BS2159 Commercial Law: Law of Agency - Lecture Notes

BS2159-Commercial Law Uche Iloka – Module Co-ordinator Law of Agency  The Law of Agency – Learning Plan What is an Agency? The Legal Background Definition Categories of Agency How is an...

BS2159-Commercial Law Uche Iloka – Module Co-ordinator Law of Agency  The Law of Agency – Learning Plan What is an Agency? The Legal Background Definition Categories of Agency How is an Agency Created? Capacity Formalities & Elements Authority Ratification Operation of Law What are the duties and responsibilities of the Parties to an Agency Transaction? Agency Relationships When the agent acts for a named and a disclosed principal When the agent acts for a disclosed but an unnamed principal When the agent acts for an undisclosed principal When the agent exceed his authority How is an Agency Terminated? 2  Agency- The Legal Background It is governed mostly by common law and the Commercial Agents (Council Directive) Regulations 1993. In modern business, it has become crucial that a person can carry on a transaction with a third party on behalf of another person. The person on whose behalf the transaction is made is called the Principal. The person with whom the transaction is made, is called the Third Party. The person who carries on the transaction is called the Agent. A legal relationship only exist between the principal & the agent and the principal & the third party. No relationship exists between the agent and the third party, except the agent did not have sufficient authority to act on behalf of the 3 principal or did not make sufficient disclosures.  What is an Agency? An Agency can be described as a three-way relationship between a principal, an agent and a third party (or third parties). 4  Who is an Agent? An Agent is the person who has the authority to act for and on behalf of another called the Principal in contracting legal relations with another called the Third Party and is able to create, alter or discharge legal obligations of a contractual nature between the Principal and the Third Party 5 Categories of Agents General & Special Agent Mercantile Agent Del Credere Agent Commercial Agents 6  The Creation of an Agency Relationship Formality & Capacity Key Elements Operation of Legal Age Authority Ratification Law Express Sound Mind Necessity Implied Imposed by Apparent or Statute or Ostensible Court 7  Capacity & Formality How does the capacity of the principal or the agent affect the agency relationship and the validity of contract? What are the formalities that are required in order to create an agency relationship? What are the key elements that would usually exist in a valid agency relationship? 8  Capacity It is important that the principal has sufficient legal capacity to enter into a contractual relationship, if the contract between the principal and the third party is to be valid, otherwise, the contract could be void or voidable. The capacity of the agent is not as relevant as that of the principal. Capacity is usually a matter of legal age (Age of Legal Capacity (Scotland) Act 1991) or a matter of mental capacity. 9  Principal’s Capacity – A Natural Person ‘Whatever a party can himself may do, he may do through the intermediary of an agent’ - Roderick Munday: Agency Law and Principles (2nd Edn, OUP 2013) 39. A principal cannot enlarge its capacity by appointing an agent. For example, see the capacity of a person below 16 years - Age of Legal Capacity (Scotland) Act 1991, S 2(1) 10 Principal’s Capacity - A Juristic Person The validity of an act done by a company shall not be called into question on the ground of lack of capacity by reason of anything in the company's constitution. - S.39 Companies Act 2006 11 Agent’s Capacity An agent who lacks capacity to enter into a contract on his own behalf may yet be able to enter into a contract on behalf of the principal who has the requisite capacity to enter into that contract. 12  Formalities Generally, there are no formalities required for an agency arrangement to be made. Hence, an agency arrangement could be made either orally, in writing or by executing a deed. There are instances where it is required that the agency arrangement is encumbered with some formalities. Where the agent is meant to execute a deed on behalf of the principal Where the agent is meant to create or dispose of interest in land Where a commercial agency is being created. 13  Key Elements of an Agency Some of the key elements that are needed to establish whether or not there is a valid agency relationship include – Authority Where in the absent of such authority, then a ratification of the actions of the agent. Sometimes, in the absence of both, the operation of the law 14 takes effect.  Authority The most important factor to determine its existence in determining the validity of an agency arrangement is the authority and the extent of the authority. 15  Express & Implied Authority Express authority is usually derived from an express agreement, which could either be in writing or verbally except in a commercial agent appointment. - Heard V Pilley (1869) LR 4 Ch 546.; Commercial Agents (Council Directive) Regulations 1993, Reg 13 (1) Implied authority could be derived from an agency agreement, which is in itself implied, either based upon the words or conduct of the principal or the agent. It could be incidental, customary or usual. 16  Apparent or Ostensible Authority This could arise where the agent was previously authorised, but the agent’s authority has either been limited or has been entirely terminated. If the agent continues to act like he is still authorised, then apparent or ostensible authority could arise. 17  Apparent or Ostensible Authority The elements of the apparent or ostensible authority include – The principal should give the impression that there is actual authority either through his words or his conducts There must be a causal link between the action or inaction of the principal and the belief of the third party. The third party must have relied on the representation and must have suffered loss as a result of that reliance. 18  Ratification Ratification is a unilateral act on the part of the principal and can either be express or implied from the conduct of the principal, which seeks to mend an agent’s earlier lack of authority to act on behalf of the principal with a third party. 