CONTENTS

TITLE

NUMBER

Introduction 1 Classifications accoding to

function 2

Creation of agency 4 Agency by appointment 5 Agency by ratification 9 Agency by necessity 13 Agency by estoppel 15 Reference 16

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AGENCY

Introduction

Agency is the relationship that arises where one person is appointed to act as the representative of another in order to form a legally binding contract on that person’s behalf, such as a purchase or sale of goods or land or the supply of services. There are a wide variety of circumstances in International Trade where agents are involved. In particular, import and export agents make contracts of carriage, stevedoring and storage on behalf of clients and carriers may act as agents for stevedores as in The Eurymedon. Even there the agency relationship is not fully established, as in the employer / employee situation, notions regarding the scope of duties of employment and the scope of authority discussed in agency are relevant, in particular in relation to the authority of a ship’s master to bind a shipowner or charterer to statements within a bill of lading in respect of the date of shipment of goods, the quantity and quality of goods shipped. Many relationships do not however involve agency. Thus independent contractors and consecutive providers of goods and services, such as second carriers and warehousemen are often outside the scope of the relationship.

Types of agent

a) Universal agent :

It is a general agent with extensive powers.Can execute all the acts which a principal may personally do.This type of agency is created by deed in the form of a General Power of Attorney.A principal rarely grants such extensive powers to an agent unless there is compelling reason.

b) General agent and special agent :

A general agent acts for a principal in the ordinary course of that agent’s business; a special agent has authority only for a particular purpose that is not part of the ordinary course of business for such an agent. A solicitor would be a general agent if authorised to undertake a range of legal work for a client, but a special agent if only authorised by the client to sell a house.

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Classifications according to function

a) Del credere agent

A del credere agent indemnifies the principal against loss incurred by the third party’s breach of contract in respect of payment, although not in respect of any other breach (Gabriel & Sons v Churchill & Sim [1914] 3 KB 1272). An exporter, who is uncertain about the financial status of a foreign buyer, might find such a guarantee attractive, although the modern tendency is to obtain a confirmation from a confirming house or to rely either on a documentary credit, under which a bank pays the seller on the presentation of certain documents (see Chapter 8), or on credit guarantees, which provide that in the event of the buyer failing to pay the guarantor will be liable.

b) Factors

A factor is a commercial agent,who in the ordinary course of his business is entrusted with the goods of his principal for the trade purpose.A factor usually sells the goods in his own name without disclosing his principal identity and this type of agent has a lien(right to hold the goods until the commission Is paid by the principal) over the goods in his possession.The fact that the agent is under a restriction to sell at a certain price or he is bound to disclose the name of the principal does not disqualified him from being a factor,provided he is in possession of the goodsto be sold.Eg. sales man.

c) Brokers

A broker is a commercial agent who is employed to make contracts between his principal and third parties.Unlike a factor,the broker is not entrusted with possession of the goods and cannot make a contract in his own name.In the course of business,its duty is either to find a potential purchaser for those who wish to sell or a seller for an interested buyer or both.Once a contract between the principal and the third party is made,he receives his commission and is no longer concerned with it.A broker has no lien on the goods as he has no possession of them.Eg.real estate agent.

d) Auctioneers

An auctioneer is an agent who is employed to sell goods by auction.He starts off as an agent for the seller but when he accepts a bid from buyer,he also becomes an agent for the buyer.Even auctioneers has discretion as to the price at which

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the goods should be sold,it must no go down below than the reserve price that has been fixed by the seller prior to the auction.Otherwise the auctioneer will be liable in damages to the seller if he sells the goods at the price that below than the reserve price.In this situation the contract is biding on the seller unless the buyer has prior knowledge of the auctioneer’s restriction.In practising his discretion,it is common understanding that the auctioneer should try to invite the potential buyer to bid up to the hisghest price from the bidder by the fall of hammer.

e) Bankers

Bankers can be as agent for the customer and as well for the bank

i. Banker as agent for the customer

When the customer deposited this money,the banker became the debtor and the customer became the creditor.However if the customer step in the bank to make a loan,the banker became the creditor and the customer became the debtor.

ii. Bank employees as agent for the bank

The bank employees are the agents for the bank.Their duty is to their employee,the bank,which in return owes a duty to its customer.

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CREATION OF AGENCY

Agency is a relationship between a principal and an agent in which the principal confers his or her rights on the agent to act on principal’s behalf. Such a relationship is based on an agency contract. The rights and duties of the agent and principal are in accordance with the express or implied terms of the contract.

