Law of Agency Lecture 26 Oct 2009

7/27/2019 Law of Agency Lecture 26 Oct 2009

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The Real World

The Boss Worker You & I

Commercial Reality
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Law of Agency

IntroductionThe Importance of Agency Law

Agency relationships are present in numeroustransactions

It is arguably hard to go through a day in oneslife without encountering an agency relationship

For example, when you buy food at a universitycanteen the cashier is usually an employee ofsome food service provider

Although an employee, the cashier will also bean agent in respect of some of his or heractivities


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Law of Agency

Introduction (1) Lawyers will often act as agents for their

clients in various contexts

The bank manager acts as agent for the bankin entering into a bank loan on behalf of thebank

As for individuals it may be more convenientto transact through representatives

Company may enter into contracts since ithas legal personality, but it needs to betransacted by a physical person


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Law of Agency

Introduction (2) Partners in a partnership are considered agents

for each other

The board of directors of a corporation and theofficers of the corporation are agents for the

corporation It is very helpful to have a background in agency

law when studying various forms of associationfor carrying on business

Agency law is often an important part of the lawof various forms of business association.


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What is Law of Agency?

The large body of common law, which is a

mixture of contract law and tort law, which

governs agency

Therefore, Agency law primarily defines therelationship between the principal and the agent

Agency law also defines the effect that

the agency relationship has on the relationship

between the principal and third parties and

between the agent and third parties.


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Law of Agency

Definition of Agency

Agency is defined as the relationshipwhich arises where one person known asthe agent acts for another known as the

principal The agent can be viewed upon as an

extension of the principal

The acts of the agent may cause theprincipal to be brought into contractualrelationship with a 3rd party


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The Nature of Agency

Agency relationships are formed by the

mutual consent of a principal and an agent

Agency is the fiduciary relationship, which

results from the consent by one person to

another that the other shall act on his

behalf and subject to his control


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The Nature of Agency

Parties to the Agency (2)

Diagram

Agency

Contract

Principal

Agent 3rd PartyContract with 3rd

party on behalf of principal

Principalsobligation to

perform the

contract
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Law of Agency

Parties to Agency Agreement

Principal the person who delegates

authority

Agent the person who acceptsauthority and acts on behalf of the

Principal. An agent can affect the legal

relations of the principal 3rd Party the person whom the agent

deals with on behalf of the Principal


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Who can be Parties

to Agency Relationship

Any person who has the capacity to

contract can appoint an agent to act on his

or her behalf

Persons who do not have the capacity to

contract, for example, minor and one with

unsound mind, cannot appoint an agent


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Lawful Purpose of Agency

An agency can be created only to

accomplish a lawful purpose

Agency contracts that are created for

illegal purposes or are against public

policy are void and unenforceable


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Law of Agency

Relationship resembling agency

There are many relationships at common

law resembling agency relationships but

they are not capable of affecting the legal

relationship of another: For example, servants/employers,

trustees/beneficiaries or bailees

Normally acts of servants would not bindthe master vis--vis a 3rd party


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Law of Agency

How Agency is Created

Agency can be created in the following

ways:

1. Express authority

2. Implied authority

3. Apparent authority

4. Agency by ratification5. Agency by necessity

6. Agency by estoppel


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Law of Agency

Express Authority

Express actual authority is so called because the

principal has stated either orally or in writing

what the agents authority is.

Express authority includes the authority that canbe inferred from the written or oral words

expressing the scope of the agents authority.

The contract can be in writing or verbal

Both the principal and agent must have given

consent


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Law of Agency

Express Authority (1)

To determine consent one may:

Look to what the principal and agentsaid and did at the time of the allegedcreation of the agency

Earlier and later words and conductmay afford evidence of the creation ofthe agency


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Law of Agency

Express Authority (2)

Where the principal intended to give theagent authority to affect his or her legalrelations, or where the principal and agentwould have reasonably expected theagent to have authority, the agent is saidto have actual authority

Actual authority can be express orimplied


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Law of Agency

Express Actual Authority

Express actual authority is so calledbecause the principal has stated eitherorally or in writing what the agentsauthority is

Express authority includes the authoritythat can be inferred from the written or oralwords expressing the scope of the agents

authority


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Law of Agency

Implied Actual Authority The term implied authority is usually used to

refer to the authority that the principal and agentwould have expected the agent to have in thecircumstances

In other words, the question is what the principalor agent would have understood the authority ofthe agent to be in the circumstances

To determine the implied authority of an agent,

courts look to the usualorcustomaryauthority ofsuch agents


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Law of Agency

Usual Authority The usualauthority of an agent is determined by

looking at what the agent has been allowed todo in the past

The principal may not have given oral or written

express authority to the agent to do a particularthing and it may not be possible to infer theauthority from any oral or written expression ofauthority

if the agent has done certain things in the pastthat are outside the express authority of theagent but the principal has allowed the agent


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Law of Agency

Usual Authority (1)

to do those things, then the agent may besaid to have usual authority to those things

In other words, the agent is said to have

actual authority where the agent doessomething she or he has usually beenallowed to do by the principal


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Law of Agency

Example Usual Authority

For example. In Freeman & Lockyer v.

