2
Agency 1
Contents Introduction 16 6 1 21
What is an agency? 17 17
22
21 Types o agent 21
23
Creation o agency 23 23
24
Consent
25 2 5
Actu Ac tual ala aut utho hori rity tyo o th the eag agen entt 26 26
26 2 6
Agenc Age ncyb ybye yest stop oppe pela land ndap appa paren rent taut autho horit rity y
27
Usual authority: WatteauvFenwick 31
28
Ratication 33 3 3
29
3 Agency o necessity 36 6
210
Capacity 37 37 Refect and review
24
28
38
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University of London External Programme
Introduction The law o agency is an essential part o commercial law because companies can only conduct business through agents. The unction o the law o agency is to enable agents to bring commercial parties into contractual relations in such a way as to render those parties – and not the agents – liable on, and able to enorce, the contract. The principal, on whose behal the agent is bargaining, must be able to place complete condence in the agent. This has led the law o agency to make the agent a duciary, which imposes strict obligations. However, there are interests other than the protection o the principal against misuse o power by the agent: the protection o the third party with whom the agent has dealt, the protection o the agent against any liability incurred on behal o the principal, and the rights an agent may have against the principal. Since this course is centred on the sale o goods, the ocus is on those aspects o the law o agency that enable such transactions to occur. This means that the ocus will be on principal-third party and third party-agent relations. There will only be a very brie consideration o the rights and duties owed between the agent and the principal. This chapter deals with the creation o an agency and the scope o the agent’s authority; Chapter 3 discusses the rights o the various parties. The main reading is Sealy and Hooley, but you might also consult Bradgate, pp.125–75.
Learning outcomes
HowtosucceedwiththeLondonpackage
By the end o this chapter and the relevant readings you should be able to:
There are a number o vital actors you need to consider. Begin with learning outcomes. outcomes.
defne the term ‘agent’
explain how an agency is created
discuss the scope o the agent’s authority.
Learning outcomes – or objectives – have a particular role in distance learning. Traditional syllabuses talked only o the content to be covered; lecturers/tutors talked o the dates on which topics would be covered. The role o learning outcomes is to make clear what learners are expected to be able to do and what they are expected to achieve. In our materials you will be told the intended objectives, in a set o outcomes at the beginning o each chapter. You will meet these outcomes again on the ‘refect and review’ pages at the end o each chapter. There you can consider whether you have attained the outcomes, and whether you should revise the chapter, or proceed to the next one.
Commercial law 2 Agency 1
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2.1 2. 1 Wh What ati is san ana age genc ncy? y? Essential reading ¢
Sealy and Hooley, Chapter 3: ‘Introduction’ (To Part II: ‘The law o agency’) pp.97–105.
2.1.1 2.1 .1 Int Introd roducti uction on Most people might agree with Lord Alverstone CJ when he dened an agent as ‘any person who happens to act on behal o another’ (The Queen v Kane [1901] 1 QB 472), but Sealy and Hooley, p.97, caution that, ‘Any concise denition o the concept o agency must be treated with care. Striving or brevity, the denition is likely to be fawed by errors and omissions which may make it misleading.’ I P (the principal) instructs A (the agent) to act in the purchase o goods rom T (the third party seller) in the sale o those goods, the contract o sale that is made by A is enorceable between P and T. In general, A has no liability to either P or T on that contract: whereapersoncontractsasagentoraprincipalthecontractisthecontractotheprincipal,andnotthatotheagent;and,primaacie,atcommonlawtheonlypersonwhomay sueistheprincipal,andtheonlypersonwhocanbesuedistheprincipal.(Montgomerie sueistheprincipal,andtheonlypersonwhocanbesuedistheprincipal.( Montgomerie vUnited Kingdon Mutual Steamship Association [1891]1QB370,WrightJ;SealyandHooley, vUnited pp.147–8.)
There are three parties: P, A and T, and three relationships †:
the relationship between P and A
the relationship between A and T
the relationship between P and T.
†
P
The picture may be more complex than this because T is likely to use an agent and the agents o P and T may be permitted to use sub-agents. Furthermore, one party may be simultaneously agent and principal: in Aluminium Industrie Vaassen bv v Romalpa Aluminium Ltd [1976] 1 WLR 676, under a contract o sale on credit, S (seller) reserved title in the goods and required B (buyer) to account to S or the proceeds o any resale o those goods. This meant that on resale B was an agent or S and under an obligation to account or the resale proceeds, but B was also a principal in relation to the new buyer (on reservation o title see Chapter 6 section 6.3 o this subject guide). An agent who acts outside the authority† granted by the principal will be in breach o the contract (i there was one) by which the principal appointed the agent, but, in spite o this, the principal may be bound to the third party. This is because the authority with which the agent has been clothed by the principal determines the relationship between the principal and the third party. That is, the principal will be liable to the third party i the principal represented that the agent was acting within their authority (apparent authority). This means that the question o whether or not the principal is bound to a third party does not depend on the actual authority granted by the principal to the agent. It depends on the apparent authority o the agent (also known as the ostensible authority o the agent). The apparent authority is that authority which the agent appears to possess because o representations made by the principal to the third party. I the third party knows the limits o the agent’s actual authority, there is no diculty and the apparent authority will be the same as the actual authority o the agent. However, the third party will, usually, not know the terms o appointment o the agent and must rely on the apparent authority. We will revisit all o these issues in this chapter.
Threerelatio Three relationships nships::
A
†
T
Wediscusstheauthorityofthe agenttobindtheprincipalin section2.5.
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2.1. 2. 1.2 2 Th Theo eori ries es There are three main theories that seek to dene and explain the role o the agent.
Using your notebook or ring binder You could make brie notes on power-liability theory, consent theory and
Power-liabilitytheory It has been suggested that an agency relationship relationship exists when a person (the agent) acquires the power to alter the principal’s legal relations with a third party in such a way that it is only the principal who can sue, and be sued by, that third party. This ocuses on the external relationship with the third party and ignores the internal relationship between the principal and the agent. It also excludes many who are commonly called agents. Estate agents introduce buyers to sellers without, usually, having any power to bind either party; nevertheless, they are subject to duciary duties (see section 3.3) in the same way as agents narrowly dened and some o the key cases in agency law have concerned estate agents. It, thereore, seems odd to exclude them rom a denition.
qualied consent theory.
Consenttheory According to the US Restatement (Third) o Agency (Tentative Drat No. 2) (2003), § 1.01: Agencyisthefduciaryrelationshipthatariseswhenoneperson(a‘principal’)maniests assenttoanotherperson(an‘agent’)thattheagentshallactontheprincipal’sbehaland subjecttotheprincipal’scontrol,andtheagentmaniestsassentorotherwiseconsents toact.
