CONTRACTS OF AGENCY

Learning Objectives
Introduction Definition of Agency Creation of Agency Rights and Duties of Parties Termination of Agency Exceptions

Introduction
When people do business, they often deal with each other directly Buyer Seller However, sometimes they deal with each other using a middleman (or representative or intermediary) Buyer Middleman Seller The legal relationship between the middleman and the businessperson is governed by the law of agency

Definition of Agency
The legal term for a middleman or representative is an agent The person who is represented by the agent is called the principal Therefore, in our example Buyer Middleman Seller If the middleman represents the buyer Principal Agent Seller

Definition of Agency (contd)

Definition: An agent is a person who is authorized to represent another person, who is called the principal. The agent creates a legal relationship between the principal and a third party.

Definition of Agency (contd)

Therefore, any contract entered into is between the principal and the third party, even though it is arranged by the agent. The agent does not usually get any rights or responsibilities under the contract. Therefore, it is the principal who must have the capacity to contract and not the agent.

Creation of Agency
The principal/agent relationship can be created in several ways
Express Agreement. Implied Agreement.

Express Agreement
This is the most common way of creating an agency. An agreement is said to be express when it is given by words spoken or written. The agent is specifically appointed by the principal for a particular task or a general function. What matters is authority.

Implied Agreement
An agreement where both parties have acted in such a way that it is understood a contract or agreement is in place, even if there is no written or expressed agreement in place. One presumed from the acts or behaviour of the parties, rather than that expressed by them in written or spoken words. It arises from the conduct , situation or relationships of the parties.

Types of Implied Agency

Agency by Estoppels Agency by Necessity Agency by Emergency Agency by Ratification Agency by Operation of Law

Estoppel
This form of agency is also know as agency by holding out It occurs where there is no actual principal/agent relationship, but the principal makes a third party think that there is. In this case the agent has apparent authority and the principal is bound by any contract entered into by the agent and a third party who thought there was a proper principal/agent relationship.

Estoppel (contd)
There are 2 conditions for estoppel to apply.
The principal must have made a representation that the agent had his authority The party who claims there has been estoppel must have relied on the principals representation.

Necessity
A principal/agent relationship can be created where there has been no agreement between the parties when there is an emergency and one person acts to protect the interests of another person. The person who acted as agent must have acted in the genuine interests of the principal.

Necessity (cont.)
There must be a genuine emergency
E.g. in Great Northern Railway Co v Swaffield, the railway company transported the defendants horse When no one arrived at the destination to collect it, the railway company paid to put the horse in some stables The court allowed the company to recover the costs as necessity had forced them to pay for the stables

Emergency
An agent has authority in an emergency to do all such acts for the purpose of protecting his principle from loss as would be done by a person of ordinary prudence.

Operation of Law
Operation of law" is a legal term that indicates that a right or liability has been created for a party, irrespective of the intent of that party, because it is dictated by existing legal principles. For example, if a person dies without a will, his heirs are determined by operation of law.

Ratification
Where acts are done by one person on behalf of another but without his knowledge or authority , he may elect to ratify or to disown such acts.

Duties of an agent
Who is an agent? Duties of an agent:
Should work according to directions or custom of his principal. Is bound to do business with as much skill he possesses. Should not set up adverse title to the goods. Bound to pay sums received to the principal on his account.

Duties of an agent (contd)

Not to delegate, sub-contract his authority. Only to act within the limits of his authority Not to make a secret profit or accept bribes. To disclose all material facts to the principal and to refrain from divulging confidential information to third parties. To account to the principal for property and money of the principal which is under his control.

Rights Of Agent
Retain money for the expenses incurred. Right to receive remuneration. Right of lien, justifiable only when:
Property belongs to the principal Agent should receive it as his capacity as an agent. Agent should hold it for and on behalf of the principal and not third party.

Rights Of Agent (contd)

Right of lien is lost if:
The agent parts with the goods voluntarily. The principal repays the amount due.

Right to be indemnified. Right of stoppage of goods in transit.

Liability Of An Agent
He sells goods at a rate lower than fixed by the principal. He fails to insure goods as instructed by his principal and the goods are lost. He stores the goods at different place as directed by the his principal and the goods are lost. He purchases a larger quantity.

Types of Mercantile Agents

Factor
Wide discretionary powers. General lien on the goods.

Commission Agent
Immaterial whether he possesses the goods or not.

Del Credere Agent

Guarantees the third party will fulfill the financial obligations.

Types of Mercantile Agents (contd)

Broker
Negotiate and make contracts.

Auctioneer
Entrusted with possession of goods for sale to the highest bidder.

Rights of Principal
Right to Repudiate the Transaction
Agent not entitled to do anything for his personal benefit.

Right to claim Benefit

Agent cannot make any secret profits or receive bribes. Agent cannot conflict his personal interest with his duty to the principal.

Right to revoke agents authority

Rights of Principal (contd)

Right to Claim Loss or Profit
compensation for any loss sustained by him or to any profits accrued.
agent acts contrary to the directions given by the principal. where loss is caused due to agents neglect, want of skill, or misconduct.

Right to Demand Accounts Right to Refuse Remuneration when Agent is Guilty of Misconduct

Duties of Principal

Duty of Compensation

Duty of Cooperation

Duties of Reimbursement and Indemnification

Duty of Compensation
Principal owes to pay an agreed-upon amount to the agent. If there is no agreement , the law implies a promise that the principal will pay the agent the customary fee. Compensation for injury.

Duty of Cooperation
A principal owes to cooperate with and assist the agent in the performance of the agents duties and the accomplishment of the agency.

Duties of Reimbursement
Principal owes to repay money to the agent if the agent spent his or her own money during the agency on the principals behalf.

Duties of Indemnification
A principal owes to protect the agent for losses the agent suffered during the agency because of the principals misconduct.

Termination Of Agency
An agency contract is similar to other contracts. Once an agency relationship is terminated, the agent can no longer represent the principal or bind the principal to contracts. It can be terminated in following ways:
Acts of the parties Operation of law By agreement

Termination By Agreement
Agency relationship is created by agreement between the principal an the agent, such a relationship can also be brought to an end by mutual agreement between the parties.

Termination By Agreement (contd)

If the agreement provides for the appointment of the agent for a specified period of time, the agency will come to an end automatically when that period of time expires. If the agreement provides for the agency to terminate upon the occurrence of a specified event, the agency will come to an end upon the happening of the specified event.

Termination By Operation Of Law

There are certain circumstances where agency is terminated by operation of law such as:
Death of the principal or agent Insanity of the principal or agent Bankruptcy of the principal Impossibility of performance On expiry of time Destruction of the subject matter Performance of the contract

Termination By Act Of Parties

The agency may be terminated by the act of either of principal or the agent, as illustrated below.
Revocation by the principal Renunciation by the principal Performance by the agent By notice

Irrevocable Agency
When an agency cannot be put to end, It is said to be irrevocable agency. Some of its features are:
An agency is irrevocable where the agent has an interest in the property which forms the subject matter of the agency. Cannot be terminated either by death or insolvency. Terminates only when the agents obligations are performed.