Buckhurst Park Properties (Mangal) Ltd.,

[1964] 2 Q.B. 480

A person by the name of Kapoor was acting asif he was the managing director

The board of directors had never actually

appointed him as managing director In other words, Kapoor had no written or oral

grant of authority


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Law of Agency

Example Usual Authority (1)

However, the board of directors wasaware that Kapoor was acting asmanaging director and allowed him tocontinue to do so

Kapoor might have been said to haveactual authority to act on behalf of thecompany

That actual authority was not expresssince Kapoor was never appointed asmanaging director


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Law of Agency

Example Usual Authority (2)

However, actual authority could be

implied from the circumstances.

The scope of that authority could have

been based on what the directors of the

board had usually allowed Kapoor to do

in the past


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Law of Agency

Customary Authority

The customaryauthority of an agent isdetermined by looking at the kind ofauthority agents of that type normally have

For example, stockbrokers normally do certain types of

things on behalf of their principals

Bank managers do certain types of thingson behalf of the bank


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Law of Agency

Customary Authority (1)

In the Freeman & Lockyercase notedabove Kapoor might have been said tohave customary authority to act on behalf

of Buckhurst Park Properties (Mangal) Ltd.in that the directors of that company hadallowed Kapoor to act as if he were themanaging director (similar to a company

president) and Kapoor might thus be saidto have the authority that managingdirectors customarily have


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Law of Agency

Implied Authority

Even when precise words are used in the

express authority, an agent may find himself in

circumstances where the acts he wants to do

are not covered by those words. It is sometimes possible to imply authority from

the precise words. More specifically, an agent

would have implied authority to carry out an act

if the agent has no choice but to do it in order tofulfill his express authority


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Law of Agency

Example Implied Authority (cont 1)

For Example,

A housing agent may be given authority toonly sell the house

The agent may wish to show the house topotential buyers

If the agent had no authority to do so then

he and the potential buyer would betrespassers and, therefore, liable to theowner in damages.


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Law of Agency

Implied Authority (cont 2)

However, because showing a property is

necessary and incidental to effecting a

sale, the agent can imply the authority

from his express authority


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Law of Agency

Apparent Authority

Even where no authority has been

expressly or impliedly conferred, an agent

may still be able to bind the principal

This arises where a principal has acted in

such a way that he leads third parties to

believe his agent has authority to perform

certain acts on his behalf


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Law of Agency

Apparent Authority (cont 1)

In such cases, it is said that the agent

has apparent authority

Note that the appearance of authority must

have arisen because of what the principal

did. An agent cannot make

representations as to his own authority

and bind the principal by what the agenthimself says


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Law of Agency


Rationale for Apparent Authority

Apparent Authority creates most Problems

Apparent authority is the authority that theagents appear to the outside world to have

Apparent authority is the legal relationship

between the principal and the contracting

party created by a representation made by

or on behalf of the principal


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Law of Agency


Consider the following scenarios for clarity:

For example, a company secretary wasinstructed by the Managing Director not to

book any hotel rooms for AGM without hisexpress approval

In defiance, she booked the hotel roomanyway

To the hotel, she had done nothing wrongbecause she is doing what a secretaryusually do


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Law of Agency


The hotel has no knowledge of the

limitation of her authority

In this scenario, the secretary has the

apparent authority as a secretary

notwithstanding that her actual authority

had been curtailed

The Managing Director would be bound bythe secretarys act vis--vis the hotel


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Law of Agency

Apparent Authority (cont 5)Further example, The Managing Director told the clerk she can

take booking for the apartments that have notbeen built

The clerk signed and concluded the contract One would not normally expect a clerk to have

the authority to negotiate and signed a contract,that is, a clerk does not have the apparent

authority The Managing Director would be bound because

the clerk has been given the actual authority


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Law of Agency


Rationale for Apparent Authority

Transactional certainty in commercial world

The law of agency cannot be limited to cases

where the agent has actual authority, whether

express or implied

To allow so, commercial transaction would be

inefficient and transaction costs may go upbecause 3rd parties will do all due diligence

before they sign with any agent


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Law of Agency


Agents Discretion

To ensure commercial efficiency, it isimportant that agents be given some

degree of discretion when carrying outtheir duties, for example to negotiate andfinalize agreement

At the same, 3

rd

parties must be given thelegal recourse in the event that agentsacted outside their scope of actual duties


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Law of Agency


the law of agency has therefore developed the

doctrine of apparent authority whereby an

agent who appears to have authority is

capable of binding his principal where the thirdparty has acted on the faith of such

appearance of authority

If the 3rd party relies on the appearance of

authority that has come about because ofsomething that the

Law of Agency Lecture 26 Oct 2009

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