In ocusing on the duciary duty that an agent owes a principal there is recognition that agency exists only where someone is undertaking more than merely ministerial† unctions (see 2.4.1). In other words, the agent must have been invested with a degree o discretion that shows the principal has placed trust and condence in the agent. It is this which gives rise to a duciary duty. Yet, this denition has problems:
by placing attention on the internal relationship between principal and agent, the external relationship with the third party is ignored
not all agency relationships require the assent o the parties: an agency o necessity is created without the consent o the principal (see 2.9)
consent or assent is only required in a special sense. Lord Pearson remarked:
†
Ministerial=wheretheagent merelyfollowstheinstructions oftheprincipalpreciselyandhas nodiscretion,thatis,nochoice overwhatcourseofactionto takeontheprincipal’sbehalf.
Therelationshipoprincipalandagentcanonlybeestablishedbytheconsentothe principalandtheagent.Theywillbeheldtohaveconsenteditheyhaveagreedtowhat amountsinlawtosucharelationship,evenitheydonotrecogniseitthemselvesand evenitheyhaveproessedtodisclaimit(Garnac evenitheyhaveproessedtodisclaimit( Garnac Grain Co Inc vH vH M F Faure & Fairclough Ltd and Bunge Corpn[1968]AC1130). Corpn[1968]AC1130).
Whether or not the principal and agent consented to the creation o an agency is determined by an objective standard. The law is not concerned with the principal’s or the agent’s opinions, but takes an objective view o the words and actions o the parties: would the reasonable person conclude that an agency existed? An agency may exist where P represents to T by actions or words that A has authority to act as an agent and T has acted on that representation representation (see section 2.6).
Qualiedconsenttheory This combines the consent theory with the protection o ‘misplaced reliance’ to account or actual and apparent authority (see sections 2.5, 2.6). Ratication (see section 2.8) refects commercial reality since ‘authorisation… may not always be neatly contemporaneous with the initial transaction.’ (G. McMeel, see Sealy and Hooley, pp.100–102)
Activity 2.1 Distinguish between ‘power’ and ‘authority’ in the context o agency. (See Sealy and Hooley, pp.98–102).
Go to your study pack and read ‘Philosophical oundations o the law o agency’ by Gerard McMeel.
Commercial law 2 Agency 1
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Speech The ability to express yoursel on legal topics in English is a vital part o this course. It is an essential element o your Skills portfolio. portfolio . How to you become skilled at speaking in English? By doing it and practising. There are our main elements to speaking successully: the words the structure the arguments
the delivery. The words
Make ull use o your English legal vocabulary. Remember that the words need to t into meaningul sentences. You can nd most o the words you will need in this chapter.
However, you must not simply repeat sections o the chapter. The aim is to express yoursel in your own words. The structure It will help you to ormulate your arguments, and help your audience to understand them, i you use a BME structure (beginning, middle and end).
At the Beginning: explain what you are going to be talking about, and the main points in your argument.
In the Middle present the main elements o your argument
At the End, describe your conclusions, and briefy summarise the reasons you have given in your arguments. The middle is always the major part o your presentation. The arguments You could begin by explaining:
how and when the common law and civil law systems developed
in which countries they have been adopted
Then you need to:
summarise the key characteristics o each system
explain the dierent roles played by judges and lawyers
suggest what might be the advantages o the two systems. Delivery The success o a spoken presentation depends greatly on the way in which you deliver it.
Do not speak too quickly.
Check your pronunciation and fuency with phrases.
Speak clearly and ‘project’ your voice so that everyone present will be able to hear and understand you.
Rehearse your presentation until you are comortable with it. I you speak to an audience, remember to get eedback on your perormance.
2.1.3 Truste Trustees,se es,sellers, llers,buyer buyers,dis s,distributo tributorsand rsandranchi ranchisees sees It is worth distinguishing between an agent and a trustee, a seller or buyer, a distributor and a ranchisee. Trustee Even i it can be said that a trustee exercises powers on behal o the beneciaries, which is doubtul, a trustee does not bring the beneciaries directly into legal relations with third parties: it is the trustee who holds the legal interest in the trust property and who enters into the transactions. The roles o agent and trustee may, however, be mixed: an agent may hold the property o the principal or the third party on trust, and a trustee may also be an agent.
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University of London External Programme Sale The distinction between an agent and a seller is sometimes dicult to establish. In theory it is straightorward. I A sells to T on behal o P, A is an agent. But i A buys rom P and resells to T, there are two dierent sale contracts: (i) P sells to A (ii) A sells to T. Was it the intention o A and P that A act as agent or as buyer? This must oten be determined by the circumstances: e.g. was the relationship such that A was under an obligation to account to P or any money received? Was A paid a ee or commission or did A retain the prot rom the sale to T? But none o these may be decisive. The use o the word ‘agent’ by the parties will not mean that the person is an agent because this is a matter o law: ‘the test is ultimately one o substance rather than orm’ (Rix LJ in Sealy and Hooley, p. 104). Distributorship and ranchise It is commonplace to see a business advertising itsel as ‘agent’ or a supplier, but oten this does not amount to an agency in the legal meaning o the word. Someone who has a distributorship or a ranchise agreement with a supplier may have agreed not to sell another supplier’s goods, but this does not in itsel create an agency. Normally, the distributor or ranchisee is a principal who sells a particular brand o product (e.g. Volkswagen cars) or runs a business developed by the ranchiser. The consumer, who buys goods rom either type o business, enters into a contract with the immediate seller and not with the original supplier or ranchiser. Whether someone is an agent or a principal will depend on the particular circumstances: or example, was it the intention o the parties that goods supplied would be resold by the recipient acting as principal, or that the goods would be sold on behal o the principal. †
Activity 2.2† Jane, a shopkeeper, describes herself as ‘sole agent for Bloggs’ Televisions’. Does this mean Bloggs is the principal in any sale by Jane? See WT Lamb & Sons v Goring Brick Co [1932] 1 KB
Feedbacktoactivitiesislocated inaseparatesectionattheend ofthesubjectguide.
710.
Summary
Memorising
The key characteristics o an agency are:
Generally, we discourage students rom trying to memorise large amount o material. We preer
the agent acts on behal o another (the principal) so that the principal is bound and can sue or be sued by the third party on the contract made by the agent
the agent is not liable on the contract between the principal and the third party.
understanding. I you understand the characteristics o agency, you will not need to memorise long denitions. You may want to memorise the two items in the summary, but this will work better i you present them as a small diagram.
Commercial law 2 Agency 1
2.2 2. 2 Ty Type pes so oa age gent nt Essential reading ¢
Sealy and Hooley, Chapter 1: ‘An introduction to commercial law’ pp.5–7 and Chapter 9: ‘Transer o title’, pp.342–52.
2.2.1 Gene Generalage ralagentand ntandspeci specialage alagent nt A general agent acts or a principal in the ordinary course o that agent’s business; a special agent has authority only or a particular purpose that is not part o the ordinary course o business or such an agent. A solicitor would be a general agent i authorised to undertake a range o legal work or a client, but a special agent i only authorised by the client to sell a house.
