Principal and Agent Liability Quiz

Principal and Agent Liability to Third Parties

• Agent acts within authority: Principal and third party are liable, agent has no liability.
• Agent acts outside authority: Agent is liable for breach of warranty of authority, unless principal can claim against agent or third party can claim for apparent authority from principal. Complexity increases with disclosed vs. undisclosed principal.
• Disclosed and Named Principal: Agent has no liability in a contract between the principal and third party. Exceptions include: agent acting outside authority, agent agreeing to be liable, customary liability in the trade, agent contracting in their own name, or a non-existent principal. A written contract with the agent signing in their own name creates a rebuttable presumption of personal liability, needing to be refuted by the agent
• Stockbrokers and solicitors are examples where custom creates agent liability.
• Unincorporated associations lack legal capacity and cannot employ agents.
• Unnamed but Disclosed Principal: Third party knows of agent, but not principal. Agent liability depends on explicitly stating no personal liability. Option for third parties to sue either principal or agent (agent typically indemnified by principal).

Undisclosed Principal

• Third party does not know agent or principal. Third party can sue either. Rationale is that in most transactions, individuals don't strongly care if they deal with agent/principal, just perform the contract
• Principal can enforce contract against third party after disclosure.
• Third party can enforce contract against either agent or principal, with agent indemnified if acted within authority. Undisclosed principal only liable if agent was authorized.

Choosing Between Principal and Agent

• Choice is implied by conduct (e.g., pursuing a claim to judgment) and is final.
• Agent is liable to third party if chosen, with principal indemnification if within authority.
• Agent liability for exceeding authority if not ratified.

Principal Liability

• From agent contracting on principal behalf & third party election.
• Principal indemnifies agent if agent acted within authority during third party's action.

Third Party Limitations

• Can stipulate dealing only with agent personally, rebutting indifference to who performs the contract.
• Personal contracts (e.g., painting a picture) often prevent undisclosed principal enforcement.
• Breach of deceit by agent bars principal contract enforcement.

Apparent Authority and Principal Disclosure

• Difficult to establish apparent authority when principal is undisclosed.
• Freeman & Lockyear v Buckhurts Park Properties Ltd. Establishes four-part test for establishing apparent authority: Representation, authority, reliance, and action within authority
• Key challenges lie in proving representation, especially when the principal is concealed or unclear.

Agent Duties to Principal

• Fiduciary duties of trust and loyalty—principal's best interest is paramount.
• Authority limits extent of duties. All agents have fiduciary duties, but very limited agents may have very limited duties.
• Commercial Agents Regulations 1993 mirror common law duties. Key duty is to act in good faith and properly negotiate and conclude transactions (reg 3(1) and (2) ). Communication of information and compliance with reasonable instructions are also critical.

Duty to Follow Instructions

• Agent must follow principal's instructions unless clear limitations and boundaries of contract exist. Agent not responsible for lack of clarity made by the principal. Agent is liable for losses in non-compliance with instructions
• Principal has obligation for clear instructions.
• Absence of instructions: Agent must follow trade custom when instructions don't exist.

Conflicts of Interest

• Avoidance of conflicts between agent and principal. Agent prioritizes principal's interest. Examples include self-dealing and secret profits.

Secret Profits & Disclosure

• Agent must not profit at principal's expense, and account for benefits.
• Applies to commissions, bribes, undisclosed self-dealing, and excessive remuneration.
• Working for multiple principals, especially principals with competing interests, may trigger conflicts. Disclosing this to all involved parties is crucial for avoidance of conflicts.

Full Disclosure

• Agent must fully disclose facts to the principal (past, present and future).
• Burden is high and anything short of this counts as a breach. Principal can allow agent to benefit without contract invalidation, if they consent and agree in the interest of the agent's profit.
• Transaction is voidable, not void when a breach occurs

Confidentiality

• Agent must maintain confidentiality of principal's information.

Duty or Account

• Agent informs principal of benefits received during agency.
• Agent is accountable for keeping accurate accounts and making statements/proofs of said accounts, which are also available to the principal during the term or at the end of the contract.

Agency Termination

• Performance / Contract expiry / Impossibility / Agreement / Revocation / Death/ Insanity/ Bankruptcy.
• Agent's authority doesn't always terminate immediately upon the principal's demise.
• How much notice is needed to end agency depends on the length of the relationship and a material breach will likely lead to quicker termination.

Agent Rights

• Remuneration, indemnity, reimbursement, and lien.
• Remuneration usually based on contract, but can be custom-based otherwise
• Agent may claim if contract falls through on their side. If the contract is terminated for material breach ,the agent is not entitled to payment of further remuneration.

Principal Duties

• Principal must act dutifully and in good faith (Reg 4).
• Provide agent with necessary documentation (reg 4(2)(a)). Inform the agent of any significant drop in transaction volume (reg 4(2)(b))

Differences between Commercial Agents, Common Law

• Commercial Agents Regulations 1993 vs. Common Law Agency.
• Regulations apply to agent-principal relationships, not agent third party interactions. Regulations protect the agent and prevent the principal from excluding the agents’ basic rights through the use of contract laws.
• Self-employed vs. Employee Agent. Only self employed agents can be covered by the regulations.

Problem Solving Example (Sporting Dreams)

• Agent: Mandy Flurry, Daniel Slamdevey
• Principal: Sporting Dreams Ltd, Riverside Lawn Tennis Club Ltd
• Third Party: Selina Villans (Spin & Slice Coaching)
• Potential for multiple principal/agent/third party interactions

Test your understanding of how agents and principals interact with third parties in terms of liability. This quiz covers key concepts such as authority, breach of warranty, and the complexities of disclosed versus undisclosed principals. Challenge yourself with scenarios about agent actions and their implications!