19 Key requirements for ratification Principal in existence Principal must have legal capacity Agent must enter the transaction as an agent Time limit Contract must not be void or illegal Principal must make an informed choice 20  Agency By Operation of Law At times, the parties to an agency arrangement did not intend or wish for an agency relationship to arise, but this is deemed irrelevant where such a relationship is imposed by the operation of law, and the consent of the parties is bestowed by law. 21  Necessity This arises when there is an urgent and pressing need for action in order to protect the interests of another from an irreparable outcome. Four necessary requirements include- The actions must be necessary There is a communication impossibility. The actions were reasonable, prudent and in good faith The principal was competent at the time of the agent’s act. - China-Pacific SA v Food Corporation of India (The Winson) AC 939 (HL) 22  Imposed by statute or the courts An agency relationship may be imposed upon certain parties by statute. For example- Partners in a Partnership Partnership Act 1890, s. 5. Limited Liability Partnership Act 2000, s. 6(1) Directors of a company Companies Act s.172 The administrator and receiver of a company. Insolvency Act 1986, Sch B1, para 69; s. 57(1) Negotiator in a consumer credit agreement Consumer Credit Act 1974, s. 56(2) 23  Agent’s Duties Fiduciary Duties “An agent’s own personal interest must come entirely second to the interest of his client [the principal]. If you undertake to act for a man, you must act 100%, body and soul, for him. You must act as if you were him. You must not allow your own interest to get in the way without telling him. An undisclosed but realistic possibility of a conflict of interest is a breach of your duty of good faith to your client”. - Imageview Management Ltd v Kelvin Jack EWCA Civ 63 ; All E.R.666 at 24  Agent’s Duties Duty to Follow Instructions The agent has a duty to act according to the terms of the agency and follow clear instructions from the principal. Duty of Skill and Care The agent has a duty to carry on its agency activities with reasonable skill and care. Duty to Keep Accounts Although the agent has a duty to keep account. 25  Agent’s Duties Duty not to take a secret profit These benefits extend to other benefits beyond money, including anything over and beyond the agent’s agreed remuneration. 26 Agent’s Duties Duty not to transact between principal and agent The agent is under a duty not to enter into any transaction with the principal that would accrue to a profit for the agent at the detriment of the principal.. Duty to fully disclose to the principal The agent is under a duty to fully disclose to the principal all the facts of his transaction. 27  Agent’s Duties Duty not to disclose confidential information This is a duty not to disclose confidential information about the principals business which has come to the knowledge of the agent in the course of carrying out his agency activities. Duty not to delegate The agent has a duty not to delegate the performance of the agency agreements to another. Duty to relieve the principal from his liability where agent has acted in excess of authority The agent has a duty to relieve the principal from his liability where the agent has 28 exceeded his authority. Agent’s Rights Right to Remuneration and commission at common law Remuneration and commission under the Commercial Agents (Council Directive) Regulations 1993 Right to reimbursement, relief and lien 29  Principals Duties General duty to act in good faith. Duties under the Commercial Agent (Council Directive) Regulations 1993 Provide the commercial agent with the necessary documentation relating to the goods concerned and obtain for the commercial agent the relevant information needed for the performance of the agent’s activities. – Reg 4(2)(b) Inform the commercial agent on time once he suspects that the volume of transaction promised to the agent would be considerably lower. – Reg 4 (2)(b) To advise the commercial agent once he has turned down or failed to execute any transaction which had been procured by the agent. - Reg 4(3) 30  Agency Relationships The effect of an agency agreement is mostly the fostering of a contractual relationship between the principal and the third party, but at times, this relationship is not created. The following scenarios are important to determine what relationships have been created – When the agent acts for a named and disclosed principal When the agent acts for a disclosed but unnamed principal When the agent acts for an undisclosed principal 31 When the agent exceeds his authority  Agency Relationships & Third Parties If an agent acts for disclosed and named principal: Where the agent discloses to the third party that there is indeed an agency in place, and the agent identifies the principal, then the relationship is usually created between the principal and the third party, and the agent is not liable. 32  Agency Relationships & Third Parties If an agent acts for disclosed but unnamed principal: Here, the third party makes the choice of who they intend to deal with at the onset. The third party could take alternative actions against the principal and the agent and can select between both who to hold accountable. Where the agent refused to identify the unnamed principal, then the agent is liable. 33  Agency Relationships & Third Parties If an agent acts for an undisclosed principal: If after the third party has concluded the contract or during the tenure of the contract with the agent, and the principal discloses himself, the principal can sue the third party directly. The third party on the other hand, may also sue the principal instead of the agent once the principal is disclosed or he can decide to sue the agent and his election could be express or inferred from conduct. ) 34  Agency Relationships & Third Parties Where an agent exceeds his authority: Where an agent has exceeded his authority, usually, there is no contract between principal and third party (unless by necessity or operation of law or if ratified by principal). 35  Termination of an Agency Arrangement Under the Commercial Agents (Council Directive) Regulations 1993: Minimum periods of notice of termination are imposed by the regulations, and the requirements apply to both the principal and the third party. Termination at common law: By agreement between the parties, as provided for by the contract. By principal’s revocation of authority By agent’s renunciation of authority By operation of law: The death of either the principal or the agent terminates the agency. By frustration 36  Further Reading Davidson & Macgregor, Commercial Law in Scotland; Chapter 2 H. MacQueen et al. (eds.), Gloag & Henderson: The Law of Scotland, 14th ed. 2017; Chapter 18 The information on this document have been culled from the books suggested above and from the laws that govern the subject in view, for the purpose of your lectures and assisting your learning only. 37