To create an agency, the consent of the agent and the principal is necessary. The principal must intend that the agent act for him or her, the agent must intend to accept the authority and act on it. The intention of the agent and the principal must be either in express terms of the contract or can be inferred from the conduct of the parties. In the absence of any claim or exercise of control by one party over the activities of another, there can be no agency relationship[i].

An agency relationship can arise only at the will and by the act of the principal. Existence of agency is always a fact to be proved by tracing it to some act of the alleged principal. There are two species of agency: actual, either express or implied, and apparent. The relationship of an agent and an principal may also arise by estoppel, necessity or operation of law.

In transactions conducted by parties through an intermediary, whether an agency relation has been created depends on the intention of the parties. In such cases, terms used to designate the capacity of the intermediary in the written instrument attending the transaction is not conclusive. Factors to be considered in determining if there is an agency and which party is the principal of the intermediary include the duties of the intermediary, the exercise of such duties, and the person for whose benefit they are being performed.

An agency may arise in the following ways :

a) Appoinment by the principal

b) Ratification by the principal

c) By necessity

d) Estoppel

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AGENCY BY APPOINTMENT

Agency relationship created when a principal formally appoints an entity as an agent to act on the principal's behalf. Section 55 of the Property, Stock and Business Agents Act 2002 provides that a written agency agreement must be prepared for all services to be performed by an agent for a client (principal), unless the services relate only to livestock. Unless the agreement is prepared, signed and served correctly the agent may lose their entitlement to be paid commission and recoup expenses.

An agent is not entitled to any commission or expenses for services performed for a client unless:

i. a written agency agreement has been entered into for the services;

ii. the agreement was signed by the licensee and the client;

iii. the agreement contains the terms required by the regulations; and

iv. within 48 hours after the client signs the agreement, a copy of the agreement signed by the licensee is served on the client (in limited circumstances, a court or tribunal can wholly or partly award commission to the agent if the signed copy of the agreement was not correctly served.

a) Express actual authority

The capacity of an agent to act is the same as the capacity of his/her principal.Subject to exceptions already mentioned, anything the principal can lawfully do can be done for him/her by an agent. Hence, the express actual authority of an agent can be co-extensive with the powers of the principal.Express actual authority can be conferred by deed, in writing, or orally. Authority by deed is, usually, called "a power of attorney" and as such, it is a formal document and construed more strictly than other types of express authority.

Authority granted by virtue of a power of attorney is only such as is actually given by the wording of the power, by necessary implication, and it is necessarily incidental for effective execution. Strict tenets of construction should be used.

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The construction of the authority given by a document not under seal, or given orally ismuch more liberal, and it is designed to give effect to the object of the agency, and tothe ordinary usages of business:Poole v. Leask (1860).

However, if the express authority given to an agent is ambiguous or uncertain, then any act he/she doesin good faith which can be attributed to any of the possible meanings of the authority will be deemed to have been properly authorised. This is soeven though the meaning the agent ascribed to the authority was, in fact, different fromthat intended by the principal:Ireland v. Livingston (1872). This case was, of course,decided before the days of telephone and e-mail; hence, it is suggested that,nowadays, if an authority was ambiguous on the face of it (as opposed to patentlyambiguous), the agent would be under a duty to query the matter, if possible.

The facts inIreland v. Livingston (1872)were that a principal in England instructedhis agent in Mauritius to buy and ship 500 tons of sugar, "50 tons more or less of nomoment, if it enabled him to secure a suitable vessel ". The principal stated that hewould prefer shipment "to London, Liverpool or the Clyde, but if not possible toLiverpool or London". The agent shipped 400 tons on a vessel direct to London, whichwas not amenable to further orders.

b) Implied actual authority

Implied actual authority is whatever authority is necessary or incidental to the effectivecarrying-out of the agency in the usual way. It, therefore, includes "incidental", "usual"and "customary" authority. However, it is more; it is also the authority necessary togive business efficiency to the agency contract.

This does not mean that an agent has discretion to contravene the express instructionsof the principal if he/she considers them ill advised or impractical; it does mean that additional ancillary powers will be implied if they are not expressly given. For instance,consider the following points.

An agent who has express authority to receive payment or money has prima facie, implied authority to receive it other than in cash e.g. by cheque.

A managing agent has implied authority to do all those things necessary or usual effectively to manage.

A professional agent has implied authority to do all those things which are usual in the

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Every agent has implied authority to act in accordance with the customs or usages of the trade or market in which he/she operates, and with the usual and prevailing commercial customs.