2.2.2 Facto Factorand randmercan mercantileag tileagent ent A actor is an agent who is entrusted with the possession o goods or documents o title to goods and who is allowed to sell them in the actor’s own name as a principal ( Baring v Corrie [1818] 2 B & Ald 137) or in the principal’s name ( Stevens v Biller [1883] 25 Ch D 31). The actor has generally been superseded by the mercantile agent. A mercantile agent is an agent who, in the customary course o business, has authority to sell or to consign goods or sale, or to buy goods, or to raise money on the security o goods (Factors Act 1889, s.1(1)). The general rule is that handing over goods or documents o title to another does not give that person authority to sell, so that anyone buying the goods will not acquire good title: handing over a car to a mechanic or repair does not constitute an authority to sell the car. A disposition by a mercantile agent is an important exception to this general rule. Where a mercantile agent is in possession o goods or documents o title with the consent o the owner (even i that consent is later revoked but the goods or documents are not returned), and the agent, acting in the ordinary course o business as a mercantile agent, sells or raises money on the security o those goods, that disposition will be valid ‘as i he were expressly authorised by the owner o the goods to make the same’, as long as the third party acts in good aith and without notice o a lack o authorisation (Factors Act 1889, s.1 (1), 2(1), (2); Weiner v Harris [1910] 1 KB 285; Sealy and Hooley, p.343; Ocial Assignee o Madras v Mercantile Bank o India Ltd [1935] AC 53; Jerome v Bentley & Co [1952] 2 All ER 114). O course, while the Factors Act provides the third party with rights in the goods so disposed, it does not exempt the mercantile agent rom liability to the owner o goods or any breach o authority. The status o mercantile agent arises rom undertaking one or more dispositions and not by virtue o pursuing a particular proession or occupation. A mercantile agent must conduct a business o dealing in goods: a shop assistant sells goods in the course o the business o another (the shop owner) and, thereore, is not a mercantile agent (Lowther v Harris [1927] 1 KB 393; Sealy and Hooley, pp.343–5). The Factors Act does not expressly exclude the possibility o someone acting as a mercantile agent in a one-o sale, although it does reer to a mercantile agent as someone ‘having in the customary course o his business as such agent’ authority to dispose o goods, which might suggest past – or the prospect o uture – such business.
2.2. 2. 2.3 3 Ot Othe her rag agen ents ts Broker A broker negotiates contracts between a buyer and a seller without having possession o the goods or the documents o title (Baring v Corrie (1818) 2 B & Ald 137). Produce brokers are key players in the commodity markets and exchanges. Some act or both buyers and sellers by virtue o the custom o particular markets. Commission agent A commission agent (or commission merchant) buys or sells goods on behal o the owner, but does not establish a contractual relationship relationship between the owner and the third party. The commission agent acts as principal in the contract with the third party. Nevertheless, this agent owes to the owner all the duties o an agent to a principal.
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University of London External Programme In a sale the agent is liable to the third party (the buyer) or breach o the implied terms as to quality. In a purchase o goods, the agent is liable to the third party (the seller) or the price, but is not liable to the principal or the quality o the goods. Such agents are amiliar in civil law jurisdictions. But there has only been a limited acceptance o the idea in English law (Ireland v Livingston (1872) LR 5 HL 395; Robinson v Mollett (1875) LR 7 HL 802) and, in spite o the attractions o this type o agency, it cannot be regarded as part o English law (but see Aluminium Industrie Vaassen bv v Romalpa Aluminium Ltd [1976] 1 WLR 676, section 2.1.1 above). The concept o someone who is simultaneously principal and agent does not t easily into English agency law because it does not conorm to the idea o an agent as one who is able to alter the legal relations between the principal and a third party. English law has, instead, opted or the much less satisactory idea o the undisclosed principal (see section 3.2). Confrming houses Conrming houses act or overseas buyers wishing to obtain goods in English markets. The conrming house can operate in a number o dierent ways, according to the wishes o the buyer. A conrming house may simply buy and sell without any suggestion o agency, or it may act as an agent or the buyer, or it may act as agent or the buyer and separately undertake to the seller that the buyer will perorm (known as conrmation) (see Sobell Industries Ltd v Cory Brothers & Co [1955] 2 Lloyd’s Rep 82). Forwarding agent A orwarding agent undertakes the transmission o goods or the principal and is personally liable or the reight charges, which are recoverable rom the principal. Such an agent must also exercise reasonable care in relation to the goods. A del credere agent indemnies the principal against loss incurred by the third party’s breach o contract in respect o payment, although not in respect o any other breach (Gabriel & Sons v Churchill & Sim [1914] 3 KB 1272). An exporter, who is uncertain about the nancial status o a oreign buyer, might nd such a guarantee attractive, although the modern tendency is to obtain a conrmation rom a conrming house or to rely either on a documentary credit, under which a bank pays the seller on the presentation o certain documents (see Chapter 8), or on credit guarantees, which provide that in the event o the buyer ailing to pay the guarantor will be liable. Del credere agent
Activity 2.3 In what ways does an estate agent not ft the legal category o ‘agent’?
2.2.4 2.2 .4 Com Commer mercia cialag lagent ent The meaning o this term is discussed at 3.3.
Activity 2.4 Read Budberg v Jerwood and Ward [1934] 78 Sol Jo 878, 51 TLR 99 (Sealy and Hooley, p.345). Why was Dr Thadee de Wittchinsky not a mercantile agent and why was this fnding signifcant?
Practise speaking legal english Make a short (not more than two-minutes) spoken presentation in answer to Activity 2.3.
Commercial law 2 Agency 1
2.3 2. 3 Cr Crea eati tion ono o ag agen ency cy Essential reading ¢
Sealy and Hooley, Chapter 4: ‘Creation o agency and the authority o the agent’ pp.112–13.
There is a distinction between the creation o the agency and the authority that an agent has to act on behal o the principal, although the two issues are necessarily tangled together since the creation o an agency will involve conerment o authority. An agency may be created:
by express or implied agreement between the principal and agent
where there is a representation by the principal to the third party that the agent has authority (agency by estoppel)
where the principal raties an act by someone who, without authorisation, purported to undertake that act as an agent o the principal
where there is an agency o necessity
where the agency arises under statute, such as, when an unpaid seller exercises the right to resell under Sale o Goods Act 1979, s 48(3) ( RV Ward Ltd v Bignall [1967] 1 QB 534; Chapter 6).
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Consent Essential reading ¢
Sealy and Hooley, Chapter 4: ‘Creation o agency and the authority o the agent’ pp.112–13.
