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Summary LAWS08134 Business Entities-Agencies and Partnerships
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LAWS08134 Business Entities-Agencies and Partnerships
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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.
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