However, this implied authority is subject to the rules for the implication of all customs: they must be reasonable,notorious(i.e. well-known), certainand not unlawful. The fact that the principal was not aware of the custom does notaffect the issue. If it is shown that such authority is customary in the particular business or place, and such custom fulfils the necessary criteria, then it will be implied as part of the authority of the agent. Some customs are, in fact, so well known that judicial notice is taken of them. This means that their existence and application do not have to be proved by the person asserting them

In certain cases, authority will be implied from acourse of dealing between principal and agent. This can occur where an agent has enjoyed a particular authority which has not been expressly granted, and the principal has not over aperiod of time, either objected to or queried it. In either case, which period of time is necessary to establish a course of dealing will depend on the circumstances

Summers v Solomon (1857)

The defendant (P) employed his nephew (A) to run his jewelry shop. In practice the nephew would order jewelry from,· inter alia the plaintiff jewelry supplier (T) and the defendant would pay for it. The nephew left the job, but the supplier was not told that the nephew's agency had been terminated. Later, the nephew obtained some jewelry from the supplier - purportedly under the old arrangement - and absconded with it. The supplier, still under the impression that the agency existed, approached the defendant for payment.

Held the defendant had represented to the supplier that the nephew had authority to order jewelry by omitting to inform him of the termination of the agency. Thus, the nephew had apparent authority to order the jewelry and the defendant was liable:

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AGENCY BY RATIFICATION

Requirements for ratification

The principal may be bound where they ratify a transaction entered into by someone who purported to act as their agent. This is not apparent authority because the agent cannot represent their own authority. If the third party decides to go ahead with the transaction, they take a risk that the purported agent has authority or that the principal will ratify the transaction, because unless there is actual authority or ratification the principal will not be liable on the contract made by the purported agent.

There are various reasons why a principal might ratify such a transaction: the principal may be happy with the deal, or may be unhappy with the transaction but decide to ratify it to maintain commercial reputation or to preserve the reputation of the agent. However, in determining if there has been ratification, the motive of the principal is irrelevant.

There are a number of requirements for valid ratification.

At the time of the relevant act, the agent must have intended to act on behalf of the principal. Such intention is gathered from the terms of any contract and surrounding circumstances (National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyd’s Rep 582).

The purported agency must be revealed to the third party at the time of the transaction. There can be no ratification where A makes the contract as principal (Keighley, Maxsted & Co v Durant [1901] AC 240; Sealy and Hooley, pp.139–40). The identity of the principal need not be disclosed, ‘but there must be such a description of him as shall amount to a reasonable designation of the person intended to be bound by the contract.’ (Watson v Swann [1862] 11 CBNS 756, Willes J; Sealy and Hooley, p.141). It will be sufficient if the agent stated that they were acting for a class of persons to which the principal belonged (National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyd’s Rep 582. Contrast that decision with Southern Water Authority v Carey [1985] 2 All ER 1077). The justification for this requirement of identification is, according to Lord Macnaghten in Keighley, Maxsted & Co v Durant [1901] AC 240 (Sealy and Hooley, pp.139–40), that ‘civil obligations are not to be created by, or founded upon, undisclosed intentions’ (but see section 3.2).

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The third party must believe that the person with whom they are dealing has authority to act for another. Where the agent states that the ‘contract’ is subject to ratification, this does not fall within the doctrine of ratification because it amounts to saying there will be no contract until the principal has given approval.

The principal must be competent to enter the contract at the time it was made. For instance, did the company have authority under its constitution to do this act?

The principal must be competent at the time of ratification: for example, if P is an enemy alien they cannot ratify, even if at the time of the contract P was not an enemy alien. Since ratification relates back to the moment of the original act (see 2.8.2), there is an argument for looking solely at whether the principal was competent at that time, but, of course, a principal who lacks competence (such as a company that has been wound up or a person who has lost mental capacity) would not be able to signify ratification.

Ratification must occur within a reasonable time after the action of the purported agent (The Managers of the Metropolitan Asylums Board v Kingham [1890] 6 TLR 217). What constitutes a reasonable time will depend on the circumstances, but ratification may still occur even after the contract has commenced: e.g. an insurance policy may be ratified even after loss has occurred (Williams v North China Insurance Co [1876] 1 CPD 757). Ratification may be implied from the failure to act within a reasonable period of time, although it is likely to be difficult to show that inaction indicated a clear intention to ratify.