2.4. 2. 4.1 1 Co Cons nsen entt Typically, an agency is established by consent o both the principal and the agent (but not always: see 2.1.2). Normally, it will take the orm o a contract, although this is not necessary: acting out o riendship and without payment does not preclude the existence o an agency (Chaudhry v Prabhakar [1989] 1 WLR 29). The consent may also arise by virtue o the principal’s ratication ater the agent has entered into the transaction (see 2.8). Where the agency is created by agreement between the principal and the agent no ormalities are normally required. The appointment may be made orally or inerred rom conduct o the principal showing consent to the agency. The agent’s acceptance can be express or may be inerred, as where actions on behal o the principal can only be explained by the existence o an agency. Where a commercial agent (within the meaning o the Commercial Agents (Council Directive) Regulations 1993: see 3.3) has been appointed, both agent and principal are entitled to a signed statement o the terms, but there is no requirement that the contract o appointment is written (reg. 13(1)). Since, normally, no ormalities are required or the creation o an agency, when determining whether an agency has come into existence and what authority the agent has, the court will reer to the intention o the agent and the principal. That intention is discovered objectively, that is, by considering the appearance created by their words and actions. The degree o control exercised by one party (the alleged principal) over the other (the alleged agent) may suggest the existence o an agency. However, with some agents the principal’s control is limited because the way in which they undertake their activities is dictated by the rules and custom o their business: or example, much o the work o stockbrokers is determined by the rules o the exchange within which they operate. So an alleged principal’s lack o total control does not necessarily indicate that there is no agency relationship. For an agency in the ull sense o the word to exist the agent must have some degree o autonomy, otherwise the agent perorms merely ministerial unctions, that is, the agent acts almost mechanically and without any exercise o discretion. Although someone who acts on behal o another in a purely ministerial way is, in a general sense, an agent, the nature o their obligations and the relationship with the principal is quite dierent rom the sort o agent with which we are concerned, that is, one with some autonomy and discretion. That the parties did not intend to create an agency may be suggested by the act that the person carrying out the unctions is paid through prot earned in trading rather than through commission, or is entitled to x the price o the goods being sold, or retains money received rom sales. Yet, such matters are not conclusive since a principal can consent to an agent making a prot or entering into personal contracts with buyers. Even i the principal is not aware that the agent is making a prot and so cannot have consented, this alone cannot be determinative o the existence o the agency since that would enable the agent to dene the existence o the agency unilaterally: it would be the same as saying that no agency exists i the alleged agent breaches breaches what would otherwise constitute his or her duciary duty (the obligation not to make a secret prot or to undertake other business that conficts with the interests o the principa principal). l). I the parties do put their agreement into a contractual document, it is likely to be decisive in orming a court’s view o the parties’ intention ( AMB Imballaggi Plastici SRL v Pacfex Ltd [1999] 2 All ER (Comm) 249; Mercantile International Group plc v Chuan Soon Huat Industrial Group plc [2002] EWCA Civ 288).
Commercial law 2 Agency 1
2.4.2 2.4 .2 Pow Power ero oatto attorne rney y It is commonplace to appoint an agent by executing a power o attorney under the Power o Attorney Act 1971, i only because this overcomes practical diculties the agent might have in establishing their authority to the satisaction o third parties. The Enduring Powers o Attorney Act 1985 permits a power o attorney that will continue in spite o the subsequent mental incapacity o the donor, although in that situation the attorney (that is, the agent) must not act (subject to certain exceptions) until the power o attorney has been registered by the court. Under the Act the attorney and third parties are entitled to protections in certain situations where the power o attorney proves to be invalid or is revoked (s.9, Enduring Powers o Attorney Act 1985).
Summary Normally, an agency will be established by consent o both parties. The parties can create the agency by a written agreement (or example, power o attorney), but it is also possible to imply the existence o the agency rom the spoken words or the conduct o the parties.
Activity 2.5 Jake tells Anne that he owns a painting by Picasso, which he wishes to sell. Anne knows that Pugwash, who is a wealthy collector, has always admired this painting. Pugwash is away on business and cannot be contacted, but some time ago he expressed to Anne the wish to own the painting and willingness to pay up to £1 million. Anne tells Jake that she is acting or Pugwash and can oer £1 million. Jake accepts. Anne writes to Pugwash telling him o the deal. Pugwash receives the letter, but does not reply. In act, Pugwash no longer wants the picture. Is Pugwash liable to pay or the painting?
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2.5 2. 5 Ac Actu tual ala aut utho hori rity tyo o th the eag agen entt Essential reading ¢
Sealy and Hooley, Chapter 4: ‘Creation o agency and the authority o the agent’ pp.112–18.
In 2.1.1 above, we discussed ‘authority’ when trying to understand and to dene the nature o agency. Here the word ‘authority’ is used in a dierent sense to mean the ability o the agent to bind the principal. We have seen already that the authority that an agent has to bind the principal is entangled with the creation o the agency. I the principal and agent agree to the creation o the agency that agreement will embody the authority o the agent. In agency by estoppel, the representation o the principal establishes the authority o the agent to bind the principal and denes the scope o that authority (apparent or ostensible authority). The principal is bound only by those acts o the agent that are within the scope o that agent’s authority. In Jacobs v Morris [1902] 1 Ch 816, an agent had authority to make, draw, sign, accept or indorse bills o exchange and sign cheques, but he represented to a third party, who took him at his word, that he also had authority to borrow. It was held that the principal was not liable. The rule that the principal will only be bound by those actions within the agent’s authority raises the question o what is meant by ‘authority’. This will be discussed in the next sections.
2.5.1 Denit Denitiono ionoactua actualautho lauthority rity The scope o an agent’s actual authority is important. Generally, it is only i an agent acts within actual authority that they are able to claim an indemnity rom the principal or any expenses incurred or remuneration under the agency contract with the principal. Also, an agent who acts outside their actual authority may be liable to the third party or breach o the implied warranty o authority (see 3.1.6). The actual authority o an agent is determined by the agreement between the principal and the agent. It is, thereore, a matter o contract construction and consists o:
express actual authority: the authority expressly given to the agent by the principal
implied actual authority: the authority that can be implied into the agreement between the agent and principal. (See Diplock LJ in Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480; Sealy and Hooley, pp.115, 118–21.)
2.5.2 Expre Expressactu ssactualautho alauthority rity Express actual authority is the authority which the principal expressly gives to the agent: or example, where the agent is instructed to sell a particular property or the principal. In determining the express authority o an agent, the normal rules or construing contracts apply. (For a recent discussion o express authority: SMC Electronics Ltd v Akhter Computers Ltd [2001] 1 BCLC 433.)
Activity 2.6 Where the scope o the agent’s actual authority is unclear, what should the agent do?
2.5.3 Implie Implied(or d(orincide incidental)ac ntal)actualaut tualauthority hority In addition to express actual authority, the agent may have implied actual authority. It is important to recognise that implied authority cannot contradict express actual authority. Implied actual authority is a way o lling in the gaps in the agency agreement. It is not a means o altering that agreement. However, some agents (e.g. those operating in the nancial markets, such as stockbrokers and insurance brokers) are subject to terms imposed by statute or the rules o a particular market and those terms may override the express terms o the agreement.
