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Agency

What is an agency?

The individuals engaging in business activity carry on the

business by themselves, and on their own behalf, eitherindividually or collectively. It is not uncommon, however, for such

individuals to engage others to represent them and negotiate

business deals on their behalf. Indeed, the role of the

middleman is a commonplace one in business and commerce.

The legal relationship between such a representative, or

middleman, and the business person making use of them is

governed by the law of agency. Agency principles also apply

in relation to companies registered under the companies legislationand the directors and other officers of such companies.

Who is an agent?

An agent is a person who is empowered to represent another legal

party, called the principal, and brings the principal into a legal

relationship with a third party.

The agent has no personal rights or liabilities in relation to the

contract.

Since the agent is not actually entering into contractual relations

with the third party, there is no requirement that the agent has

contractual capacity, although, based on the same reasoning, it is

essential that the principal has full contractual capacity.

ex.estate agents and travel agents

Explain creation of agency?

No one can act as an agent without the consent of the principal,although consent need not be expressly stated.

The principal/agent relationship can be created in a number of

ways. It may arise as the outcome of a distinct contract, which may

be made either orally or in writing, or it may be established purely

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gratuitously, where some person simply agrees to act for another.

The relationship may also arise from the actions of the

parties. It is usual to consider the creation of the principal/agency

relationship under five distinct categories.

Expr ess appointmentThis is the most common manner in which a principal/agent

relationship comes into existence. In this situation, the agent is

specifically appointed by the principal to carry out a particular task

or to undertake some general function, In most situations, the

appointment of the agent will itself involve the establishment of a

contractual relationship between the principal and the agent, butneed not necessarily depend upon a contract between those parties.

For the most part, there are no formal requirements for the

appointment of an agent, although, where the agent is to be given

the power to execute deeds in the principals name, they must

themselves be appointed by way of a deed that is, they

are given power of attorney.

RatificationAn agency is created by ratification when a person who has no

authority purports to contract with a third party on behalf of a

principal. Ratification is the express acceptance of the contract by

the principal. Where the principal elects to ratify the

contract, it gives retrospective validity to the action of the

purported agent. There are, however, certain conditions which

have to be fully complied with before the principal can effectively

adopt the contract:

The principal must have been in existence at the time that the

agent entered into the contract

The principal must have had legal capacity to enter into the

contract when it was made .

An undisclosed principal cannot ratify a contract The agent must

have declared that he or she was acting for the principal. If the

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agent appeared to be acting on his or her own account, then the

principal cannot later adopt the contact.

The principal must adopt the whole of the contract It is not open

to the principal to pick and choose which parts of the contract to

adopt; they must accept all of its terms. Ratification must take place within a reasonable time It is not

possible to state with certainty what will be considered as a

reasonable time in any particular case. Where, however, the third

party with whom the agent contracted becomes aware that the

agent has acted without authority, a time limit can be set, within

which the principal must indicate their adoption of the contract for

it to be effective.

ImplicationThis form of agency arises from the relationship that exists

between the principal and the agent and from which it is assumed

that the principal has given authority to the other person to act as

his or her agent.

NecessityAgency by necessity occurs under circumstances where, although

there is no agreement between the parties, an emergency requires

that an agent take particular action in order to protect the interests

of the principal. The usual situation which gives rise to agency by

necessity occurs where the agent is in possession of the

principals property and, due to some unforeseen emergency, the

agent has to take action to safeguard that property:

In order for agency by necessity to arise, there needs to be a

genuine emergency.

There must also be no practical way of obtaining furtherinstructions from the principal.

The person seeking to establish the agency by necessity must

have acted bona fide in the interests of the principal.

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Estoppel

This form of agency is also known as agency by holding out and

arises where the principal has led other parties to believe that a

person has the authority to represent him or her. The authority

possessed by the agent is referred to as apparentauthority In such circumstances, even though no principal/

agency relationship actually exists in fact, the principal is

prevented (estoppel) from denying the existence of the agency

relationship and is bound by the action of his or

her purported agent as regards any third party who acted in the

belief of its existence.

What is Actual author ity?In order to bind a principal, any contract entered into must be

within the limits of the authority extended to the agent. The

authority of an agent can be either actual or apparent.

Actual authority can arise in two ways:

Express actual authority

This is explicitly granted by the principal to the agent. The agent is

instructed as to what particular tasks are required to perform and is

informed of the precise powers given in order to fulfill those tasks.

Implied actual authority

This refers to the way in which the scope of express authority may

be increased. Third parties are entitled to assume that agents

holding a particular position have all the powers that are usually

provided to such an agent.

What are the duties of agent to pr incipal?

To perform the agreed undertaking according to the instructionsof the principal: A failure to carry out instructions will leave the

agent open to an action for breach of contract. This, of course, does

not apply in the case of gratuitous agencies, where there is no

obligation whatsoever on the agent to perform the agreed task.

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To exercise due care and skill: An agent will owe a duty to act

with reasonable care and skill, regardless of whether the agency

relationship is contractual or gratuitous. The level of skill

to be exercised, however, should be that appropriate to the agents

professional capacity and this may introduce a distinction in thelevels expected of different agents.

To carry out instructions personally

Unless expressly or impliedly authorised to delegate the work, an

agent owes a duty to the principal to act personally in the

completion of the task. The right to delegate may be agreed

expressly by the principal, or it may be implied from

customary practice or arise as a matter of necessity. In any suchcase, the agent remains liable to the principal for the proper

performance of the agreed contract.

To account

There is an implied duty that the agent keep proper accounts of all

transactions entered into on behalf of the principal. The agent is

required to account for all money and other property received on

the principals behalf and should keep his or her own property

separate from that of the principal.

Not to permit a conflict of interest to arise

An agent must not allow the possibility of personal interest to

conflict with the interests of his or her principal without disclosing

that possibility to the principal. Upon full disclosure, it is up to the

principal to decide whether or not to proceed with the particular

transaction. If there is a breach of this duty, the principal may set

aside the contract so affected and claim any profit which mighthave been made by the agent.

Not to make a secret profit or misuse confidential information

An agent who uses his or her position as an agent to secure

financial advantage for him or herself, without full disclosure to

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his principal, is in breach of fiduciary duty. Upon disclosure, the

principal may authorize the agents profit, but full disclosure is a

necessary precondition

Not to take a bribe This duty may be seen as merely a particularaspect of the general duty not to make a secret profit, but it goes so

much to the root of the agency relationship that it is usually treated

as a distinct heading in its own right.

What ar e the r ights of an agent?

To claim remuneration for services performed

It is usual in agency agreements for the amount of payment to be

stated, either in the form of wages or commission, or, indeed, both.Where a commercial agreement is silent on the matter of payment,

the court will imply a term into the agreement, requiring the

payment of a reasonable remuneration.

To claim indemnity against the principal for all expenses

legitimately incurred in the performance of services

Both contractual and non-contractual agents are entitled to recover

money spent in the course of performing their agreed task.

To exercise a lien over property owned by the principal

This is a right to retain the principals goods, where they have

lawfully come into the agents possession, and hold them against

any debts outstanding to him or her as a result of the agency

agreement. The nature of the lien is usually a particular one

relating to specific goods which are subject to the

agreement, not a general one which entitles the agent to retain any

of the principals goods, even where no money is owed in relation

to those specific goods. The general lien is only recognized on the

basis of an express term in the contract or as a result of judiciallyrecognized custom, as in the area of banking.

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