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Summary LAWS08134 Business Entities Lecture notes for Agnecy and Partnership
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LAWS08134 Business Entities Lecture notes for Agnecy and Partnership
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Lecture 1AGENCY
Agency used in a legal context refers to a relationship, usually created by a
contract, in terms of which the principal instructs the agent to act on his behalf
in order to produce legally binding effects for the principal.
In an agency contract one party is the agent and the other party is the principal.
There is an existence of a fiduciary relationship between the parties to the
agency contract. Typically in a fiduciary relation one party takes prudent care of
the other party’s interests.
It is important to note that if the contract between the parties is gratuitous, then
it is a mandate. A mandate is an instruction.
Ways from which contracts of agency arise (creation):
The relation between the principal and the agent is governed by a contract of
agency.
It can be an express contract entered into either orally or in writing. There
is no requirement that the contract be written as per section 1 of the
Requirements of Writing (Scotland) Act 1995.
Implied- the actings or the actions of the principal and the agent towards
each other can suffice to infer there is a contract of agency.
Ad hoc agency- This has been developed primarily by Lord Drummond
Young. In Whitbread Group plc v Goldapple Ltd (No.2) 2005 SLT 281, C
were a pub. The defendants claimed the lease came to an end due to non-
payment of rent. The rent was due on the 10 th of May and was not padi on
that day. They were busy transferring their pubs to Fairbar Ltd. On 27 th
May Fairbar gave a cheque to D. The Ds returned it as it did not come
from C who they had contracted with. The judge claimed Fairbar was
acting as their ad hoc agents. He calimed it was okay for someone to
make a payment outside the debtor. The agency purpose is for a single
transaction.
Contractual Capacity
The principal is required to have contractual capacity to appoint or to enter into
a contract for agency. He must also have contractual capacity at the time at
which the agent enters into a contract on his behalf.
In Trinevelly Sugar Refining Co v Mirless Watson & Yaryan Co Ltd (1894) 21 R
1009, a promoter entered into a contract with the defendants to supply
machines to the claimants who were in the process of setting up their company.
The machines were defective and caused loss to C. C did not have title to sue as
the company was not registered at the time the contract was entered into and
therefore the principal did not exist (no capacity) when the agent/ promoter
entered into the contract with the defendants.
,Section 51 (1) of the Companies Act 2006 states: A contract that purports to be
made by or on behalf of a company at a time when the company has not been
formed has effect, subject to any agreement to the contrary, as one made with
the person purporting to act for the company or as agent for it, and he is
personally liable on the contract accordingly.
With regards to the capacity of the agent, the position in Scots law is that if there
is an issue about the agents capacity and he enters into a contract on behalf of
his principal who has the capacity, it creates a valid contract. It is said that
because the agent is acting as an intermediary, his lack of capacity may not be
important.
Internal agency relationship
Acting with authority:
Express authority- the extent of authority may be stipulated either orally
or in the contract, whereby there is an express agreement as to what the
agent can or cannot do.
Implied authority- if a contract is silent as to the extent of the authority,
the agent has an implied authority to do whatever is necessary and
incidental to the completion of the transaction. The agent will have the
authority that all other agents of his kind or in the same field would have.
Custom and usage of trade may help to define the scope of implied
authority.
It is important to distinguish between general and special agents. The
former are appointed to carry out all the business of the principal or all of
the principal’s business of a particular kind and the latter to carry out a
specific task. The fact that an agent is a general agent allows 3 rd parties to
assume that the agent possesses authority which agents of that type
normally have. This presumption does not apply to special agents.
Acting without authority:
Apparent or Ostensible authority- Freeman and Lockyer v Buckhurst Park
Properties (mangal) Limited [1964] All ER 630, per Diplock LJ at 644, “… a
legal relationship between the principal and contractor created by a
representation, made by the principal to the contractor, intended to be
and in fact acted on by the contractor, that the agent has authority to
enter on behalf of the principal into a contract of a kind within the scope of
the apparent authority so as to render the principal liable to perform any
obligations imposed on him by such a contract.”
In other words, if the principal acts in a manner which suggests to the 3 rd
party that the agent is authorised, the principal cannot thereafter seek to
deny that the agent is properly authorised.
The principal has to create an impression that the agent has the authority
by acting or representing in a way to the 3 rd party. There has to be a cause
of link. The 3rd party must have relied or acted upon the representation
, made by the principal. This would cause the principal to not deny that the
agent had the authority to perform those actions.