Using your notebook or ring binder You may like to note down the two dierent meanings o ‘authority’.
Commercial law 2 Agency 1 The agent will have implied actual authority to do those things that are necessarily incidental to the execution o the express actual authority. The question is, do the powers expressly given by the principal to the agent enable the agent to carry out the specied task, or can that task not be undertaken without implying the authority to do things in addition to those that are expressly authorised? Such additional authority will not be easily implied. Authorising an agent to enter into a contract to buy land carries implied actual authority to sign the documents required under statute because otherwise the agent would not be able to perorm the task agreed ( Rosenbaum v Belson [1900] 2 Ch 267). On the other hand, in Bryant, Powis, and Bryant Ltd v Law Banque du Peuple [1891–94] All ER 1253, an agent, who had express actual authority by power o attorney to buy or sell goods, charter vessels and employ agents and servants, did not have implied actual authority to borrow money because this was not necessary to the tasks expressly authorised. authorised. The agent may have authority to undertake that which is implied rom the particular circumstances o the relationship between this principal and this agent, such as where there has been a previous course o dealings. The agent may have the usual authority o someone in this agent’s position, trade, business or proession. The test is, what authority would the reasonable person in the agent’s position believe they possessed? It will be implied that someone appointed as managing director o a company has the usual authority that managing directors possess (Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549; Sealy and Hooley, pp.115–17). However, an estate agent will not have authority to sell property since this is not what such agents usually have authority to do, but they will have authority to make representations because this is what estate agents usually have authority to do. The agent will have such authority as is customarily enjoyed by someone dealing in the particular market. To imply a custom, it must be uniorm, certain, notorious (that is, generally known), recognised as binding and reasonable (Robinson v Mollett [1875] LR 7 HL 802). A broker employed to transact business in a market is authorized to deal according to the usage o that market ( Nickalls v Merry [1875] LR 7 HL 530). However, customary authority will not be recognised where it contradicts either the express agreement between the agent and the principal or the normal duties owed by the agent to the principal. In one case, even though it was a custom o the London tallow market that brokers, who were employed to buy goods, could sell their own goods to the principal, the court held that this was not part o the agent’s customary authority because evidence ‘cannot be admitted to convert a broker employed to buy or his employer, into a principal to sell to him’ ( Robinson v Mollett [1875] LR 7 HL 802, Mellor J).
Summary The actual authority o an agent is determined by the express agreement between the parties (express actual authority) and any appropriate implications rom the surrounding circumstances (implied actual authority) that do not contradict the express actual authority, unless imposed by statute.
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Agency Age ncyby byes estop toppel pelan anda dappa pparen renta tauth uthori ority ty
2.6. 2. 6.1 1 De Den nit itio ions ns As Diplock LJ pointed out, ‘In ordinary business dealings the contractor at the time o entering into the contract can in the nature o things hardly ever rely on the “actual” authority o the agent.’ (Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480; Sealy and Hooley, pp.118–21.) This is simply because the third party will not have access to the terms on which the agent has been appointed. The third party, thereore, relies on a perception as to the authority o the agent, that is, the agent’s apparent authority. Apparent (or ostensible) authority is ‘the authority o an agent as it appears to others.’ (Lord Denning MR in Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549, Sealy and Hooley, pp.115–17.) Apparent authority arises where:
the principal (or someone acting with the actual authority o the principal) represents to the third party that the agent is authorised to undertake the transaction transaction which the agent and 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. It is unclear whether this last is an additional requirement (Rama Corpn Ltd v Proved Tin and General Investment Ltd [1951] 2 QB 147, Sealy and Hooley, p.118), or whether it merely reiterates the requirement that the third party enter the transaction in reliance upon the representation (The Tatra [1990] 2 Lloyd’s Rep 51 at 59, Sealy and Hooley, p.127. But see Spiro v Lintern [1973] 1 WLR 1002, discussed below). Where there has been such a representation, the principal will be prevented rom denying the existence o the agency (agency by estoppel) and will be bound in so ar as the agent’s act came within the authority that the agent was represented by the principal as possessing (the agent’s apparent authority). The result is that the principal may be bound to a third party even though:
the agent does not have actual authority, or
the agency agreement has ceased, or
the agent acts beyond the actual authority granted by the principal. In other words, the agency here is based on estoppel and not the consent o the principal (Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480; Sealy and Hooley, pp.118–21). Nevertheless, the third party can enorce the contract against the principal even though the agent did not have actual authority. Where someone has been represented by the principal as having authority to act as agent, that person will possesses the usual authority o such agents in spite o any restricti restrictions ons imposed by the principal on the agent (Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549, Lord Denning MR; Sealy and Hooley, pp.115–17). In Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 (Sealy and Hooley, pp.118–21), K and H ormed a company to buy and then sell some land. K, H and a nominee o each were appointed directors. The articles o association contained a power to appoint a managing director but none was appointed. K instructed F, a rm o architects, to do work in connection with the land, which they did. On an action by F or their ees, it was held that since K was not the managing director he had no actual authority to employ F, but he did have apparent authority because, with the knowledge o the board o directors, he had acted throughout the transaction as i he were managing director and his action in engaging the plaintis was within the usual authority o a managing director.
Reading cases For advice on reading cases and making notes on them, see your Learning skills for law guide.
Commercial law 2 Agency 1
2.6.2 Repr Representa esentationb tionbythep ytheprincip rincipal al In order to be bound by the apparent authority o the agent, the principal must have represented to the third party that the agent had the necessary authority to conclude the transaction on behal o the principal and the third party must have a reasonable belie that the agent had such authority. In general, i the representation as to authority comes rom the person purporting to be an agent, the principal will not be bound to the third party, although the bogus agent may be liable to the third party or breach o the warranty o authority (see 3.1.6). The representation may be by words or by actions, including a course o dealings. Usually, silence or inaction will not amount to a representation, unless there is a duty to say something, which will be rare. In Spiro v Lintern [1973] 1 WLR 1002, L said nothing ater his wie entered into a contract or the sale o his house. The buyers later incurred various expenses in contemplation o completion. L was estopped by his silence rom denying the authority o his wie to sell. This unusual case illustrates another point. To establish apparent authority the third party must have relied on the representation o the principal. Normally, this will be evidenced by the third party entering the contract. This was not the case in Spiro v Lintern where the representation and reliance occurred ater the contract. In this situation it would seem that the third party would be required to have acted to their detriment.
