A Distinction-level comprehensive set of study notes covering the Commercial Law module on the LPC. It is designed to be direct and to the point by covering the technical aspects in a practical sense. Each part of revision notes can be applied directly to exam questions on each topics during an exa...
Commercial Law
Part 1 Revision Notes
Agency
CONTRACTUAL RELATIONSHIPS IN AN AGENCY CONTRACT
Basic Rule:
Where an agent concludes a contract with a third party within the scope of his authority
(principal), privity of contract exists between principal and third party NOT the agent.
TYPES OF AGENCY AGREEMENTS
• Marketing Agent – agent permitted to seeking out customers but not allowed to
enter into contracts with customers
• Sales agent – can seek out customers and engage with them
Each of these can be…
• Exclusive agent – agent has exclusive rights to represent principal and principal
cannot appoint anyone else in that territory
• Sole agent – exclusive again with principal but can seek out own customers
• Non-exclusive agent – where principal can appoint another agent and seek out own
customers.
The minimum function will be to find customers for a product or service. In most cases the
agent will also be authorised to go on to make a contract for the sale/purchase of the
product or service in the name of the principal.
SOURCES OF AGENCY LAW
In answering any question on the rights and obligations of the principal and agent to each
other, we will almost always find ourselves looking in turn at three sources of law. These
are:
1. The Agency Agreement
2. The Commercial Agents Regulations
3. Common Law
The Commercial Agents (Council Directive) Regulations 1993 (S.I. 1993 No 3053)
REGULATION 2: ‘COMMERCIAL AGENT’
,This means someone who is an intermediary with the authority to negotiate the sale of
goods on behalf of the principal.
The case of Parks v Esso Petroleum states that ‘negotiate’ means being influential in just
inducing the customer into contract – you do not need to control certain aspect of the sale
terms itself.
Why does the principal want to retain control over the terms of sale?
• Uniformity in pricing. Commission can be controlled – doesn’t allow agent to
secretly profit
• Entering into contracts on behalf of principal so they would want control as they
are the overall person who gets goodwill here
• Privity of contract exists between principal and customer
• If you have multiple agents using different terms it would cause conflict
REGULATION 3: ‘DUTIES OF A COMMERCIAL AGENT OWED TO THIS PRINCIPAL’
This is all about:
• Acting in good faith
• Acting dutifully
• Make proper efforts to conclude transactions/negotiate (see definition above)
• Communicate with principal
• Follow instructions
These kinds of duties, from Regulation 3, will be incorporated into the agreement as the
‘Agents Obligations’.
REGULATION 4: ‘PRINCIPAL’S OBLIGATIONS OWED TO THE AGENT’
This is all about:
• Acting in good faith and dutifully
• Assist with information to help achieve the purpose of the agency agreement
• Make the agent aware of any reductions of product demand
• Notify the agent of any transaction cancellation
REGULATION 5: THIS STATES THAT REGS 3 AND 4 CANNOT BE CONTRACTED OUT OF.
REGULATION 6: ‘REMUNERATION IN THE ABSENCE OF AGREEMENT’
This states that a commercial agent shall be entitled to reasonable remuneration taking
into account all the aspects of the transaction.
,But don’t worry the agency agreements we deal with in class and the exam will have
specific provisions for this.
REGULATION 7: ‘COMMISSION ON TRANSACTION DURING THE AGENCY CONTRACT’
This simply states that they are entitled to commission payments based on transactions
completed by the agent. The agency agreement at the ‘Remuneration’ section will provide
specific percentages and additional conditions such as performing the general obligations
as an agent e.g. concluding deals within the territory.
REGULATION 8: ‘COMMISSION ON TRANSACTIONS CONCLUDED AFTER THE AGENCY
CONTRACT IS TERMINATED’
This states that the commercial agent shall be entitled to commission after the agency has
been terminated if:
• The agent was instrumental in bringing about the transaction and that it was entered
into within a reasonable time after termination
• The order of the customer for the product must have reached the agent or principal
before termination
Putting this clause into context:
Looking at the draft agency agreement at Clause 6.3, it states that there will be no
commission for post-termination transactions. The only commission payable would be
commission owed by the Principal during the term of the agency agreement.
NB There is no specific clause that states Reg 7 and Reg 8 can be contracted out of which
makes it unclear. Nevertheless, in these situations it is better to just follow the contract.
Although these kinds of ambiguities can be litigated on.
REGULATION 10: ‘WHEN COMMISSION IS DUE FOR PAYMENT’
This states that the commission shall become due as soon as one of the following occurs:
• The principal has executed the transaction
• The principal should have executed the transaction
• The customer has executed the transaction
REGULATION 12: ‘SUPPLY OF INFORMATION REGARDING AMOUNT OF COMMISSION
DUE’
This states that:
• The Principal shall provide the agent with a statement of commission due outlining
how it was calculated; and
• The agent shall be entitled to demand all information from the principal to check that
the commission is accurately calculated.
NB you cannot contract out of Reg 12
, REGULATION 15: ‘MINIMUM PERIODS OF NOTICE FOR TERMINATION OF AGENCY
CONTRACT’
Any contractual provision in the agreement concerning notice is overridden by Reg 15 as it
specifically states that Reg 15 cannot be contracted out of – “the parties may not agree on
any shorter periods of notice”.
Instead the period of notice shall be:
• 1 month for the first year of the contract
• 2 months for the second year
• 3 months for the third year and beyond.
REGULATION 17: TERMINATION PAYMENTS VIA INDEMNITY OR COMPENSATION
The Regs provide for automatic payment to the agent when the agency terminates under
most circumstances.
BUT there need not be a breach on the principal’s part.
For example, the principal can give lawful notice of termination, or the contract may simply
end because it has got to the end of a fixed period or the agent can give notice because he
is too ill or old to carry on his activities or he may die.
None of these circumstances include a breach of the contract but the agent is entitled to
either compensation/indemnity.
However, the principal can elect in the contract which one the agent will be entitled to. If
the contract is silent, the agent gets “compensated” rather than “indemnified”. - Reg
17(2).
‘INDEMNITY’ – This has a highly specific meaning under English law but has a very different
meaning under the Regs.
Regulation 17(3):
A commercial agent shall be entitled to an indemnity if:
• The agent has brought new customers or significantly increased the volume of
business with existing customers
• The principal continues to benefit from this new/increased business
• The payment of indemnity is equitable
In other words, be a good agent.
Regulation 17(4):
The indemnity payment is “capped” at one year (calculated from one year’s average
commission-taking the average over the preceding 5 years).
‘COMPENSATION’
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