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Commercial Law notes
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AGENCYWHAT IS AN AGENCY RELATIONSHIP?
It’s a relationship between a person who has authority to act(agent) for and on behalf of
another (called a principal) in contracting legal relations with third parties; and the agent
representing the principal creates, alters or discharges legal obligations of a contractual
nature between the latter and third parties.”
The core idea is that the agent acts, but this act is attributed to the principal; it is treated as
if the principal had done it herself. For example, if Sarah is Mike’s agent and she makes an
offer to buy some hair products from Nappy Ltd on Mike’s behalf then the contract which
would result from Nappy’s acceptance is one between Mike and Nappy. Sarah made the
offer but is treated as if it was made by Mike. However, agents can also perform other
juridical acts on their principal’s behalf: they can transfer property, appeal decisions of
courts and tribunals, and make or accept payments.
FORMATION OF AGENCY RELATIONSHIP
They are five different ways on which an agent can be appointed to act on behalf of the
principal.
1)EXPRESS AUTHORITY
An agent has actual authority when the principal has granted power to do the relevant act
beforehand. This grant is a juridical act by the principal and it usually done in the context of
a contract between the principal and the agent in which the latter takes on the obligations
to the principal. This grant by the principal can be done either in writing, for example, by
granting a letter of mandate authorizing the agent to act on behalf of the principal, or orally.
2)IMPLIED AUTHORITY
Is based on the presumption that the principle does not state explicitly that he or she
authorises the agent. Rather, the authority is implied from the circumstances of the case.
Therefore, where an agent is given a task, authority is given to do everything necessary to
complete the task, so a solicitor who is asked to purchase land on someone’s behalf is
authorised to have searches made of the land register to make sure that they are no
problems with the seller’s title. Basically, implied authority is based on what the principal
intends but that principle can also be rebutted. In the case of “Neville v C&A Modes Ltd
1945” , it was held that shop assistant have an implied authority to protect the proprieties
of their employer from shoplifting.
3)APPARENT OR OSTENSIBILE AUTHORITY
No express authority nor we can objectively imply authority from facts and circumstances.
However, from a subjective perspective, the principle may have done, said something or
made a representation to a third party which they interpret as given authority to the agents,
then they rely on that representation and engage with the agent. In an event where the
third party suffers a loss, apparent authority has the effect of preventing the principal from
denying the agent had authority. Often apparent authority results from cases where an
agent is deprived of his authority but those whom the agent has dealt with in the past are
,not informed of the loss of authority. It can also arise where someone is appointed to a post
which usually carries a certain degree of implied authority, but the principal and agent agree
that the latter’s authority shall not extend to the usual range.
So, if Helen appoints Simon to manage her affairs and then dismisses him for misconduct,
she will need to inform those with whom Simon has been dealing on her behalf. If she does
not do so, they will be justified in continuing to deal with Simon on the basis that he can
bind Helen. The initial appointment gave the impression of continuing authority, so, the
onus rests on Helen to tell the third parties that the situation has changed. Simon will not
have actual authority, but he will have apparent authority and that will be enough to enable
those who contract with Simon before Helen informs them of the change to enforce their
contracts against Alice.
Similarly, if Miriam leaves Zara in charge of her shop but tells him not to sell certain
products, Zara will not have actual authority to sell the products. She will, however, have
apparent authority to do so because someone who works behind the till in a shop usually
has authority to sell all the products in the shop. If Miriam does not want to be bound by
such sales by Zara, she would need to do something to warn potential customers such as
putting up a sign in the shop.
THREE REQUIREMENTS FOR APPARENT AUTHORITY
a) Authority trough the words or conduct of principal: the third-party belief must result
from the principal’s conduct. In the case of “International Sponge Importers Ltd v
Andrew Watt& Sons”, an agent sold sponges on behalf of the pursuer. The purser’s
terms and conditions required payment to be made by a cheque to the principal,
although such checks could be delivered to the agent. The agent induced several
customers to pay by cheques in his name or in cash. He had no authority to do so.