2.6.3 Repr Representa esentationb tionbythea ytheagent gent Another diculty is that, because a company must act through agents, representations as to the authority o those agents must come rom one o the company’s agents. I the representation comes rom the same agent as later makes the transaction, then, generally, the principal is not bound. But there is nothing to prevent the principal rom endowing that agent with authority (actual or apparent) to make representations about the agent’s own authority to act in the transaction or the principal (Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480; Sealy and Hooley, pp.118–21; Egyptian International Foreign Trade Co v Soplex Wholesale Supplies Ltd and PS Reson & Co Ltd [1985] 2 Lloyd’s Rep 36; Sealy and Hooley, pp.123–24). This issue arose in First Energy Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep 194. FE wished to arrange credit acilities through the bank and dealt with J, who was senior manager o the bank’s Manchester branch. FE knew that J was not authorised to grant the credit acilities and that these could only be agreed to by head oce. Incorrectly and without authority, J wrote to FE saying that head oce had approved the credit acility. The Court o Appeal decided that as a manager J had apparent authority to write to FE inorming them o the decision made by head oce, and, thereore, the bank was bound by J’s letter indicating that head oce had agreed to give the acilities. This case distinguishe distinguished d Armagas Ltd v Mundogas SA [1986] AC 717, where the House o Lords dismissed the argument that P had represented to T that A was authorised to make a representation on behal o P to the eect that A had actual authority to undertake the transaction with T. The third party cannot claim that the agent has apparent authority where the third party knows, or ought to know, that the agent does not possess actual authority. In such a situation the third party has not relied on the representation by the principal. In Overbrooke Estates Ltd v Glencombe Properties Ltd [1974] 1 WLR 1335, a term in an auction sale catalogue said the auctioneer did not have the seller’s authority to make representations about the property being sold. Shortly beore the sale the auctioneer told a prospective buyer that the local authority had no plans with respect to the property. The buyer bought the property, and then discovered it was in an area that might be included in a slum clearance programme. It was held that, even i the auctioneer had apparent authority to make such representations (and the auctioneer might only have apparent authority to accept bids), the buyer knew (or ought to have known) o the term and was, thereore, bound by it. The Misrepresentation Act 1967, s.3, which limits the ability o parties to exclude or restrict liability or misrepresentation, does not seem to restrict this ability o the principal to exclude or limit the apparent authority o the agent to make representations as to the subject-matter o the contract.
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Summary Where the principal (or an agent with actual authority) represents to the third party that the agent is authorised to undertake the transaction, and the third party is induced to enter into the transaction in reliance upon that representation, the principal will be bound. The principal will not be bound where the representation on which the third party relied came rom the agent undertaking the transaction, unless it was reasonable in the circumstances or the third party to believe that this agent had authority to make representations about their own authority on behal o the principal.
Activity 2.7 How can the decisions in First Energy Ltd v Hungarian International Bank Ltd and Armagas Ltd v Mundogas SA be distinguished?
Commercial law 2 Agency 1
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Usu sua al la aut utho hori rity ty: :WatteauvFenwick
2.7 2. 7
Essential reading ¢
Sealy and Hooley, Chapter 4: ‘Creation o agency and the authority o the agent’ pp.128–32.
The troublesome decision in Watteau v Fenwick [1893] 1 QB 346 must be discussed because o the debate it has provoked and because it does not t in with other cases on the scope o the agent’s authority. F owned a hotel appointing H as manager, but H was expressly orbidden rom buying any goods other than mineral water and bottles o beer. H had previously owned the hotel and his name remained above the door as the licensee. H ordered cigars rom W, who believed he was the owner o the hotel. F was held liable or the price o the cigars. (One might wonder whether F could have sued W i W had ailed to deliver the cigars or had delivered cigars that were deective.) It might be argued that W did not think H was an agent; he believed H to be the principal, so i W had not been allowed to enorce the contract against F, W would have lost nothing because he was unaware o F’s existence. Against this it might be said that F’s action in allowing his agent, H, to represent himsel as the principal placed W in a weakened position. W had every reason to suppose that H was the principal and this misconception was acilitated by F. The case does not all within the normal understanding o the doctrine o apparent authority because F made no representation to W that H was acting as F’s agent. Also, the decision does not t in with those cases where someone is appointed to a particular position and the principal is bound by actions that all within the usual authority o an agent in that position (Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549; Sealy and Hooley, pp.115–17). As will be seen, the doctrine o undisclosed principal will not assist because or that to operate the agent must enter the transaction with the actual authority o the principal (see 3.2). Similarly, the principal cannot ratiy the transaction because this would have required H to have told W that he was an agent and this he did not do (see 2.8). It has been suggested that this case is an example o estoppel by conduct, not estoppel by agency. F had put H into a position that made it appear, not that H was an agent, but that the owners o the hotel and H were not distinct parties. H might be seen as a principal with respect to W and an agent with respect to F, and F was estopped rom deending an action by W because o the conduct. This would mean that the case is not concerned with agency at all. The case has been expressly overruled by one Canadian court (Sign-O-Lite Plastics Ltd v Metropolitan Lie Insurance Co [1990] 73DLR (4th) 541). In the English courts it has been regarded as ‘puzzling’ (Rhodian River Shipping Co SA v Halla Maritime Corp [1984] 1 Lloyd’s Rep 373, Bingham J), but not overruled. Yet, it is dicult to nd cases in which it has been applied and in similar circumstances the courts have tended to hold the contract to be between the ‘agent’ personally and the third party (Kinahan & Co v Parry [1911] 1 KB 459).
Summary The decision in Watteau v Fenwick [1893] 1 QB 346 is dicult to explain or deend. It does not t into any o the well-dened categories o agency and the general disinclination o the English courts to apply the decision or even to reer to it might suggest that it is to be treated either as an anomaly or as wrong.
Go to your study pack and read ‘Agents, business owners and estoppel’ by Andrew Tettenborn.
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Activity 2.8
Theneedoracriticalapproach
Is the decision in Watteau v Fenwick wrong?
Activity 2.8 asks whether you think the court’s decisions was wrong. In English law, judges’ decisions are always open to critical assessment. To become an LLB graduate, you need need to demonstrate critical qualities. Criticism is not about pointing out minor errors in a person’s position – such as spelling mistake and inserting the wrong year or a case. It is about demonstrating a unique personal position on something. It is also about demonstrating your ability to use your knowledge and understanding o law to make meaningully comments. As Anne Thompson says in her book Critical reasoning: a practical introduction (London: Routledge, 1996, ISBN 0415132045):
‘Critical reasoning is centrally concerned with giving reasons or one’s belies and actions, analysing and evaluating one’s own and other people’s reasoning, devising and constructing better reasoning. Common to these activities are certain distinct skills, or example, recognising reasons and conclusions, recognising unstated assumptions, drawing conclusions, appraising evidence and evaluating statements, judging whether conclusions are warranted; and underlying all o these skills is the ability to use language with clarity and discrimination.’ Your ability to deploy critical reasoning is vitally important or your learning Portolio. Make sure you note what you have done – and your refections on what you have done – in your Portolio or learning journal, See also the section in the critical approach in your Learning skills for law guide. law guide.
Commercial law 2 Agency 1
2. 8
Ratication Essential reading ¢
Sealy and Hooley, Chapter 4: ‘Creation o agency and the authority o the agent’ pp.138–46.
