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Law of Agency
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Overview of Law of Agency
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Law of AgencyThere are three parties involved with an agency relationship - the agent, the
principal and the third party. The agent has empowerment and authority to act on
behalf of the principal and binds the principal to the third party in a contractual
relationship without the need for them to become part of the relationship. Agency is
a vital tool in business.
Types of Agent
General - A general agent has continuing authority to conduct all business for the
principal. When a general agent is use the third party can assume they have the
power needed to act. A family solicitor would be regarded as a general agent.
Special - A special agent only has the authority to carry out one particular
transaction on behalf of the principal and does not have continuing authority. An
estate agent would be regarded as a special agent.
Creating Agency
The main ways an agency can be created are as follows:
Express creation - There has been a deliberate and conscious act carried out by
the principal to appoint someone as their agent. This can be done either in writing
or verbally and no special form is needed. Various documents can be used to
create an agency and the extent of formality will vary.
In most cases the creation will be less formal. It may be orally or simply come about
by the agent agreeing to act on behalf of the principal and the principal agreeing to
this as long as issues of proof can be dealt with.
Implied Creation - An agency can be brought into existence due to the actions of
the parties involved implying that this is what they intended to happen despite there
being no express appointment. In most cases this will be obvious from the
circumstances.
Holding out - The third party assumes that the person is acting as an agent due to
either positive encouragement, been given that impression by the principal or the
principal takes no action to contradict the assumption that an agency exists. The
actions of the principal result in a person being held out as being an agent. This can
arise when a relationship previously existed between an agent and a principal
however this has been withdrawn and the third party not informed.
Rati cation - Someone acts as an agent for another person without power or
authority. The principal may even be unaware of the agent’s actions. This may be
due to making a formal agreement not being possible. However this does not mean
fi
, that an agency relationship cannot then be formed but this would depend on what
occurs when the principal discovers the agent’s actions. The principal may ‘ratify’
the actions that agent has taken (approve them). This can be done expressively
(taking some form of positive action) or implicitly (action or course of conduct). The
factual position is crucial when determining whether rati cation has taken place and
any act, statement or behaviour from the principal which clearly shows rati cation is
enough. However a number of conditions have to be met before rati cation can be
deemed effective
- The agent must have been acting as an agent and informed the third part
- The principal must have been in existence at the time of the agent’s action
- The principal must have had the legal capacity to take the action
- The action being rati ed must have been lega
- The principal must be aware of all facts and circumstances behind the agent’s
course of action before ratifying unless it can be con rmed that the principal was
willing to ratify no matter the circumstances
- The rati cation must take place within the relevant timescale
The aim of rati cation is to put the agent and principal in the position they would
have been in had the agent had proper authority to act. If the principal chooses not
to take any action which would ratify the actions, the agent will be personally liable
to the third party.
Necessity - A person takes reasonable and prudent action on behalf of another.
This usually takes place when an emergency situation arises and the agent takes
essential actions on behalf of the principal without being asked to do so. The agent
would not have been able to contact the principal. However situations of this nature
are less likely to occur nowadays due to increased methods of communications
although some unforeseen and uncontrollable situations may arise such as civil
disturbance or bad weather which may result in operation of agency by necessity.
Also situations involving ill health which lead to a person being unable to give
instructions will force someone else to act on their behalf will trigger creation by
necessity. When agency of necessity is relied upon any decision made should be
reasonable, in good faith and in the best interest of the person concerned.
The Agency Relationship
The nature of the relationship between the agent and the principal will be shaped
by the following:
- The nature and extent of the agent’s authorit
- The agent’s duties and the principal’s right
- The agent’s rights and the principal’s duties
The agent’s authority
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