No formalities need be observed for a valid ratification. The principal will only be held to have ratified if they did so with full knowledge of the facts, although there will be ratification if it is clear that the principal is willing to adopt the act whatever the circumstances (Marsh v Joseph [1897] 1 Ch 213). Ratification can be express or implied from conduct as long as the intention to ratify is clear and unequivocal: e.g. where the principal sues the third party on the contract. An authorised agent can ratify (Suncorp Insurance and Finance v Milano Assicurazioni SpA [1993] 2 Lloyd’s Rep 225) and there seems no reason why a purported ratification by an agent, who had no authority to ratify, cannot itself be ratified.

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Effect of ratification

Ratification puts the parties into the position they would have been in had the act been authorised from the outset: ‘ratification when it exists is equivalent to a previous authority’ (Lord Lindley in Keighley, Maxsted & Co v Durant [1901])

The principal can sue or be sued by the third party. The agent will not be liable to the principal for excess of authority no to the third party for breach of warranty of authority. The agent may be entitled to be indemnified by the principal for any liability incurred. In Suncorp Insurance and Finance v Milano Assicurazioni SpA [1993] 2 Lloyd’s Rep 225, Waller J suggested that, while ratification normally relieves the agent from personal liability to the principal, the principal might be able to ratify without waiver of the breach of duty by the agent.

Since ratification puts the parties into the same position as if the act had been authorised from the outset, then logically it relates back to the moment of the original contract. The unusual consequence of this was illustrated by Bolton Partners v Lambert (1889) 41 Ch D 295 (Sealy and Hooley, pp.142–4). S accepted an offer from L on behalf of B but without B’s authority. L later withdrew the offer and only then did B ratify. It was held that the contract was binding on L. No real reasoning was provided for this other than that ratification meant ‘the agent is put in the same position as if he had had authority to do the act at the time the act was done by him.’ (Cotton LJ). This rule allows the principal to choose whether or not to ratify, but such a choice is not available to the third party. On the other hand, the third party believed themselves to be bound by the contract and, if the principal fails to ratify, an action for breach of warranty of authority will lie against the agent.

There are limits to the rule in Bolton Partners v Lambert. In addition, to the requirements already discussed (2.8.1), ratification is not likely to be effective:

if the interests of someone other than a party to the original contract are unfairly affected, or if the unauthorised act was void as a nullity. In Brown v Bird [1850] 19 LJ Ex 154, without authority the seller’s agent stopped goods in transit (see 6.2.5). Before the seller ratified this action the goods had reached the trustee in bankruptcy of the buyer. The ratification was held to be ineffective. On the other hand, in Presentaciones Musicales SA v Secunda

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[1994] Ch 271), without authority solicitors issued a writ; this action was later ratified, but that ratification came outside the statutory time limits for issuing the writ. It was held that the ratification was effective. The majority in the Court of Appeal did not regard the solicitors’ action as a nullity and contrasted this with the situation in Brown. Roch LJ, however, thought that the cases showed ratification could not occur where a third party would be deprived of their property rights (see also, Brook v Hook [1871] LR 6 Exch 89; Owners of the ship ‘Borvigilant’ v Owners of the ship ‘Romina G’ [2003] EWCA Civ 935)

if the agent and the third party rescind the agreement before ratification (Walter v James[1871] LR 6 Exch 124).An attempt to ratify only part of a contract and repudiate the rest will operate as ratification of the whole

Rules which govern ratification

“ The agent must contract as an agent, for a principal who is in contemplation, and who must also be in existence at the time, for such things as the principal can and lawfully may do. “

a) The agent must purport to act as agent for the principal who is in contemplation. He must not allow the third party to believe that he himself was actually the principal

b) The principal must be in existence at the time of the contract to enable ratification of the contract.

c) Capacity of Principal to contract

Ratification is valid only if the principal had the contractual capacity to contract at the time of the contract and at the time of the ratification

d) The manner of ratification

Ratification may be made by words or conduct. Ratification must be based on a full knowledge of all the material facts and he must have the freedom to accept or refuse the contract. The principal must ratify the whole contract. He is not permitted to pick and choose only selected parts of the contract to ratify. The

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ratification must be made within a reasonable time and the ratification must not injure a third party

Keighley Maxted & Co. v. Durant (1901) AC 240

The corn merchant who had contracted to buy wheat in his own name without mentioning the principal (appellants) was solely responsible for the purchase as the appellants were under no legal obligations to the respondents(the vendor). Any purported ratification by the appellants was invalid.