The agent embezzled with some of the money paid to him and the principal
attempted to claim the prim from customers, the defenders, who had paid the agent
in unauthorised ways. The agent was held to have apparent authority to receive
payment in this way. The basis for the decision was that the agent had greater actual
authority than was usual in being able to take delivery of cheques and that the
pursuers had been aware of at least one of the instances of irregular payment but
did not communicate any objection to the defenders.
Among other things, the requirement that the principal give an impression of authority
means that a claim to have authority made by a purported agent will not usually give rise to
apparent authority, for example, in the case of “ Armagos v Mundagos” , it was confirmed
that apparent authority cannot operate whereby the agent is not authorised to do what he
is purporting to do, when what he is purporting to do is not within the class of acts that an
employee in his position is usually authorised to do and when the employer(principal) has
done nothing to represent that he is authorised to it.
However, it should be borne in mind that a statement made by an agent with authority to
communicate on behalf of the principal will be attributed to her. This idea is well illustrated
by the facts of “First Energy(UK) v Hungarian International Bank” : there a company was
negotiating a loan with a bank employee who acknowledge that he did not have authority to
grant it. However, he then told the company that he will contact his supervisors to get
authorisation for the relevant transaction. Thereafter, the loan was granted on the basis
, that the bank had agreed to it. Consequently, the bank(principal) tried to get out of the
contract because it wasn’t the bank that gave the impression, but it was the senior
manager(agent) of the bank. although the employee did not have authority to grant the
loan, he did have authority to make representations on behalf of the bank. That meant that
his representation that the loan was approved by his superiors was attributed to the bank,
i.e, it was treated as if the bank had made it, so the bank was was bound by the agent’s
action. It was held that the senior manager was clothed with ostensible authority to make
the loan agreement.
b) Casual link between principal’s actions and third-party belief
The purpose of the rule is to protect third parties who are misled into believing the
agent to be authorised. Therefore, it cannot be invoked id the third party was aware
of the agent’s lack of authority.
c) Reliance by the third party on the agent’s representation and loss through reliance
The third party cannot be said to rely on the representation unless a transaction has
been concluded with the agent. So, a belied that the agent has authority which is not
followed by a juridical act will not affect the principal. Similarly, there is no reliance on
the inaccurate impression unless the agent acts in the principal’s name rather than his
own.
4) PRESUMED AUTHORITY (AGENCY BY NECESSITY)
This doctrine is well illustrated by the case of “Great Northern Railways v Swaffield”, in
which railways company, the plaintiff, had transported a horse to the station on behalf
of the defendant. When the horse arrived, there was nobody to collect it. So, the
plaintiff sent it to a stable. Several months later, the plaintiff paid the stabling charges
and then straight to recover the what it had paid from the defendant. It was held that
the plaintiff’s claim succeeded. There was an agency of necessity because the plaintiff
was found to have no choice but to arrange for the proper care of the horse.
5)AGENCY BY STATUTE
Commercial Agents (Council Directive) Regulations 1993 , it is possible to have commercial
arrangements introduced by statute.
6)AGENCY BY RATIFICATION
Agent acts without authority and then principal ratifies agent’s conduct. In the case of
“Kelner v Baxter” A group of company promoters for a new hotel business entered into a
contract, purportedly on behalf of the company which was not yet registered, to
purchase wine. Once the company was registered, it ratified the contract. However, the
wine was consumed before the money was paid, and the company unfortunately went into
liquidation. The promoters, as agents, were sued on the contract. They argued that liability
under the contract had passed, by ratification, to the company and that they were hence
not personally liable. It was held, however, that as the company did not exist at the time of
the agreement it would be wholly inoperative unless it was binding on the promoters
personally and a stranger cannot by subsequent ratification relieve them from that
responsibility.
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