2.8.1 Requ Requiremen irementsor tsorratic ratication ation The principal may be bound where they ratiy 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. I 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 ratiy the transaction, because unless there is actual authority or ratication the principal will not be liable on the contract made by the purported agent. There are various reasons why a principal might ratiy such a transaction: the principal may be happy with the deal, or may be unhappy with the transaction but decide to ratiy it to maintain commercial reputation or to preserve the reputation o the agent. However, in determining i there has been ratication, the motive o the principal is irrelevant. There are a number o requirements or valid ratication. At the time o the relevant act, the agent must have intended to act on behal o the principal. Such intention is gathered rom the terms o any contract and surrounding circumstances (National Oilwell (UK) Ltd v Davy Oshore Ltd [1993] 2 Lloyd’s Rep 582). The purported agency must be revealed to the third party at the time o the transaction. There can be no ratication where A makes the contract as principal (Keighley, Maxsted & Co v Durant [1901] AC 240; Sealy and Hooley, pp.139–40). The identity o the principal need not be disclosed, ‘but there must be such a description o him as shall amount to a reasonable designation o 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 sucient i the agent stated that they were acting or a class o persons to which the principal belonged (National Oilwell (UK) Ltd v Davy Oshore Ltd [1993] 2 Lloyd’s Rep 582. Contrast that decision with Southern Water Authority v Carey [1985] 2 All ER 1077). The justication or this requirement o identication 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 ounded upon, undisclosed intentions’ (but see section 3.2). The third party must believe that the person with whom they are dealing has authority to act or another. Where the agent states that the ‘contract’ is subject to ratication, this does not all within the doctrine o ratication 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 o ratifcation : or example, i P is an enemy alien they cannot ratiy, even i at the time o the contract P was not an enemy alien. Since ratication relates back to the moment o the original act (see 2.8.2), there is an argument or looking solely at whether the principal was competent at that time, but, o 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 signiy ratication. Ratifcation must occur within a reasonable time ater the action o the purported agent (The Managers o the Metropolitan Asylums Board v Kingham [1890] 6 TLR 217). What constitutes a reasonable time will depend on the circumstances, but ratication may still occur even ater the contract has commenced: e.g. an insurance policy may be ratied even ater loss has occurred (Williams v North China Insurance Co [1876] 1 CPD 757). Ratication may be implied rom the ailure to act within a reasonable period o time, although it is likely to be dicult to show that inaction indicated a clear intention to ratiy.
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University of London External Programme No ormalities need be observed or a valid ratication. The principal will only be held to have ratied i they did so with ull knowledge o the acts, although there will be ratication i it is clear that the principal is willing to adopt the act whatever the circumstances (Marsh v Joseph [1897] 1 Ch 213). Ratication can be express or implied rom conduct as long as the intention to ratiy is clear and unequivocal: e.g. where the principal sues the third party on the contract. An authorised agent can ratiy (Suncorp Insurance and Finance v Milano Assicurazioni SpA [1993] 2 Lloyd’s Rep 225) and there seems no reason why a purported ratication by an agent, who had no authority to ratiy, cannot itsel be ratied.
Activity 2.9 Why was the attempt to ratiy ineective in Boston Deep Sea Fishing and Ice Co Ltd v Farnham
(Inspector of Taxes) [1957] 1 WLR 1051?
2.8.2 2.8 .2 E Eect ecto orat ratic icati ation on Ratication puts the parties into the position they would have been in had the act been authorised rom the outset: ‘ratication when it exists is equivalent to a previous authority’ (Lord Lindley in Keighley, Maxsted & Co v Durant [1901] AC 240; Sealy and Hooley, pp.139–40). The principal can sue or be sued by the third party. The agent will not be liable to the principal or excess o authority nor to the third party or breach o warranty o authority. The agent may be entitled to be indemnied by the principal or any liability incurred. In Suncorp Insurance and Finance v Milano Assicurazioni SpA [1993] 2 Lloyd’s Rep 225, Waller J suggested that, while ratication normally relieves the agent rom personal liability to the principal, the principal might be able to ratiy without waiver o the breach o duty by the agent. Since ratication puts the parties into the same position as i the act had been authorised rom the outset, then logically it relates back to the moment o the original contract. The unusual consequence o this was illustrated by Bolton Partners v Lambert (1889) 41 Ch D 295 (Sealy and Hooley, pp.142–4). S accepted an oer rom L on behal o B but without B’s authority. L later withdrew the oer and only then did B ratiy. It was held that the contract was binding on L. No real reasoning was provided or this other than that ratication meant ‘the agent is put in the same position as i 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 ratiy, 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, i the principal ails to ratiy, an action or breach o warranty o 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), ratication is not likely to be eective:
i the interests o someone other than a party to the original contract are unairly aected, or i 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). Beore the seller ratied this action the goods had reached the trustee in bankruptcy o the buyer. The ratication was held to be ineective. On the other hand, in Presentaciones Musicales SA v Secunda [1994] Ch 271), without authority solicitors issued a writ; this action was later ratied, but that ratication came outside the statutory time limits or issuing the writ. It was held that the ratication was eective. The majority in the Court o 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 ratication could not occur where a third party would be deprived o their property rights (see also, Brook v Hook [1871] LR 6 Exch 89; Owners o the ship ‘Borvigilant’ v Owners o the ship ‘Romina G’ [2003] EWCA Civ 935; Sealy and Hooley, pp.145–6), or
i the agent and the third party rescind the agreement beore ratication (Walter v James [1871] LR 6 Exch 124). An attempt to ratiy only part o a contract and repudiate the rest will operate as ratication o the whole (Suncorp Insurance and Finance v Milano Assicurazioni SpA [1993] 2 Lloyd’s Rep 225. But see, Marsh v Joseph [1897] 1 Ch 213).
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Summary Where someone purports to act as agent but does so without authority, the person on whose behal they purport to act is not bound. The unauthorised act may, however, be subsequently ratied by the principal. In general, ratication puts the principal, agent and third party in the same position as i the act had been undertaken with authority.
Activity 2.10 J orges H’s signature on a promissory note. The orgery is discovered. H wants to protect J rom prosecution, can H ratiy the promissory note? Read Brook v Hook (1871) LR 6 Exch 89. (A promissory note is an unconditional promise to pay made by one person to another and signed by the maker: Sealy and Hooley, pp.770–73.)
page 5 Go to your study pack and pack and read ‘The principle in Bird v Brown revisited’ by Tan Cheng-Han.
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2.9 2. 9 Ag Agen ency cyo o ne nece cess ssit ity y Essential reading ¢
Sealy and Hooley, Chapter 4: ‘Creation o agency and the authority o the agent’ pp.138–46.