As per International Sponge Importers Ltd v Watt & Sons 1911 SC (HL) 57,
the claimants authorised an agent to sell sponges to D. Normally D would
pay the principal (C) directly. On some occasions a cheque or cash would
be given to the Cohen the agent to be given to the principal. Cohen the
agent disappears. The HL held that the pursuers could not recover these
payments from the customer D again as they knew the defendants would
on some occasions pay Cohen the agent and did nothing about it.
Gregor Homes v Emlick. In ostensible authority, it was not a matter of the
principal seeking to exercise a positive right but of the law seeking to
prevent the principal from disowning his agent, and in accordance with the
authorities, the two key elements identified in Freeman & Lockyer v
Buckhurst Park Properties (Mangal) Ltd [1964] 2 Q.B. 480, as to the rule of
ostensible authority in the law of agency were representation and
reliance; although ostensible authority operated as an estoppel or bar, it
did not mean that it was subject to one particular formulation of personal
bar which operated in a different context.
First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd’s
Rep 194; [1993] BCLC 1409 introduced confusion into this area. In this
case, Jameson was a senior agent in charge of finance negotiations. First
energy knew he was limited in authority, and knew he could not grant
finance on his own. Bank sought to repudiate the contract on the basis
that Jameson lacked authority. Had the the bank transferred ostensible
authority on Jameson to make the offer? It was held that Jameson had no
authority to enter the transaction. He did have apparent authority to
communicate the banks approval of the transaction. Jameson’s position as
senior manager was proof of his apparent authority to communicate the
approval. The bank was thus bound by the loan.
It suggests that although the agent may not be entitled to represent the
extent of his or her own authority, he may be authorised to communicate
information on behalf of the principal. Such information may include the
fact that the agent is authorised to carry out a specific transaction. Does
this, in effect, amount to the same thing as a representation by the agent
as to the extent of his own authority? The case shows that there does not
need to be action on the part of the principal in apparent authority cases.
There was no direct representation made by the agent.
Factors Act 1889, governs a mercantile agents authority to transfer goods that
are in his possession. Mercantile agents, in the ordinary course of carrying out
work are able to and have the authority to buy, sell or raise security on the
goods. Where the agent in possession has title to the goods with the owner’s
consent, he is able to sell/ grant security of goods in the ordinary course of
business is equivalent to having express authority. This only applies when the 3 rd
party is unaware of the agent’s lack of authority to buy or sell or consign the
goods. They must act in good faith.
, Ratification:
Where no prior authority has been given, the acts of the agent may be ratified by
the principal.
Ratification may operate on two different levels:
the agent may be authorised to do certain acts but exceed his or her
authority. Ratification validates the actions carried out in excess of his or
her authority;
there may be no valid agency relationship, but the agent purports to act
for a specific principal. In this situation ratification creates the agency
relationship.
Ratification is only effective if certain conditions are fulfilled:
1. The principal must have been in existence at the time the agent entered
into the contract;
Tinevelly Sugar Refining Co v Mirrlees Watson & Yaryan Co Ltd (1894) 21
R 1009, (as mentioned above). The company did not exist at the time the
agent entered into the contract on behalf of the principal company.
Boston Deep Sea Fishing v Farnham [1957] 3 All ER 204
For promoters purporting to enter into pre-incorporation contracts for a
company, see Companies Act 2006, s 51, mentioned above.
2. The principal must have had the requisite legal capacity to enter into the
contract at the relevant time; (this is the time the agent entered into the
contract)
Boston Deep Sea Fishing v Farnham [1957] 3 All ER 204, in this case there
was a troller operated by a French Company but it was in England at that
time. The English Company carried on trading whilst using the troller of
the French company as they claimed they purported to act as the French
Company’s agent. The French Company agreed to the actions of the
English company, by way of ratification. The court held the ratification was
invalid as the French Company at the time was an alien enemy and thus
could nto validly ratify as it did not have the capacity at the time the
action were taken by the English company acting as an agent.
Alexander Ward & Co v Samyang Navigation Co Ltd 1975 SC (HL) 26, a
solicitor raised action to recover money for a company with no director or
office. the company then goes into liquidation and the liquidator purports
to ratify the action of the solicitors claim. HL question whether the
liquidator could ratify. They held that the company was a competent
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