Kelner v. Baxter (1866) LR 2 CP 174

Facts: Promoters of an as yet unformed company entered into contract on its behalf. Later the new company ratified the contract. Later, it collapsed and the agents (promoters) were sued upon the contract. Promoters pleaded that the liabilities had passed to the bankrupt company by virtue of the ratification.

Held: Agents were liable on the contract. Ratification is valid only if the principal was in existence at the time the contract was made. The company had no contractual capacity to make the contract as it did not exist at that time.

Note: In Malaysia. Section 35 of Companies Act 1965 provides that a contract entered into by a company or its agents (promoters) prior to its formation may be ratified by the company after its formation.

AGENCY BY NECESSITY

In certain situations, the law allows the agent to act for the principal without the knowledge and consent of the principal. These are known as agencies of necessity.

Examples of agencies of necessity:

1. The agency of the deserted or separated wife (with no means of support) to supply household needs for herself and her children by pledging her husband’s credit for necessaries. However, since the Matrimonial Proceedings and Property Act 1970 conferred on the courts extensive powers to protect the wives and children) against the husband’s wilful neglect, it was felt that the needs of the separated wife would be adequately protected by this Act. In consequence, S. 41 of MPPA 1970 abolished the wife’s agency of necessity.

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2. A commercial agency of necessity occurs when a person is entrusted with another’s property and it becomes necessary to act speedily to preserve that property although he has no express authority to do so.

Great Northern Railway Co. v Swaffield (1874) LR 9 Ex 132

Facts: The railway company carried the defendant’s horse to its contracted destination but there was no one to pick up the horse. The station master did not know the address of the agent or the defendant and accordingly instructed that the horse be placed in a stable. The railway company later claimed for the charges of the stable. The defendant refused to pay.

Held: The plaintiff acted as an agent of necessity in this instance.

Conditions before an agency of necessity may arise

1. The course taken was the only practicable one under the circumstances. The agent of necessity had no opportunity in the time available of communicating with the principal.

Springer v Great Western Railway (1921) 1 KB 257

Facts: The defendants agreed to carry the plaintiff’s tomatoes from Jersey to Covent Garden market. The ship arrived late at Weymouth due to inclement weather. The defendants’ employees were on strike so the tomatoes had to be unloaded by casual labourers. Some of the tomatoes were found to be ad. The defendants decided to sell the tomatoes locally as they judged that the deteriorating tomatoes would not make it to the Covent Garden market in saleable condition. They did not communicate with the plaintiff. The plaintiff sued for damages in conversion based on the market price of tomatoes in Covent Garden

Held: The plaintiff was entitled to damages because the defendants had failed to communicate with the plaintiff when they could have done so. The defendants could not be said to be agents of necessity

2. The agent of necessity had acted in good faith (honestly) in the interests of his principal.

3. The agent’s action is necessary to prevent further losses to the principal.

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The classes of people who may claim to be agents of necessity is deliberately kept narrow and restricted by the courts.

AGENCY BY ESTOPPEL

An agency that is not created as an actual agency by a principal and an agent but that is imposed by law when a principal acts in such a way as to lead a third party to reasonably believe that another is the principal's agent and the third party is injured by relying on and acting in accordance with that belief.A principal has a duty to correct a third party's mistaken belief in an agent's authority to act on the principal's behalf.

If the principal could have corrected the misunderstanding but failed to do so, he or she is estopped from denying the existence of the agency and is bound by the agent's acts in dealing with the third party. If a person, by his words or conduct, allows a third party to believe that Mr. X is his agent, when Mr. X is not and the third party relies on it to his detriment, that person will be estopped or precluded from denying the existence of Mr. X’s authority.

Apparent authority arises where:

the principal (or someone acting with the actual authority of the principal) represents tothe third party that the agent is authorised to undertake the transaction which the agentand the third party subsequently conclude

the agent did not purport to make the agreement as principal the third party was induced to enter into the transaction in reliance upon that

representation the third party altered their position to their detriment. the agent does not have actual authority the agency agreement has ceased the agent acts beyond the actual authority granted by the principal.

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REFERENCE

Book Internet

http://agency.uslegal.com/creation-of-agency/ http://research.lawyers.com/glossary/agency-by-estoppel.html http://www.londoninternational.ac.uk/current_students/

programme_resources/laws/subject_guides/commercial/commercial_ch2.pdf

http://uolcommlaw.blogspot.com/2009/03/creation-of-agency.html http://awritingprescription.blogspot.com/2009/04/law-creation-of-

agency.html

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