In a restricted range o emergencies, an agency may arise as a matter o law so the agent is authorised to bind the principal to the extent required by that emergency without prior authority rom, or ratication by, the principal. Agency o necessity can bind a principal to a third party, or allow an agent to claim reimbursement or expenses incurred, or provide a deence to a claim (e.g. in the tort o conversion). The courts are reluctant to nd an agency o necessity exists because it imposes obligations on someone who has not given consent (China-Pacic Sa v Food Corporation o India, ‘The Winson’ [1982] AC 939; Sealy and Hooley, pp.133–6. But see also The Choko Star [1990] 1 Lloyd’s Rep 516; Reynolds [1992] JBL 505). This means that there are very ew situations in which an agency o necessity will arise. The agency o necessity may arise where certain conditions are ullled:
P’s property must be in A’s possession as the result o an existing legal relationship, such as a contract o bailment. This excludes claims by strangers, such as someone who nds the goods
A is unable to obtain instructions rom the owner
an emergency threatens the property; it is not sucient or A to show that P’s property is causing A hardship or inconvenience (Sachs v Miklos [1948] 2 KB 23)
A takes action in good aith and that action is commercially reasonable, proportionate and in the interests o P (Prager v Blatspiel, Stamp and Heacock Ltd [1924] 1 KB 566). Since it is a characteristic o an agent that they can aect the legal relations o the principal, it might be argued that those ‘agents’ who only have the right to claim expenses or to deend an action are not true agents o necessity and that the only true agency o necessity is the master o a ship who acts to save the ship or its cargo in an emergency. It has been said that this agency o necessity derives rom the peculiar position o the master o a ship and ‘aords no analogy to the case o an ordinary agent’ ( Hawtayne v Bourne [1841] 7 M & W 595 at 599, Parke B). Certainly, the area is conused because many situations, which are treated as agency o necessity, seem to be examples o the implied actual authority o the agent, or o an implied term o a contract, or o the application o the law o restitution (Sealy and Hooley, pp.136–38). For example, the requirement that P’s property is in A’s possession as the result o an existing legal relationship may mean that the obligation to reimburse expenses arises rom an implied term in that contract rather than rom the agency o necessity. In The Great Northern Railway Company v Swaeld (1874) LR 9 Exch 132, a carrier conveyed a horse to its destination and, when the owner ailed to collect it, incurred expenses or eed, stabling, etc. The carrier successully deended an action or conversion and recovered the expenses incurred. Some o the judges did talk o this as a case o expenses being necessarily incurred, but the test they applied was the same as would be used to imply a term. The obligation to pay the expenses is better explained as a term o the contract o carriage or o the contract o bailment, both o which contracts require the carrier to take reasonable care o the horse.
Useful further reading ¢
Brown, I. ‘Authority and necessity in the law o agency’ (1992) 55 MLR 414.
Activity 2.11 M owned a house and rented out rooms. In 1940 she agreed to store in her house urniture belonging to her riend, S. M did not charge S and agreed to keep it until such time as S wished to collect it. M and S stayed in contact or another year, but ater that M heard nothing rom S, who appeared to have moved. In 1943 the house suered damage, and, as a result, the room in which the urniture was stored was required or letting. M tried to trace S, but without success. In 1944, M sold the urniture. Two years later S sued M in the tort o conversion. Could M argue that the circumstances gave rise to an agency o necessity?
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2.10 2. 10 Ca Capa pacit city y 2.10.1Capacityotheprincipal The general rule is that whatever a principal is competent to do personally may be delegated to an agent. The other side o this rule is that a principal cannot authorise an agent to do an act which the principal is not competent to undertake: e.g. an alien enemy (the national o a country with which this country is at war) cannot authorise an agent to undertake an act (Boston Deep Sea Fishing and Ice Co Ltd v Farnham (Inspector o Taxes) [1957] 1 WLR 1051). Where the principal’s ability to enter into a contract is qualied by age, the agent’s capacity is also qualied. The principal on acquiring the necessary capacity can avoid a contract made by the agent. The agent’s capacity is terminated by the death o the principal or, where the principal is a company, the liquidation or winding-up o the company.
2.10.2Capacityotheagent Since the agent is acting or the principal, the capacity o the agent to enter the particular transaction on the agent’s own behal is, generally, irrelevant: e.g. a minor (someone below the age o legal capacity), who is a partner o a rm, can bind the partnership even i, had the minor entered into the contract on his or her own behal, it would not have been binding. Similarly, the act that the agent would have the capacity to undertake a transaction on their own behal will not supply the deciency o the principal: an enemy alien wishing to sell goods in England does not remedy their own contractual incapacity by employing an English agent. Finally, it is important to note that some agents, such as solicitors and insurance brokers, are required by statute to have particular qualications beore they can act or a principal in respect o certain transactions.
Summary Anyone can appoint an agent, but the agent’s competence to engage in transactions is restricted by the competence o the principal. The reverse is, generally, not true: an agent can undertake transactions on behal o the principal that would be outside the agent’s personal capacity.
Reminder of learning outcomes By this stage you should be able to:
defne the term ‘agent’
explain how an agency is created
explain and discuss the scope o the agent’s authority.
Sample examination question ‘Actual authority and apparent authority are quite independent o one another. Generally they co-exist and coincide, but either may exist without the other and their respective scopes may be dierent.’ Discuss.
Adviceonansweringthequestion This quote is taken rom the judgment o Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 (Sealy and Hooley, pp.118–21). A good answer would outline what is meant by actual authority and apparent authority, and then highlight the distinction between them. Actual authority is based on the consensual agreement agreement between the principal and the agent, while apparent authority is about the agent’s ability to bind the principal to third parties, even though the agent lacks actual authority, and is concerned with the appearance o authority. While it is common or the apparent authority o an agent to coincide with their actual authority, the third party’s knowledge o the agent’s authority will almost always depend upon a representation by the principal. The relationship between the agent and principal will be governed by actual authority (see Sealy and Hooley, p.114) and be governed by apparent authority, which may or may not coincide with actual authority.
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University of London External Programme
Refect and review Refection
Look through the points listed below. Are you ready to move on to the next chapter?
We live in an age o refection which simply means thinking about, or contemplating, what we are doing in order to help ourselves do it better.
Ready to move on = I am satised that I have sucient understanding o the principles outlined in this chapter to enable me to go on to the next chapter. Need to revise rst = There are one or two areas I am unsure about and need to revise beore I go on to the next chapter.
For more guidance on this, see the section on refection in your Learning skills for Law guide. Law guide.
Need to study again = I ound many or all o the principles outlined in this chapter very dicult and need to go over them again beore I move on. Tick a box or each topic. Ready to move on
Need to revise frst
Need to study again
I can dene the term ‘agent’.
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I can explain how an agency is created.
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I can discuss and explain the scope o the agent’s authority.
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I you ticked ‘need to revise frst’, which sections o the chapter are you going to revise? Must revise
Revision done
2.1
What is an agency?
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2.2
Types o agent
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2.3
Creation o agency
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2.4
Consent
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2.5
Actual authority o the agent
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2.6
Agency by estoppel and apparent authority
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2.7
Usual authority: Watteau v Fenwick
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2.8
Ratication
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2.9
Agency o necessity
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2.10
Capacity
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