped" from asserting what would otherwise be a valid claim. When an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations, if he has by his words or conduct induced such third persons to believe that such acts and obligations were within the scope of the agent’s authority.

19. Agency by estoppel Agency by estoppel is a concept prevalent from many centuries. However, the modern concept of estoppel is based on principles of equity according to which a person is liable for the loss caused to another because of a representation made by him. However, the person is only liable for the loss caused and not the loss of expected benefits. Since the principal can easily correct the mistaken third party, it is his obligation to explain made known his agent’s (whether real or apparent) scope of authority. Since the principle of agency by estoppel is an equitable principle, there is also an obligation on the third party to reasonably try to determine the actual authority of the agent before entering into a contract.

20. Agency of necessity The origins of the doctrine of necessitous intervention by someone who is in a legal relationship with the defendant lie in the doctrine of agency of necessity, where an agent went beyond his or her authority by intervening on behalf of the principal in an emergency. Because of the circumstances of necessity, particularly the impracticability of the agent communicating with the principal, the courts were prepared to treat the agent as though he or she had the necessary authority to do what was reasonably necessary to save the principal’s property, by implication. If an agency of necessity was established, the agent would be reimbursed for the expense incurred in rescuing the principal’s property, but by virtue of the law of agency rather than unjust enrichment.

21. Agency of necessity Under normal circumstances, an agent is expected to work within the limited spheres prescribed in the contract of agency. Deviation from these prescriptions makes him liable to the principle. But if the exigencies of the situation so demand, the doctrine of agency of necessity empowers him to act in a manner in which he is otherwise not entitled to act. This authorization is limited only in extraordinary and demanding circumstances where the shortage of time and pressing demands put pressure on the agent to take immediate decisions. The principle can be bound by such actions of the agent only if they are in his best interest.

22. Agency of necessity The term “agency of necessity” is used to indicate “a general notion derived from a group of cases in which a person is regarded as justified in taking action for the benefit of another in an emergency.” To establish agency of necessity, it has to be shown that communication between the agent and the principle was impossible so as to render the agent all by himself at a critical stage. Agency of necessity arises only when the agent acts in a bona fide manner and in the interests of the principle. It is to be noted that mere inconvenience is not a necessity.

23. Agency of necessity In summary, Agency of necessity occurs when a person is entrusted with another’s property and it becomes necessary to do something to preserve that property. In such a case, although the person who is entrusted with the property has no express authority to preserve it, is forced to take an action in order to save it form totally perishing. Because of the necessity such an authority is presumed. For an agency of necessity to be legal three conditions must be satisfied : (Generally, there is no agency of necessity unless there is a real emergency, such as may arise out of the possession of perishable goods or of livestock requiring to be fed): There must be an emergency; It must be impossible to get the principal’s instructions; There must be an actual and definite commercial necessity of the creation of the agency.

24. Agency by ratification One of the most striking and controversial forms of agency is that which arises by ratification. Ratification is a process whereby a principal approves the actions of an agent who has acted to bind that principal without preceding legal authority. Generally, the possibility of ratification arises when an agent acts without the authority or knowledge of the principal in entering into the contract. In certain circumstances, a principal may then subsequently agree to be bound by that contract as if he had agreed it or authorized it in the first instance.

25. Agency by ratification Where a principal agrees to be bound by its subsequent conduct its relationship with the party that held themselves out as its agent becomes an actual relationship of principal and agent. Evidently this also means that the principal is bound by the contract as originally agreed by the agent and the third-party contractor. So, ‘Retrospective’ authorization by ratification : While an agent acting without authority (or exceeding one’s authority) cannot bind his or her principal, the principal may subsequently ratify the agent’s acts. If so, ratification takes effect from the time those actions took place. Where ratification is complete, it ‘is equivalent to antecedent authority.’

26. Conditions for Ratification There are a number of conditions that must be met for an action to be capable of being ratified by a principal. The three main pre-conditions are: The agent must purport to act on behalf of the principal; The principal must be in existence at the time of the contract; and The principal must have the legal capacity to enter into the contract.

27. Conditions for Ratification The first condition requires that the third party is aware of the existence of the principal and believed that the agent was acting on its behalf. If the third party believed that the agent was acting on its own behalf then the contract will not be subsequently ratifiable. It follows that the principal must therefore be in existence at the time the agent purports to enter into a contract. In relation to a company, this will not be the case if the contract was entered into by the agent for a company that had been planned but not actually formed. Finally, the requirement that the principal must have the capacity to enter into the contract relates to both the time the contract was made and the time the principal attempts to ratify it. This is particularly relevant where an agent attempts to enter a contract on behalf of a company that has not been formed. In those circumstances the contract may become binding on the agent personally.

