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LAWS08134 Business Entities -Lecture-Notes
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LAWS08134 Business Entities -Lecture-Notes
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Semester 1 Week1 Lecture 1 Business EntitiesAgencies and Partnerships:
Agency is the relationship created by contract. There is the principle who instructs the agent
to produce legally binding effects for the principal.
The agent will not be part of any contract that he negotiates for his principal. The 3 rd party
enters into the legal transaction with the principle.
As a result the agent has to show a high degree of loyalty.
Note the difference between agency and mandate. In a mandate the contract is gratuitous.
In that case there is the mandate and the mandatory, instead of the principle and the agent.
Creation of the Contract of Agency
It is an expressed contract which can be made in writing or orally, as described by the
Requirement of Writing act 1995.
Agency may also arise as an implied contract where the actions of the principle and the
agent can be used as a basis from which to inter into a contract. Consent is necessary from
both sides to enter into a contract of agency.
In certain cases ratification may operate (see further down under ratification).
There is also the concept of Ad-Hoc agencies, an idea that is mainly pressed by Lord
Drummond
o One of the important cases regarding Ad-Hoc agencies is Whitbread Group plc v
Goldapple Ltd (no 2) 2005 SLT 281. There was a lease between the tenant of a pub
(Whitbread) and the Landlord (Goldapple). The tenants tried to sell the pub, while
no paying the rent. The rent was then later paid by a third party, but the Landlord
did not accept that, as a result the lease was canceled. The court held that the lease
was still in effect because the rent was paid. The third party acted as an ad-hoc, a
onetime agent, for Whitbread and paid their rent. As a result the landlord could not
refuse the rent o the basis that it comes from a third party.
o The decision in this case, as well as others, has not been challenged or overturned,
but Lord Drummond is the only judge giving such judgements.
Contractual Capacity
If there is no capacity then there can be no contract
See the case of Tinevelly Sugar Refining Co v Mirlees Watson & Yaryan Co Ltd 1894.
o In this case a promoter was making deals before the company came into legal
existence. There was contract for a piece of machinery that was delivered
defectively which caused loss to the pursuer wo wanted to recover that loss. The
court ruled that there was no title under which they were able to sue, because the
company at the time of the contract did not exist. Therefore the promoter was no
agent.
o Note that persons who pretend to be an agent are personally liable under the
contract they have signed.
, Because the agent is an intermediary he does not enter the contract himself, as a result his
own capacity to enter into a contract may not matter. As long as the principal has capacity
you have a valid contract.
Internal agency relationship
There are different limits to an agents authority:
o Expressed authority through contract, which can be written or oral can determine
those limits
o Implied authority which results out of the task given to the agent. Note the
difference between general and special agent
The general agent can carry out all of the business
The special agent has a specific task
Acting without authority
o There can be apparent or ostensible authority
o See the case of International Sponge Importers Ltd v Watt & Sons 1911
In this case the agent was authorized to sell sponges. The customer would
then send the payment to the principle. In this case the check was given to
the agent, made for the agent. During the whole time the principle knew
about this. The court ruled that payment could not be sought again because
the principle knew about it and therefore implicitly allowed it.
o Gregor Homes v Emlick 2012 SLT
There was a contract for the sale of land. The defendant bought property for
the pursuer. There was no date of entry, it dependent on the work that was
done on the property. The defendant had an agent and the question was
whether that agent has the capacity to decide whether the building was
practically complete or not. The agent was deemed not to have the
authority, but the actions of the principle impliedly gave it to him.
,Semester 1 Week 1 Lecture 2
Apparent or Ostensible Authority
The case of First Energy (UK) Ltd v Hungarian International Bank introduced confusion in this
area of law. It suggests that although the agent may not be entitled to represent the extent
of her or her own authority, he may be authorized to communicate information on the
behalf of the principal.
o Agent J, a senior manager of the Manchester Office Bank negotiated with First
Energy. First Energy knew that J’s authority was limited and that he could not grant
the finance they desired. Then there was a letter from J confirming the finance,
signed by J alone. The Bank then wanted to repudiate the transaction on the basis
that there was no authority. The court held that there was no authority for the
transaction, but there was the authority to communicate the approval of the
transaction. The court was clearly influence by commercial practice. As a result the
court ruled that an agent could communicate the approval of a loan on his authority
and therefore the Bank could not argue that there was not loan.
See also the Factors Act 1889 s, 1-2 and Factors (Scotland) Act 1890 s. 1-2. Note that the
Scottish Act applies together with the English one.
o It defines agents and only relates to mercantile agents. It sets out their powers.
Where the agent is in possession of goods which were given to him by the principle
he can make a transaction which is valid as if it was authorized by the principle.
These provisions only apply were the buyer is in good faith.
Ratification
This doctrine operates where the agent has no prior authority. In these actions the principle
can ratify his transaction after it has been made, and therefore make them legal.
There are two cases where ratification may be necessary:
o Where the agent did something that exceeding his authority
o Where there is no valid relationship of agency between the purported agent and the
principle.
In the first case the added powers must be ratified by the principle. In the second case the
entire action.
There are 3 conditions which have to be fulfilled in order for ratification to be possible and
valid:
o The principle must have been in existence at the time the agent entered into the
contract.
See Tinevelly Sugar Refining Co v Mirrlees Watson & Yaryan Co Ltd
Boston Deep Sea Fishing v Farnham
Note that for promoters purporting to enter into pre-incorporation
contracts for a company see Companies Act 2006 s 51.
o The principle must have had the requisite legal capacity to enter into the contract at
the relevant time. He needs capacity at the time the contract was made and at the
time of ratification.
Boston Deep Sea Fishing v Farnham:
, French ship in English port when France was occupied by Germany.
The English company continued trading with it acting as an agent for
the French company. At the end of the war the French company
ratified the transaction, but the courts ruled that was not possible
because they were enemies during the time where the transactions
were made and therefore they lacked capacity at the time the
contracts were made.
Alexander Ward & Co v Samyang Navigation Co Ltd
Solicitors wanted to recover money, but at the time the company
did not have a director in office. The agents raised an action on
behalf of the company. The liquidator purported to ratify that
action. The court ruled that this was possible; because at the time
the action was raised the company was competent to give authorize
such an action, even without a director.
o Agent has to have entered into the contract as an agent and not as a private
individual.
Keighley Maxted v Durant
The agent was authorized to buy the subject at a maximum price.
The agent was only able to buy the property at a higher price. He did
so with the intent of making it a join speculation between him and
the principal. The principle was happy to ratify the transaction. Te
court held that the principle was not liable under the contract
because he was not a part of it. The agent did not enter into the
contract as an agent.
Lockhart v Moodie
Similar facts to the previous case. There was a joint venture
agreement for the purchase of yarn. M authorized McK to buy that
good at a certain price. This was not possible so McK bought it at a
higher price. McK went bankrupt and M was sued for the remaining
money that had to be paid. The majority of the court ruled that M
was still acting in a joint venture, but he did not agree to the higher
price. AS a result M was only liable for the max price that he had
agreed upon with McK.
None has referred to that case ever since, Keighley still seems to be the
authority
Ratification is retrospective in nature. The principle s bound by the contract
at the time it was made. It is although the agent would always have
authority.
o Relevance of time limits. What if there is one and the ratification happens to be
made after it. In theory the contract would be treated as if he would have been
approved in the first place and the contract would be valid. But the law rules this
kind of ratification ineffective.
Goodall v Bilsland
A has the authority to object to a license, he appeals within the time
limit, but he has not authority The principle ratifies the action
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