Luật học - Chapter 18: Principal and agent

This is the prescribed textbook for your course.Available NOW at your campus bookstore!Principal and agentChapter 18Learning objectivesAt the end of this chapter you should understand:the definition of an agency relationshipwhy contract law is relevant to the law of agencythe methods by which agency can be created including estoppel, necessity or ratificationthe different types of agent, their roles and functionthe difference between ‘actual authority’ and ‘apparent authority’liability of an agent to the principal and third partiesthe rights of action that a third party has against an agent for breach of warranty of authoritythe rights and powers of agentshow an agency can be terminated. IntroductionAgencyA relationship that exists between one person (the principal) and another person (the agent).The agent undertakes to do certain acts on the principal’s behalf.The purpose is to bring a third party into a contractual relationship with the principal.Creation of an agencyExpressly created agency (written or verbal)Impliedly created agency:Agency of necessityCohabitationAgency by estoppelAgency by statusAgency by ratificationAgency of necessityA person must be entrusted with the property of another person.An immediate expense is required to preserve the property.The owner of the property is virtually impossible to contact.The person entrusted with the property (agent) must act in the best interests of the owner (principal).Agency by ratificationMay occur when:A person acts on behalf of a principal and enters a contract with a third party, despite lacking authority to do so, then the principal may ratify or affirm the unauthorised action.An agent exceeds the authority given to them by the principal, the principal may ratify or affirm the excessive authority.Conditions required for valid ratificationAgent when contracting must clearly be acting as an agent, not for themselves, and the third party must be aware of this.Principal must exist at the time the agent contracts.Principal must have the required capacity to contract both at the time of the agent’s unauthorised conduct and at the time of ratification.Principal must ratify the whole contract.Principal must have full knowledge of the details of the transaction.Conditions required for ratification (cont.)Can only be made by the principal for whom the agent was acting or purporting to act when the contract was made.Ratification must take place within a reasonable time.Agency distinguished from other relationshipsAgency is a fiduciary relationship—exercising rights and powers, in good faith, for the benefit of another.Employee is under control and supervision of employer.Independent contractors decide how their work is carried out.Trustee holds property on behalf of another person.Categories of agentsSpecial—appointed for a particular taskGeneral—appointed for all normal mattersUniversal—appointed for all acts principal can do, e.g. Power of AttorneyAuthority of an agentActual authority:Express (written/spoken)Implied (by action)Apparent authority (ostensible authority):Authority agent has from the point of view of the third party, with whom the agent is dealingDuties of an agentTo follow the principal’s instructionsTo act personallyTo exercise reasonable skill and diligenceTo act in principal’s best interestNot to make a secret profitNot to divulge confidential informationTo keep proper accountsRights of an agentTo receive remuneration as specifically agreed for work performedTo be indemnified against all losses and expenses incurred while carrying out principal’s lawful instructionsTo a lien (i.e. a right to retain possession of principal’s property) until liabilities satisfiedTo stoppage of subject goods in transit (before received by principal)Liability of agent to principalIf agent:fails to follow instructionsacts in a negligent matter.If a loss is incurred.Liability of agent to third partyName and/or existence of principal disclosed:Acts outside authority (i.e. breach of warranty)Acts on behalf of someone who has not given authority (unless ratified)Exceeds authority (unless ratified)Non-existent/unascertainable principalAgent agrees to be liableUsage/custom make agent liableLiability of agent to third party (cont.)Existence of principal not disclosed:Agent boundTorts committed while acting within actual or apparent authorityTort committed by an agent acting outside the actual or apparent authorityDoctrine of undisclosed principalIf the agent acts as if he/she is the owner (by not disclosing agency), then the principal can later reveal the agency agreement and sue to enforce the contract.If third party discovers there was an agency agreement, he/she can then sue the principal (as well as the agent) for breaches of the contract. Termination of agencyBy the acts of the parties:By performance of the agencyWith frustration of the agency agreementBy mutual agreementBy revoking the authority of the agent (ineffective to third parties until advised)By the operation of law:By death of either partyBy bankruptcy of principalBy bankruptcy of agentBy insanity of either partyTypes of agents (statute law)Factors/mercantile agents—goods in agent’s possession to sell or use for borrowingDel Credere agent—guarantees payment for goods sold (therefore higher commission)Partners—principals/agents for each otherBroker—buys/sells goods without possessionReal estate agent—sells/leases vendor’s land; finds property for sale/leaseTravel agent—sells principal’s products; receives commission based on sales; organises principal’s travel arrangementsCompany director—agent of company