28. Agency by ratification Agency by ratification arises where a principal subsequently ratifies or affirms an unauthorized act done on his two respects. It gives validity to an unauthorized act, and it is retrospective, taking effect from the agent’s act. This type of agency arises after the agent has already acted. The agency arises after the acts of the “agents”. What the “agent” does on behalf of the “principal” is done at a time when the relations of the principal agent does not exist. The agent in fact has no authority to do what he does at the time he does it. Subsequently however, the principal on whose behalf, though without whose authority the agent has acted, accepts the agents acts and adopts it just as if there had been a prior authorization by the principal to do what the agent has done. Ratification by the principal gives validity to the authorized acts of the agent from the time of the agents acts. Ratification is equivalent to “antecedent authority.” The effect of ratification is to treat the parties as having been in the relationship of principal and agent before the agent acted on behalf of the principal as if they had expressly of implied created that relationship.

29. DUTIES AND RIGHT OF AN AGENT Generally, the agent owes the principal the following duties: a)  Performance b)  Obedience c)  Care and Skill d)  Personal Performance or Non-Delegation e)  Respect of the Principal’s title or Estoppel f)  Duty to Account g)  Duty to Secrecy h)  Duty to keep the Principal informed i )  Duty to keep separate accounts j)  Duty to act in good faith k)  Duty to disclose personal interest in contracts entered into on behalf of the principal l)  Duty not to make secret profit

30. DUTIES AND RIGHT OF AN AGENT Rights of an agent (Duties of the principle) a) Remuneration: Where the agency relationship is created by an express or implied contract between the parties the fundamental duty of the principal to the agent is to remunerate him for the services rendered. b) Indemnity: Where the agency relationship is created by an express or implied contract between the parties the fundamental duty of the principal to the agent is to remunerate him for the services rendered. c) Lien: The agent has the right to exercise a lien over property owned by the principle, ie , a right to retain and hold goods pending payment of sums owed to them.

31. AUTHORITY OF THE AGENT An agent’s authority may be expressly given, impliedly given, and ostensible or apparent on the basic of the principle conducts. Actual authority - can either be vested as express authority or implied authority. Express authority: This type of authority is created by words, either written or oral. It often derives from a contract between the principal and agent, although an agent may act gratuitously. No particular form is required unless the agent is appointed to execute a deed, in which case he must be given authority in a deed, called a power of attorney. Implied authority: The agent's implied authority permits him to perform all subordinate or incidental acts necessary to exercise his express authority. Implied authority cannot contradict express actual authority. Indeed implied authority is a way of filling in the gaps in the agency agreement.

32. AUTHORITY OF THE AGENT Implied authority Implied authority may arise in the following circumstances: 1. Usual authority : This is a more specific form of implied authority which relates to agents of certain type acting in the "usual” way of such agents. The test is what authority would the reasonable appointed person in the agent’s position believe they possessed? It will be implied that someone appointed as a managing director of a company has the authority that managing directors possess. 2. Customary authority: Here, an agent’s implied authority drives from a locality, market or business usage. To imply a custom, it must be uniform, certain, notorious (that is, generally known), recognized as binding and reasonable. Customary authority will not be recognized where it contradicts either the express agreement between the agent and the principal or the normal duties owed by the agent to the principal.

33. AUTHORITY OF THE AGENT Implied authority 3. Apparent or ostensible authority: An ‘apparent’ or ‘ostensible’ authority refers to the authority of an agent which one would accept an agent of that type to possess. If a third party has no notice that the authority of a particular agent is limited and is thus less than that normally enjoyed by such an agent, he can assume that the agent has such authority, and contract made by the agent within the boundaries of the agent’s ostensible or apparent authority will be binding on the principal. If the agent has exceeded the actual authority with which he has been invested but has bound his principal because the contract was within his ostensible authority, he will be liable to principal for any losses; for want of authority.

34. AUTHORITY OF THE AGENT Implied authority See the case of Watteau v Fenwic , 1893. In Freeman and Lockyer v Buckhurst Park Properties Ltd (1964). In this case, the Articles of the defendant company created the office of Managing Director. However, at the material time none had been appointed. One director with knowledge of the others purported to Act as managing director. He engaged the Plaintiff firm to work for the company. The firm was not paid for services rendered to the company. In an action to enforce the contract, the company disclaimed liability on the ground that the director was not its Managing Director and hence had no authority to contract on its behalf in the said contract It was held that since the company had held out this director as its managing director the plaintiff was entitled to assume that he was its managing director. The company was estopped from denying its representations.

35. AUTHORITY OF THE AGENT Implied authority Apparent authority may arise where there is or was an agency relationship in existence, but unknown to the third party, the actual authority has been limited or terminated. Apparent authority clearly operates to protect third parties and may arise even where there has been an agency relationship created between principal and agent. Apparent or ostensible authority is based on estoppel. The requirements for estoppel to arise are: 1. A representation by words or conduct that the agent” has authority. 2. The representation must be made by the principal to the third party. 3. The third party must have relied on the misrepresentation. This is shown by the third party entering into the contract. Once these conditions have been satisfied the principal will be prevented or estopped from denying the agency. Normally the principal’s representation precedes the contract’ but he may be bound by his behavior subsequent to the contract.